Article/Insight

Whether We’re in a Recession or One is Looming, Americans Send Mixed Signals about their Financial Health

Banking and Payments Intelligence Report
December 2022

 

Whether We’re in a Recession or One is Looming, Americans Send Mixed Signals about their Financial Health

Is a recession coming or has it already begun? Regardless of the varying viewpoints of forecasters, every economic indicator seems to point toward one sobering reality: A recession is in store for 2023.

Against that gloomy backdrop, Americans are sending mixed signals about how they are preparing to weather the coming storm, according to the latest J.D. Power data.

While there has been modest improvement in the number of Americans that are financially healthy[1] since the middle of the summer, more than two-thirds (68%) of all banking customers indicate that the price of goods continues to exceed their income. And still, almost half (45%) of Americans age 40 and older say they have not taken steps to change their financial situation, a sign that many Americans might not be ready for what’s to come.

The Slow Road Back to Even

While there has been monthly variation throughout the year, the number of Americans that are financially healthy has stabilized. Overall, 38% of Americans are financially healthy compared with 39% in October 2021, and 39% are vulnerable which is unchanged since a year ago.

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Those data points represent a significant climb back from July, when just 30% of Americans were healthy and 45% were vulnerable. And while the numbers are encouraging, banking customers may not be out of the woods quite yet. When asked about inflation, bank customers in America say it is causing roughly the same amount of stress and they feel only slightly more empowered in their ability to combat it since the summer months.

 

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Under-40 Population Begins to Prepare

One segment of the U.S. banking customer population seems to be preparing for a recession: younger Americans under age 40. When customers were asking how they were dealing with inflation, 40% of all respondents said they had reviewed what they are spending their money on; 19% had revised their existing budget; and 18% had made a list of all their debts.  

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Interestingly, 16% of customers under the age of 40 said they had set up a new budget, compared with 5% of those over 40, a possible indicator that younger Americans—who are more likely to be first-time homebuyers, carry credit card balances and have less job stability—are more concerned with a coming recession. What’s more, just 21% of Americans under 40 have not taken any steps to combat inflation in the past 30 days compared with 45% of Americans over 40.

The Fraud Fallout

Beyond general economic worries, one issue that most banking customers can commiserate about is fraudulent activity and the overall security of their accounts. More than half (58%) of all customers have either personally or had a close family member experience fraud. Roughly one-fourth (22%) have experienced some form of peer-to-peer (P2P) fraud.

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Unfortunately, it’s the customers that can least afford the stress that comes fraud that are most likely to fall victim to such schemes. Unhealthy customers, particularly the vulnerable population, seems to fall victim to fraudulent activity more frequently than other financial health segment customer.

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Navigating the Uncertain Future

Americans have tried to beat back inflation all year, with varying degrees of success. But with more economic uncertainty looming, some heavy lifting will likely be required in the very near future. Some banking customers are preparing to do just that, but with many economists predicting a slowdown that could last years, financial institutions will have to be proactive with their customer assistance programs.

Americans can ill-afford to be caught off guard right now, whether that’s in the form of layoffs at their jobs or fraudulent charges on their debit cards. Banks will have to clearly communicate both the pitfalls that customers may encounter in the coming months and the ways they can help customers navigate around them. Being that bridge to better times could result in coveted customer loyalty.

 

Find out More

This Banking and Payments Intelligence Report is based on responses from 4,000 retail bank customers nationwide and was fielded in September-October 2022. It was authored by Jennifer White, senior director of banking and payments intelligence at J.D. Power. Please contact us at the numbers below to connect with Ms. White or to learn more about the underlying research.

 

Media Contacts

Brian Jaklitsch; East Coast; 631-584-2200; [email protected]

Geno Effler, J.D. Power; West Coast; 714-621-6224; [email protected]

 

[1]  J.D. Power measures the financial health of any consumer as a metric combining their spending/savings ratio, creditworthiness, and safety net items like insurance coverage. Consumers are placed on a continuum from healthy to vulnerable.