Trends Newsletter January–Feburary 2021

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First Trends

How We Selected These First Trends:

In Q2 2020, the United States entered a pandemic economy. At that time, CFD offered a series of YouTube videos trending several financial attitudes from 2000 through 2018. Because attitudes change before behaviors do, attitude trends directionally signal changes most likely to happen. The analysis of attitude shifts resulting from the past two recessions—the dot-com bubble (in 2001) and the financial crisis (the Great Recession) of 2007–09—suggests what will happen if the recession we are currently experiencing were simply another recession. The length, depth, and breadth of the covid-19 recession are unprecedented in modern history. Our most recent data show that many financial-attitude trends continue on their previous trajectory with only minor recorded shifts thus far.

We collected 2020–21 MacroMonitor data in July through September 2020—approximately four months into covid-19 shutdowns and two months after stimulus checks began to arrive. Essential workers were still on the job, the majority of white-collar workers were able to work from home, and many small businesses were still in operation. Some people receiving stimulus checks were able to save, invest, or pay down debt. Life (except for the very wealthy, who are more inconvenienced than harmed) changed as the recession ground on. Experts agree that in many respects, as many as ten years of change have compressed into one. The 2020–21 data reflect the early signs of attitude shifts. Further analysis by subpopulation (such as age, gender, and wealth) reveals divergent views.

Financial Attitude Trends, 2000–21:

Figure 1: Trend: How much risk would your household prefer when placing most of its savings and investments?

The majority of households continue to prefer to take an average amount of risk for an average return with their savings and investments. Of interest are changes at both the high and the low ends of the risk/return spectrum. The tension between high risk/return and low risk/return reveals the underlying mood of the population: low risk when households are pessimistic versus high risk when households are optimistic. High risk/return increases during periods of rampant greed. The reversal between high and low risk in 2020 suggests that, in spite of the headlines, people are not feeling greedy or optimistic—a reversal from two years before. On the positive side, Bank of America's November 2020 Global Research analysis found the market's average "return has been higher under Democratic presidents than it's been under Republicans."

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Figure 2: Trend: I am concerned that our household has more debt than it should.

Government efforts contained households' concerns about debt during the first six months of the Pandemic Recession. Stimulus checks and the Paycheck Protection Program helped to shore up the economy, with the implication that government support would continue until a rebound materialized. Hope may spring eternal, according to the January 2021 Consumer Sentiment Index, but reality has now hit most households. Although many households may be in denial, debt concerns are on the increase. Concerns are especially acute for many single women and women who find themselves out of the job market as a result of job loss or parenting responsibilities or both. Attitudes about debt are important, because assets may go up and down. Debt, however, is forever.

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Figure 3: Trend: I prefer to consult a specialist when making financial decisions.

After the longest-running bull market in history, only 12% of US households mostly agree that they consult with a specialist when making financial decisions. The majority of US households find themselves out of the potential pool of customers, because with little to no disposable income, most have no need for advice. Having survived the Great Recession, some households (with assets) are skeptical of professional advisors. Other households make the mistake of thinking that their expertise (their knowledge)—not the bull market—is responsible for increasing assets. Job losses and increasing income inequality mean that the market for advisors will continue to shrink for the foreseeable future. Knowing—better than your competitors know—what advice-seeking consumers are looking to learn will become more important to successfully attracting and meeting their needs.

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Figure 4: Trend: I am concerned about having adequate income during retirement.

Successfully established retired households learn to live within their means. For retired households with investments, any gains are gravy. Not-yet-retired households divide into households with investments that are increasing thanks to a ten-year bull market and households for which retirement is not an option. The long-term impact of the Pandemic Recession will exacerbate the schism. As a result, many households will be unable to obtain more or contribute to existing retirement products. With a booming bull market, both groups have reason to have less concern than they once had. In the Pandemic Recession, worries about socialism under a Democratic administration should be of less concern than worries about a continuation of uncaring capitalism. However, an extended bear market will adversely affect all.

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Figure 5: Trend: I don't have as much life insurance protection as I should.

Concerns about covid-19 may initiate interest in life-insurance protection. One of insurers' challenges is to find the right mix of product pricing with pandemic-appropriate sales channel. The most vulnerable groups for catching the virus are ethnic groups (Black and Hispanic), lower-income critical workers, and people older than age 65. But for insurers, these targets are often not the best, because of their income constraints and the industry's focus on higher-income households. However, the pandemic does provide a logical opportunity to market to younger families. Digital media must be part of the strategy. Providers need to reach out and educate prospective buyers. Following first lockdowns, 54% of European individuals reported their sales-channel preference for life insurance was digital (according to McKinsey & Company). In the United States, watch for more online sites that compare life-insurance-policy prices.

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Figure 6: Trend: My household is likely (net) to buy a home, obtain a first mortgage, or a second mortgage or HELoC in the next 12 months.

Working from home and the need for home schooling are two factors that have caused existing home sales to increase 25.8% in December 2020 over home sales in December 2019. Estimates are that 20% of the workforce will continue to work from home post-pandemic, fueling people's interest in leaving cities. The first-mortgage market remains strong, although first-time home buying will experience some restraint, because young adults have been hard hit by job loss. For households that qualify, the market for HELoCs (a loan amount to draw against) could improve as homeowners renovate and expand space to accommodate an at-home office, home schooling, or outdoor living. Second mortgages are less attractive than HELoCs because of their inflexibility. Overall, economic uncertainty is making receptivity to all secondary real-estate debt decline.

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Figure 7: Trends: Average Number of Annual Noncash Transactions by Type

Unlike during previous recessions when transactions declined as people sought to gain control of spending, during the first months of the Pandemic Recession, availability as much as demand for many consumer goods curtailed spending. The pandemic has affected all types of transaction medium. The long-term impact of covid-19 will not reverse the decline in ATM and check use, but the use of automatic and electronic transactions has increased significantly. By conservative estimates, the coronavirus lockdown has escalated their adoption rate by at least three years. Adoption will continue to gain wider acceptance as pandemic conditions lengthen, and most consumers will not revert when the next normal arrives.

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