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COVID-19’s Impact on Personal Finance Management

And how brands can stay ahead of shifts in consumer attitudes towards financial management


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Tealfeed Guest Blog

3 years ago | 8 min read

COVID-19 is a trend accelerator that pushes consumers to adopt new tools and speeds up consumer behavior shifts.

The widespread lockdown and social distancing practices resulted in devastating blows to many industries and could leave as many as 32% of Americans unemployed. In mid-March, the dramatic fall in the U.S. stock market wiped out the entire $11.5 trillion of value it gained since late 2016. Facing a grim economic outlook, It would be an understatement to say that many Americans will be facing financial struggles down the road, even after the pandemic is over.

In times of great economic uncertainties, however, people are paying more attention to how they manage their finances. Like the last recession, the COVID-19 recession will cause financial difficulties for many in the short term, but spur changes in consumer behavior in personal finance in the long run.

Financial services that understand this impending shift and show up for their audiences with the right messages will stand to forge a deeper connection with consumers and come out of this crisis stronger.

Specifically, there are four developing trends in people’s attitudes towards managing personal finance that all financial service brands need to heed.

Heightened Need for Goal-Oriented Planning

Despite how essential money is to everyone, not all Americans were taking their personal finances seriously. Perhaps it’s rooted in the Puritan ideal of self-efficacy, but the majority of Americans appear to handle financial management solely by themselves. A 2019 survey by CNBC and Acorns Invest found 75% of Americans manage their own finances with no help from a professional or online service; only 17% said they use a financial advisor.

This is despite the fact that many seem to be rather clueless about managing personal finance. A recent survey by JD Power found 41% of U.S. bank customers feel unsatisfied with their current financial condition, and 39% are not confident they are doing everything they can to meet their long-term goals.

Now that the pandemic is set to usher in another recession, many are bracing themselves for impact on their personal finances while looking proactively for solutions in anticipation of hard days ahead.

Usage of fintech apps reportedly spiked by 72% in Europe last month when several countries went into lockdown, as worried investors started keeping a close eye on their portfolio and actively managing their personal assets. This is largely thanks to the rise of digital banks and robo-advisors lowering the entry barrier to stock trading and other financial management services, often delivered through mobile-native devices that are easy to access.

Given the confluence of high unemployment numbers and low interest rates, it is also important to note that the pandemic could drive short-term loan and credit activity. Therefore, it is important that financial service brands clearly communicate their services and be informative and helpful to customers in need.

A growing number of banks and credit unions have begun reaching out to consumers with relief measures for those whose livelihood has been affected by COVID-19. Some digital banks such as Chime and Current are going one step further by offering some users early access to government-issued stimulus payments, hoping to capture users with timely offers.

Coming out of this pandemic, experts believe that we will likely face a long recovery period. Therefore, it is likely that many people will look to plan ahead and take a more long-term, goal-oriented approach to their personal finance.

This means that financial service providers will need to adopt a more flexible, advisory-driven approach accordingly, aiming to build personalized financial planning that will suit people’s long-term financial goals, rather than focusing on selling specific products or services. In media, this means emphasizing financial education and trust-building, empowering consumers to actively take a role in managing their finances.

Accelerating Generational Shift

Facing drastically different socio-economic realities than previous generations, Millennials and Gen Z have different habits and preferences for managing personal finance, and they have different expectations and life goals.

These younger generations are going to live longer but have less savings overall. Millennials have suffered through two recent economic crashes, experienced rising cost of living against stagnant wages and high student loans, and as a result, will have to work much longer. For example, 46% of millennials say they are not saving enough for retirement, and 36% expect to have a delayed retirement.

In the short term, this global health crisis could leave the younger generations even more financially strapped than before, thus motivating them to eagerly explore new solutions that better suit their habits and communication preferences. In short, they won’t be managing their personal finances as the older generations, and financial service providers will need to drastically reconsider their offers and go-to-market strategies to keep up with them.

In the long run, however, Millennials are expected to control as much as $20 trillion worth of assets globally by 2030, including $30 trillion that the baby boomer generation is expected to pass down by 2050 in North America alone, according to estimates from CBInsights.

Therefore, it is imperative that financial service brands start building relationships with the younger generations of customers today by catering to their preferences and needs, so as not to lose out on the generational wealth transfer around the corner.

As previously mentioned, the rise of digital-native banks and mobile-first financial services are growing popular amongst Millennials and Gen Z, who are fluent in digital and mobile banking, and the same high expectations for user experience inevitably carry over to financial management. These next-gen platforms are attracting first-time investors into the market ahead of the generational wealth transfer, posing long-term implications for legacy financial service providers.

Globally, the pandemic could accelerate the disintermediating effect of digital banking, as it pushes more consumers, especially those in developing markets, to try out digital wallets and contactless payments so as to avoid handling cash and facilitate online shopping. This will also help the tech companies to enter the financial service market, using mobile as their primary entry point, and build customer relationships from there.

This is already happening in China, as Alibaba’s mobile payment app Alipay becomes many Chinese consumer’s entry point into financial services beyond basic banking, provided by its Ant Financial brand. And this pandemic could cause other global markets to quickly follow suit. No wonder Google is reportedly developing its own physical and virtual debit cards.

Shifting Spending Priorities

This pandemic is also a great reshuffling of spending priorities. Until a vaccine is made widely available, collective fear over potential infections could deter some consumers from dining out, traveling, and enjoying outdoor entertainment such as cinemas and theme parks. Instead, they will be looking to spend more on wellness, at-home entertainment, small home appliances, and food-related products. Some big-ticket purchases will be put off in favor of small luxuries, so as to increase savings in anticipation of hard times while maintaining a sense of well-being.

While some may argue this shift in spending priorities will only last as long as the lockdowns are in effect, early signs point to a long-winded recovery phrase, in which at least a few of the forced changes will stick.

Again, take China as a barometer of what could happen after this current wave of outbreak subsides. The country reopened about 500 movie theaters on March 20, only to close them again one week later due to concerns over a second wave of coronavirus cases. In their first weekend of reopening, the theaters welcomed on average less than one person per screening and collectively earned a total of just $10,000, according to Variety. Similarly, international travel is set to shrink in demand. A recent survey by management firm Oliver Wyman found that eight out of ten respondents in China said that they planned to travel domestically after the epidemic subsides — heaping more pressure on the international air travel and tourism industries.

Moving forward, it is safe to assume that U.S. consumers will follow a similar path and cut back on discretionary purchases on categories travel, out-of-home entertainment, apparel, and home furnishings. For millennials and higher-income consumers, online discretionary spending is set to rebound for select categories, such as personal-care products, food takeout and delivery, non-food child products, and skin care products, the latest research from McKinsey group notes.

Given that many credit cards offer category-specific rewards and perks, card issuers will need to reflect the shift in consumer spending and retool their offers to be more suitable for the new spending priorities. Financial planning services should also take into consideration the shift in spending habits and adjust saving goals and investment advisory accordingly to soothe financial anxiety.

Shaping the Future of Work

For most people, work is a major income source, and in the U.S., things like retirement funds and health insurance are also closely tied to employment, thus making how we work and the work benefits we receive a major part of personal finance management. One of COVID-19’s most evident and potentially long-lasting impacts may be on the way we work, which will cause implications for personal finance management as well.

Remote working has been a growing trend for the last several decades, enabled by a host of telecommunication and digital collaboration tools. With most non-essential workers now ordered to work from home, this trend is gaining momentum and may redefine how we think of employment. Remote working can help companies save money on office space and operational overhead costs — research from Global Workplace Analytics shows that firms can save $11,000 per person per year by allowing them to work from home.

As COVID-19 proves that remote work is a viable option for most modern companies, working from home will likely become a far more normalized part of our work culture post-COVID.

With remote working comes a distributed workflow, which allows more companies to rely on freelancers instead of full-time employees to get things done. As a result, this would push more people into the gig economy. While that would have its perks in flexible hours and better autonomy, it will also strip workers of crucial employment benefits typically reserved for full-time employees.

This potential change will call for both new employment policies to cover freelancers and, perhaps more importantly, a reconfiguration of the financial benefits tied to employment into personal finance management.

Far from being an equalizer, this pandemic will have an uneven impact on people of various social standings. People working in the events and service industry, for example, are more likely to be laid off, thus putting them at higher risk for financial struggles. Blue-collar workers who still have jobs are less likely to be able to work from home, thus making them vulnerable to health risks.

Meanwhile, the affluent audiences, who work mainly in white collar positions, will shift their spending priorities, but their overall wealth will be less affected than the last recession, thus opening up more opportunities for investment once we enter the recovery phrase.

Regardless of target audiences, one thing is true for all financial service brands: While this pandemic could trigger a harsh economic downturn ahead, this ongoing crisis is making people more aware of the importance of active financial management, thus providing financial service brands a great opportunity to connect with a highly engaged audience and get their messages across.

What brands do today amid COVID-19 will have long-term impact on brand equity, and only brands that continue to show up for their customers in the hours of need will be richly rewarded in the long run.

This article was originally published by richard yao on medium.

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