Kevin Morrison

Macroeconomic indicators of today look eerily similar to indicators of the 2008 financial crisis. While the current housing debt remains relatively flat to the prerecession numbers, the nonhousing debt has grown 31 percent in the last 10 years. The larger concern is that two-thirds of that debt, or $2.21 trillion, is unsecured. Another crisis potentially looms with no collateral to assist in a recovery.  

In the months preceding the financial crisis of 2008, the loan loss rate was at 2.4 percent, unemployment was at 5 percent (the highest it had been in the previous two years) and the average savings rate for U.S. households was 2.6 percent, recovering from -1 percent in 2006. U.S. household debt had just surpassed a new high of $12 trillion, with “nonhousing” debt (for example, auto loans, credit cards and student loans) making up $2.62 trillion of that record high. 

Aite Group conducted an online U.S. consumer survey of 1,669 credit card users to study their credit card history and these indicators in today’s economy.  

Aite Group saw market trends of growing credit card debt, low U.S. consumer savings, a plateauing unemployment rate of 4 percent and U.S. health care out-of-pocket costs climbing.  

The average U.S. consumer household credit card debt is increasing due to ease of card acquisition, bank marketing incentives and living expenses being placed on credit cards. The average U.S. household savings rate has decreased over the last five years to 2.4 percent.  

Consumers are utilizing “borrowing” options to pay unforeseen expenses, a market implication to trends of growing debt and low savings. Overall unemployment continues to hover around 4 percent, but the number of new full-time jobs, which would include health benefits, versus part-time jobs is unclear. Health care is a primary cost-of-living expense, and out-of-pocket costs have grown over the last 10 years as younger consumers and employees trend toward high deductible, low-premium plans.  

Aite Group found in its survey that the indicators of unemployment, credit card debt and high-cost, out-of-pocket health expenses all mirrored indicators of the 2008 financial crisis. The potential risk to the economy, Aite Group said, is that the consumer segments that appear to be carrying balances are also lower-income, younger cardholders who are at the greatest risk of becoming overleveraged. 

Based on the information from both the credit card survey and the consumer bill pay survey, the younger, lower-income consumers are more likely to carry a balance on their credit card and, if necessary, borrow to pay for unexpected expenses, including out-of-pocket health care costs. Considering that the Millennials and Gen Xers are also carrying the majority of student loan debt, Aite Group suggests that financial institutions and issuers should be scrutinizing card portfolios of both new and existing customers who fall into this category. 

An evolving “nontraditional” lender industry is target-marketing consolidation loans to younger consumer segments. One practice that mitigates issuer risk is to monitor this type of consolidation activity and continually validate debt-to-income ratios on behalf of the customer, Aite Group’s research concluded. 

It is well documented that FIs have a wealth of customer data and transaction activity. Financial technology providers, according to Aite Group’s research, should provide solutions that can consolidate this information and integrate outside data will help banks identify and mitigate lending risk while enhancing the customer experience. 

Kevin Morrison is a senior analyst on Aite Group’s retail banking and payments team. To learn more about Aite Group’s research coverage of retail and wholesale banking and payments, please contact Aite Group at info@aitegroup.com.