Last week we learned that much of this year’s growth in the balance of consumer loans came from borrowing for school expenses. As we head into the fourth quarter, Moody’s Analytics is noticing an additional trend: a rise in auto lending.
In fact, auto lending is growing at the fastest pace in seven years, according to a recent report by Moody’s Analytics. Total outstanding debt on loan and leases increased last month by more than $50 billion, or 7 percent, to $767 billion from year-ago levels, said the company, which provides research and other financial tools to help companies measure and manage risk.
“Auto lending is on fire,” Cristian deRitis, senior director of consumer credit analytics for Moody’s Analytics, said in an interview. “It’s pent-up demand that built up during the recession.”FULL ENTRY
Consumer borrowing is up, but not for shopping – The cost of education is going to make this holiday a tough season for retailers
This week the National Retail Federation, the retail industry’s main voicebox, released its annual forecast for holiday spending, and not surprisingly the results indicate that consumers are going to continue to be cautious during the fourth-quarter buying season.
Discount stores will be the biggest beneficiaries of streamlined holiday budgets, with nearly two-thirds of consumers saying they will shop there to seek the best deals, the NRF said. Department stores ranked second. Clothing retailers were a close third, while electronics stores ranked fourth among the almost 8,900 individuals polled. Total budgets are forecast to barely edge up to an average $749.51 on gifts, décor and greeting cards, from the $740.57 they actually spent last year, the NRF said.
Consumers are also showing an interest in controlling the way they spend their money, an adjustment to the “new normal” that is evident in not only their adherence to budgets and avid pursuit of discounts, but their reduced use of credit cards. As a result there is more interest in using layaway programs (hence the already large number of TV commercials airing to promote this practice) with many consumers saying that they plan to begin their shopping this month, even before Halloween, in order to make sure they are able to grab the season’s “must have” items before it’s too late.
“Consumers have more credit available to them, and have more cards in their wallets that they did a year ago, but they have not been willing to take them out and charge up,” said Cristian deRitis, senior director of consumer credit analytics for Moody’s Analytics. “This year’s holiday season will be tough. People are worried about issues such as the fiscal cliff and the impact of Europe on the U.S. economy. Consumers are still quite cautious.”
Expecting an inheritance? Apparently so, if you’re a member of Gen Z. And that youthful optimism may deter these individuals from taking retirement savings seriously – with potentially damaging consequences.TD Ameritrade interviewed about 1,000 members of Gen Z (young people ages 13-22) and a similar number of parents, and found that almost 40 percent of Gen Z respondents believed that they will have an inheritance and therefore won’t need to worry about saving for retirement. In contrast, just 16 percent of parents thought as much.
That result was surprising, said Carrie Braxdale, managing director, investor services, TD Ameritrade, Inc., because this group of young people was generally pretty savvy about articulating the current challenges in the economy and job market. And with the majority of them already actively using some kind of investment or savings account, they also clearly had been taught about the importance of saving and thinking about a financial plan.
Still, they are focusing mainly on “savings needs that are more near-term,” Braxdale said. “Many explicitly said they are saving for college or current expenses.”
Whenever I write anything about affluent Americans, inevitably I hear from some readers about how journalists are “out of touch” and not understanding the issues. I find these emails striking because they reflect a lot of the uncertainty and frustration most people are feeling in today’s job market and economy. And while I am often just reporting the results of someone else’s study, I understand that even doing that simple act can rub people who are struggling the wrong way.
So when I was told about a recent “Affluent Insights Survey” that Merrill Lynch conducted, I found myself wondering how we might think about its results so that it can be useful information for a variety of individuals, of varying incomes, and not just for those who happen to have $250,000 or more of investable assets. To me, these surveys are helpful if we can find even just one or two nuggets of new information that might serve as potentially interesting solutions when applied to our own lives.
Let’s start by laying out some of the context for the results uncovered by the survey. Among the 1,000+ individuals that Merrill Lynch interviewed, close to half view today’s economic uncertainty as a “new normal,” with rising healthcare costs, the care of aging parents, and the extended financial support being given to adult-age children weighing on their minds. Four out of five, or about 80 percent, of those surveyed worry that they won’t be able to achieve their financial goals before they retire.
Some of these “affluent” individuals are drawing a harder line on funding college. About 48 percent told Merrill Lynch that they were willing to support adult-age children for as long as they need. But some are trying to use the expense as a way to teach a financial lesson. About 38 percent of parents today paid for, or plan to pay for, the full cost of their children’s college education, down from 48 percent a year ago, the survey said. And when asked about their ability to fund higher learning, 19 percent said they chose not to pay for the full amount so that their kids would appreciate their education more.
Increasingly, “families are getting together, with their college-age kids, to talk about how they will pay for college, even in this group where the cost was traditionally paid for by parents,” said Merril Pyes, a managing director in Boston with Merrill Lynch. “Parents are talking with their kids about how to pay for it, what they’ll get out of college, and what their kids will do when they get out.”
Having more conversations as a family about finances seems to be one of the bigger lessons we can learn from this survey, which provided other examples of how people are trying to communicate, and work together, more to solve concerns and challenges.