Nearly a third of consumers say they should make major purchases entirely by credit card, even before the latest interest rate hikes
SAN MATEO, Calif., June 21, 2022 /PRNewswire/ — Liberty Financial Network (FFN), a leading digital personal finance company, has released the results of its new study, Household balance sheet statement, which examined the financial health of consumers more than two years after the start of the COVID-19 pandemic. The study takes a close look at the major purchases they intended to make this year, as well as how they plan to pay for them.
According to the study, most consumers would have to use a credit card (32%) if faced with a $1,000 unexpected expense. A considerable proportion of people would also use money from an emergency savings account (28%) or borrow money from friends and family (18%). Big expenses are often unexpected and many people have no choice but to run into unwanted and increasingly expensive credit card debt.
Lack of savings at odds with repressed desire to spend
This inability to cover a large and unexpected expense is at odds with the pent-up demand Americans are feeling to return to their pre-pandemic lives and shopping habits. According to the survey, consumers’ most common major planned expenses over the next 12 months include a vacation (30%), a vehicle (27%) and furniture (23%) – all expenses that seemed perhaps less essential or were inaccessible in the past two years.
Additionally, the survey showed that after spending so much time indoors during the pandemic, homeowners are eager to improve their living conditions. In fact, 56% of homeowners plan to make major home-related expenses in the next year, ranging from buying a home to home renovations, furniture, major appliances or home systems. smart and other home automation systems.
“Many consumers are making up for lost time booking much-needed vacations postponed due to travel restrictions, while others are returning to the office, leading to increased transportation and dining expenses,” said André Housser, co-founder and co-CEO of Freedom Financial Network. “It’s completely understandable, but rising gas prices, rising interest rates and 40-year high inflation are starting to put a strain on consumers’ wallets, which is a potential danger to their long-term financial health if they are not careful with their spending and payment methods.”
Payment methods and debt levels
To pay for these large planned expenses, as well as other unforeseen expenses, consumers are turning to a variety of payment methods. The survey found that 46% of Americans typically pay for major purchases all at once with cash or their checking/savings accounts, helping them avoid costly interest charges they can incur with credit cards. credit or personal loans. However, about a third of consumers (32%) say they usually make major purchases entirely by credit card.
Additionally, 33% of consumers said their household’s total unsecured debt has increased since March 2020 – when the World Health Organization declared COVID-19 a pandemic – compared to 19% who said their unsecured debt had decreased. Looking ahead, 29% expect their unsecured debt to increase over the next 12 months, while 22% expect it to decrease. Meanwhile, 28% of respondents said their total household income had increased since March 2020, compared to 30% who said it had decreased. But 34% of consumers expect their household income to increase over the next year, compared to just 20% who think their household income will decrease.
“Understandably, consumers are excited to regain a sense of normalcy, but in this time of uncertainty and potential economic stress, it’s critical that consumers stay within their financial means,” said Housser. “The double whammy of pent-up consumer demand, coupled with rising rates and inflation, puts consumers in a precarious position. It can be tempting to use credit to pay for items we’ve been holding back for two years – especially when the availability of credit is at or near record highs. But right now, with the economy shaking and inflation ripping apart, it’s more important than ever to live within our means and to only buy things we can afford without credit.
Digital payment methods are gaining ground
Digital payment methods including payment apps and buy now pay later (BNPL) products have also grown in popularity in recent years and have a dedicated user base. In fact, 42% of Americans who typically pay for large purchases using buy-it-now, pay-later, or lease financing have used BNPL services like Affirm and Klarna in the past 3 months. However, these BNPL customers are still more likely to have used digital payment apps like PayPal and Zelle (57%) and mobile banking apps (47%) during this same period.
The top three digital financial products consumers have used in the past three months are payment apps like CashApp and PayPal (49%), mobile banking apps (43%) and delivery services like UberEats and DoorDash ( 25%), who have been a mainstay during the pandemic. Consumers plan to continue using payment apps (49%), mobile banking apps (42%) and delivery services (24%) over the next 3 months, more than any other digital financial product or service.
Prospects for financial security and well-being affected by rising inflation
As consumers look to the future, 46% of respondents expect to spend more on necessities like bills and groceries in the next 12 months. But despite the difficult economic circumstances, Americans’ perception of their financial security and future financial well-being is generally optimistic. Only about 1 in 4 consumers think their household’s income, financial and job security, and physical and mental health will decline over the next year. However, 29% of consumers expect their household’s total unsecured debt to increase over the next year, compared to 22% who expect their unsecured debt to decrease.
COVID support and results
Government assistance throughout the COVID-19 pandemic has also varied from person to person, but has had a positive impact on a number of different groups. For example, renters were statistically more likely to rate their financial situation as poor at the start of the pandemic than owners. And nearly half (48%) said the rental housing assistance they received provided them with short- or long-term financial relief.
Student Loan Relief, which suspended repayment of federal student loans and froze interest accrual until August 31, 2022, has relieved consumers over several generations. While student loan conversations typically focus on millennials, Gen Z stood out as the generation that received the most student loan forbearance relief throughout the pandemic (52% Gen Z vs. 37% of Gen Y).
Click here to download the Household balance sheet statement study.
Allison+Partners Research + Insights surveyed 1,002 people ages 18 and older in the United States. The survey was conducted using the Qualtrics Insight platform and the panel was sourced from Lucid. Commissioning took place in the spring of 2022.
About Freedom Financial Network
Liberty Financial Network is a leading digital personal finance company. We do what traditional banks don’t: put people first. Our solutions help everyday people engage and stay on the path to a better financial future, through innovative technology and personalized coaching. Leveraging proprietary data and analytics, our solutions are tailored to every stage of a consumer’s financial journey and include personal loans (LibertyPlus), home equity loans (Ready), debt assistance (Debt Relief Freedom), and even financial tools and education (Bills.com). Freedom Financial Network has more than 2,300 dedicated employees across California, Arizona and Texas and is recognized as a Best place to work.
For more information on career opportunities at Freedom Financial Network, visit: https://jobs.freedomfinancialnetwork.com/
SOURCE Freedom Financial Network