A pair of studies released Thursday reveal opportunities for credit unions in 2019 as Americans attempt to rein in spending, get out of debt and improve their financial well-being.
Consumers added an average of $1,230 in credit card debt during the holidays this year, an increase of more than 16 percent compared to 2017 spending, according to a survey from MagnifyMoney. This season’s credit card spending was 22 percent higher than that of 2016.
More than two-thirds of those (68 percent) who added to their debt load this holiday season did so with credit card spending, the study found, a figure that matches 2017 figures.
The MagnifyMoney findings may not come as a big surprise to credit unions. A
Personal loans were the second most popular way to finance holiday spending, with 14 percent of consumers utilizing them – a good sign for CUs, many of which offer holiday loans and other personal lending products. CUNA Mutual data showed a 9.7 percent increase in unsecured loans at credit unions year over year, for a total of $44.3 billion in outstanding balances – up from $40.4 billion one year prior and nearly $7 billion above where things stood in October 2016.
Consumers also report paying high interest on their holiday debts. Thirty-seven percent of those who took on debt this year are paying interest rates of at least 20 percent APR – two points above the federal cap of 18 percent for most loans at federal credit unions. A similar figure (38 percent) are paying rates below 10 percent, including those taking advantage of promotional offers with 0 percent interest.
And consumers don’t expect to pay off this year’s debt anytime soon – less than half (42 percent) say it will be paid off within three months, while 49 percent expect it will take at least five months to pay off their debt, including 22% of consumers surveyed who are only planning to make minimum payments.
Further financial literacy needed
The good news for credit unions is that nearly 80 percent of U.S. adults plan to set New Year’s resolutions tied to improving their financial picture – a 10 percent increase over last year, according to a new report from the National Endowment for Financial Education.
An increasing number of Americans also say they understand the importance of saving money but struggle to actually do so, with 51 percent indicating saving money was their biggest financial stressor, beating out debt by five percentage points as their top stress factor for the year.
All of that could spell opportunity for credit unions, an industry which has historically placed an emphasis on thrift, saving and financial education.
“Over the past year, despite uncertainty and volatility surrounding the stock market, rising interest rates, as well as concern of an economic slowdown, we are seeing incredible determination from Americans who want to take control of their finances and improve their financial well-being in 2019,” Billy Hensley, Ph.D., president and CEO of NEFE, said in a press release. “Each year there is a 60 percent probability that something will happen that causes a financial setback. Because of this there is persistent pressure to save, but many feel overwhelmed in doing so. We don’t want people to be discouraged.”
Further findings from NEFE’s 2018 survey include 68 percent of adults said they had unexpected financial setbacks this year, up from 63 percent in 2017. Additionally, nearly four in 10 respondents (38 percent) said that despite President Trump’s highly touted tax plan, they expect to pay about the same amount in income tax when they file for 2018, with only 20 percent saying they expect to pay less and 17 percent anticipating an increased bill.
