First Peek at the 2008 Data MacroMonitor Marketing Report Vol. IX, No. 1 January 2009

In the midst of a deep and likely protracted recession, the financial state of many U.S. households is precarious. The worst financial downturn in decades has wiped out trillions of dollars of their savings and investments, left their prospects for retirement tenuous, and shut off the credit spigot that has enabled many of them to live beyond their means for many years. Moreover, the bankruptcies and bailouts of various financial institutions have caused them uncertainty and, in some cases, panic.

Beginning with the dot-com bust and market corrections of the new millennium, the events of this century have proved to be turbulent for both financial institutions and consumers. Retail financial institutions today face a daunting task of not only surviving this financial crisis but maintaining the confidence of their core customer base in these extremely uncertain times. It is now more critical than ever for financial institutions to understand the financial behaviors and attitudes of the various segments of the consumer market and rise to the challenge of offering products and services that will best meet the changing needs of households across the country.

We fielded the 2008–09 MacroMonitor survey of consumer household finances (the sixteenth survey since the creation of CFD 30 years ago) from mid-April through mid-August of 2008. At the time of the fielding, the economy had already deteriorated significantly, and the government had implemented an economic-stimulus package. Although our data do not include the impact of the implosion of households' finances resulting from the extreme volatility and precipitous decline in the financial markets that started soon after Labor Day 2008, they do provide a clear prepanic picture of households struggling in unstable economic times. Furthermore, to ascertain their reactions to the financial crisis that erupted after the fielding, CFD has proposed a telephone survey to recontact all the respondents who participated in our 2008 survey. The recontact survey, which we intend to field at the beginning of 2009, should provide a valuable opportunity to assess the initial impact on consumer attitudes and behavior resulting from this economic downturn.

The 2008–09 MacroMonitor data continue to serve a crucial role in tracking the long-term overall trends of consumer financial attitudes and behaviors. By collecting and trending comprehensive information about consumers' financial needs, behaviors, and attitudes for three decades, the MacroMonitor can provide in-depth analyses and insights and translate the gained knowledge into actionable results. Now, more than ever, financial institutions need this critical MacroMonitor market data to develop strategic solutions for consumers' current ailing financial situation.

Key Highlights of the 2008–09 MacroMonitor Survey

  • Investments. Even before the freefall of the financial markets that began after September 2008, households were already retreating from stocks and mutual funds (both of which now have their lowest incidences of ownership in years). The 2008–09 MacroMonitor results also confirm the trend toward consumer retrenchment and financial disengagement, particularly in terms of increased aversion to risk.
  • Retirement. Understandably, many U.S. households are anxious about their prospects for retirement. Our latest data show no significant growth in retirement-plan participation and, in fact, are already showing signs of apparent decline. The incidence of households' owning IRAs and SEPs in 2008 dipped slightly from that of 2006; the incidence of their owning salary-reduction plans—401(k)s, 403(b)s, or 457s—showed no change from 2006.
  • Financial planning and advice. The incidences of households' having a written financial plan and of receiving advice before making major household investment decisions both dropped in the past two years, possibly because of households' growing disengagement from their finances. In light of the drastic economic downturn resulting from the financial meltdown, more households, going forward, will likely be resigned to turning to professional advisers for help in rebuilding their financial assets.
  • Credit cards and household debt. Although credit-card ownership has essentially plateaued, credit-card debt continues to drift upward and in 2008 exceeded the $5,000 record mean. With unemployment likely to grow dramatically during a prolonged recession, many industry observers see credit-card debt as the next financial fiasco for consumers, a result of providers' cutting back credit limits and increasing interest rates on credit-card balances. On a positive note, however, the 2008–09 data show a higher percentage of households than in previous years that are paying their credit-card balance in full each month.
  • Transactions. In 2008, consumers continue to move away from using cash and paper checks in favor of various other forms of payment, most notably debit and ATM cards. The increases in both debit- and ATM-card use correspond to the growing desire of consumers to have more control over their money through electronic transactions. By staying closer to their money through increased use of debit and ATM cards, households may be trying to compensate for their lack of control over their investments and their need to gain control over their debts.
  • Real estate debt. In the 2008 data, the mean outstanding balances for all types of real estate loans continue their upward trend. Attitudinal data, by contrast, indicate that some of the lessons from the ongoing mortgage meltdown are beginning to resonate with households across the country. Household financial decision makers appear to be more judicious about their use of credit, especially when it involves borrowing against their home equity. Faced with a severe housing-market downturn, households are having to retreat from relying heavily on their home equity to bolster their finances.
  • Online financial services. In 2008, fueled by the increased accessibility and convenience of online services such as bill payment, the percentage of households participating in online banking continues to grow substantially. Meanwhile, the number of households conducting online investing or using the Internet for other financial services remains constant. Many households, however, still feel uncomfortable doing financial business over the Internet, especially with regard to making complex transactions and buying sophisticated financial products.
  • Insurance. The incidence of having life insurance among all U.S. households has remained remarkably stable during the past decade. The incidence of having health insurance, by contrast, continues on a downward trend, with retired and lower-income households continuing to show higher incidences of being uninsured.