Data Driven Marketing

Separate Fact from Fiction: The Pandemic’s Effects on Consumer Finances

Separate Fact from Fiction: The Pandemic’s Effects on Consumer Finances

June 07, 2021 | Ian Wright

Businesses and consumers alike are experiencing information overload as they try to understand how the world is evolving in light of the COVID-19 pandemic. Competing and oftentimes contradictory messages built from limited available data makes this more challenging. Findings from this year’s Wealth Trends report identify changes in consumer finances and help to separate fact from fiction so businesses can navigate consumer interactions. 

Consumer sentiment and financial outlook can also vary significantly from person to person. Subsequently, this can make it difficult to gauge the broader market. For example, the unemployment rate stands at 6%—down from a high of 14.8% in April 2020. But that’s still nearly double what it was before the pandemic. Stimulus payments, rent, and mortgage relief have provided a lifeline for millions of Americans, but they are still struggling with their consumer finances. 

At the other end of the spectrum, the markets have largely rebounded and enabled millions of people to grow their wealth and retirement savings. Also, many headlines reference pent-up spending in certain markets for vacations and even luxury products.

There are nuances to what’s currently happening in our economic environment. Grasping these distinctions is critical as you attempt to understand consumer sentiment and its influence on spending and saving behaviors. After all, these insights are key to helping your financial institution craft more effective products, services, and marketing campaigns that best serve your clients.

That’s why Equifax has analyzed consumer financial data to understand how the pandemic is financially affecting households.

Busting Myths about Pandemic Consumer Finances

Findings from the 2021 Wealth Trends Report tell an insightful story about how the pandemic has reshaped household and consumer finances, wealth, and spending power. It also combats several misconceptions about the country’s economic landscape in the wake of this unprecedented public health crisis.

Stimulus payments. A prevailing economic myth surrounding the pandemic is that most households used stimulus payments in the same way. In reality, it varied by generation. 

More than 70% of respondents across each generation indicated they intended to spend their stimulus money. A closer look at the data, however, found that people ages 25-39 were more likely to use their stimulus money to pay off debt. Those 65 and older were more likely to save. People in the 40-54 bracket were less likely to save this money or use it to pay off debt. 

The goal of the stimulus checks was to drive consumer spending. However, the data shows— depending on income level and age—people expected to use about 20% to 40% of this money for savings or to pay off debt. This indicates that economic uncertainty is encouraging consumers to focus primarily on saving and paying off debt. They want to be prepared to weather any financial turbulence that may come their way in the future.

As consumers continue to chip away at debt and focus on long-term financial health, financial institutions can set them up for success. Develop consultative programs, workshops, or a video series focused on issues like “how to live a debt-free life” or “retirement preparation 101.”

Spending power. Another misconception is that all households within each generation have the same spending power. However, the data clearly shows that there’s a wide disparity within each generation. Age-based campaigns and targeting tactics still require more insight and nuance to be effective.

Each generation can be separated into two distinct categories: high-durability and average-durability households. High-durability households are more resilient during tough economic times. Average households have less income, wealth, and access to credit to weather these storms. Looking closer at the data, the gap between these different household types is severe:

  • Gen Z (ages 18-22): Spending power in high-durability households is $136,000 vs. $64,000 for the average Gen Z household.
  • Younger Millennials (ages 23-27): Spending power in high-durability households is $125,000 vs. $59,000 for the average young Millennial household.
  • Older Millennials (ages 28-37): Spending power in high-durability households is $126,000 vs. $65,000 for the average older Millennial household.
  • Gen Xers (ages 38-54): Spending power in high-durability households is $150,000 vs. $80,000 for the average Gen X household.

What’s notable is that retirees, or those 65 and older, had the smallest gap between high-durability and average households. There was only a 48% difference between the two groups. This may be because many retirees have already built their wealth and accumulated assets over their working years. Meanwhile, younger groups have not had the same amount of time to financially establish themselves. They also may not be fully prioritizing investment, which creates new opportunities for financial institutions to educate and empower this audience.

Income. Because of high unemployment, there’s a sweeping generalization that overall income has dramatically declined during the pandemic. Millions of people have experienced job loss, furloughs, or can’t work due to caregiving or remote schooling responsibilities. Surprisingly, income overall has actually grown during the pandemic. 

Average household income—including income from assets—has increased across all generations. This increase is most pronounced among younger generations. Average income per household among Gen Zers and younger Millennials has increased 14% year over year. It has increased 6% among older Millennials, while Gen Xers and pre-retirement baby boomers have experienced a 3% increase. Retirees have experienced a 5% increase, likely due to a rising stock market that has grown their retirement savings.

Financial Facts of the Pandemic

While financial myths have emerged over the last year, the 2021 Wealth Trends Report also highlights some truths about the current economic reality. Some households have fared better than others during the recession. The wealth gap appears to be growing. Households across all income brackets are more focused on liquidity. 

Wealth for the wealthy. One economic truth of the pandemic is that the rich are, in fact, getting richer. 

The stock market has been a key driver of this growth, as the S&P 500 rose 16% in 2020. Affluent households—or those with at least $1 million in assets—make up only 7% of all households. However, they account for 69% of all investable assets in the U.S.  Since the onset of the pandemic, the value of this group’s investments has increased by more than $2 trillion. Their total assets also have grown by more than $4 trillion. 

Increased savings. Although wealth has grown for affluent households, Americans overall are saving more to ensure immediate access to funds in times of future uncertainty. Households across all income levels have saved more cash and deposited more money into their accounts since the pandemic began: 

  • Affluent households: $2 trillion increase in deposits 
  • Mass affluent households (under $1 million in assets): $304 billion increase in deposits  
  • Mass market households (under $100,000 in assets): $62 billion increase in deposits 

This trend is also true generationally. Across all generations, deposits have increased 22% year over year, with deposits growing the most for Gen Zers (28%). These figures aren’t totally surprising. Many brick-and-mortar businesses like restaurants and retail stores either closed temporarily or adjusted their operations to meet social distancing requirements. This left many consumers with fewer places to spend their money. However, job loss and economic anxiety over the last year also may have pushed more people to save.

As recovery comes further into view, financial institutions in particular have an opportunity to develop campaigns that promote tailored services and solutions. These can support consumers’ bigger savings goals. For example, they could spotlight accounts with the highest interest rates and investment services to help them amplify wealth creation. They could also promote one-on-one meetings with advisors to develop personalized savings plans. 

Consumer Finances: A Look Ahead  

The pandemic has laid bare the different, constantly changing economic reality that many households face. While some households have grown their wealth thanks to investing, others have grown their income or are saving more. Consumer finances differentiate across generational lines and, in some cases, differ within specific generations. 

The data in the 2021 Wealth Trends Report shows that consumers are navigating this massive disruption in different ways. As a result, our economic environment is constantly changing and has become much more nuanced because of this once-in-a-century event. Your organization should keep this in mind as you engage with consumers and work to meet their needs at this unique moment. Want to learn how the impacts of COVID-19 are changing overall wealth trends? View our infographic: 4 Household Finance Trends Influenced by the COVID-19 Pandemic

Ian Wright

Ian Wright

Chief Insights Officer - Data-driven Marketing

Ian Wright is a product and strategy executive with more than 20 years of experience driving and deploying successful DaaS and SaaS solutions. He currently manages Identity and Insights portfolios for Equifax’s marketing business. Wright previously led product strategy and innovation efforts across marketing, addressab[...]