Where You Stand Today May Determine
Where You End Up Tomorrow
While the financial crisis that originated with the subprime mortgage sector in 2007 is over, the last year has been one of challenge (and innovation). Join us as we assess two of the outcomes of the last year: one surprising, and the other not-so-much.
One thing is for sure: the use of credit, and the business of borrowing, lending and saving are in for a change.
Assessing The Credit Landscape
Globally, we are feeling the aftershocks of too much credit “gone bad.” After a boom period of easy credit when almost anyone could buy anything, now might be a prudent time to make conservative financial decisions. Especially in the post-Covid economy, where spending sprees could be on the horizon.
After all, while some people are seeking strategies to recover from the last year, others are itching to spend.
Institutionally, the response to Covid has been varied. While some initiatives have been logical, others outcomes of the last year are unexpected.
1. Financial Institutions Have Tightened Their Lending Standards
After all, it doesn’t make sense to lend to people who can’t make payments. With both credit card and mortgage default rates at all-time highs, and a precarious job market, lenders have become more conservative in their lending practices.
While the stock market continues its usual roller coaster, banks have not been “business as usual.” They’re limiting their exposure to risk by offering fewer loans and credit and raising their standards.
Remember how you used to spend hours filling out paperwork and waiting weeks for a bank loan approval? The good news is the wait time has decreased and consumers can receive their denials in a matter of seconds online. The downside is banks are still lending money—to people that don’t want it but may feel they need it. This is leading to an uptick in bankruptcy filings as a last resort.
Meanwhile, the Fed has been doing all they can to avoid a depression. From buying corporate bonds to record low-interest rates to printing billions of dollars, it’s clear that the federal focus is to take a broad approach. And a recent statement confirms that they won’t be raising the interest rate soon.
2. A Bit of a Surprise: Americans Have Decreased Their Borrowing and Increased Their Saving
For years, financial commentators have lamented Americans’ pathetic savings rate. Apparently, you can teach old and young dogs new tricks.
A CNN article from 2020 proclaimed: “Consumer revolving debt declined by an additional $24 billion in the month of May, according to Fed data.” Down over $100 billion from its record February high, this is the first time it’s been under $1 trillion in 3 years.
It’s reassuring that in troubling financial circumstances, people choose to save. While the reduction in spending is attributed to concerns over economic uncertainty, the increase in savings suggests that people have money and are choosing not to spend it.
While there may be concern over a lack of consumer spending, we view this saving as a positive. Increased saving allows families to make more intentional financial decisions and weather financial storms.
Having savings also means that there’s money for opportunities—individuals won’t stop spending money, instead they’ll stop spending money frivolously.
A World Reopening
In summary, lenders are getting tighter, individuals are saving more and borrowing less, and so-called “experts” want both groups to loosen their purse strings.
As the world reopens, we expect to see people patronizing the businesses they value. When this happens, we hope that families continue to foster a save-first mindset of Prosperity. After all, it’s scarcity that invites rash financial decisions.
If you’re seeking to save more money, we can help! Contact us at firstname.lastname@example.org to learn more about a savings vehicle that outpaces the banks and is backed by guarantees.