With an increase in vaccinations, a second stimulus check and a wealth of pent-up demand, consumers are ready and willing to spend. For the April 1 Market Pulse webinar from Equifax, our panel of experts discussed key financial insights including upcoming wealth and spending expectations as we move into spring and summer.
This month’s presenters included Amy Crews Cutts, President and Chief Economist at AC Cutts & Associates; Ian Wright, Chief Data Officer at Equifax; Todd Hoover, Marketing Practice Leader at Equifax and Tom Aliff, Senior Vice President of Data Analytics and a Consulting Leader at Equifax.
Participants followed up with audience members’ questions about the consumer price index, inflation, household wealth, and more. Amy Crews Cutts, Ian Wright and Tom Aliff answer those critical questions below.
Will we see a different level of forward looking inflation if we include education and healthcare with the Consumer Price Index?
Amy Crews Cutts: The Consumer Price Index does include education and healthcare. It is the all-encompassing measure. But from a macro theory standpoint, there is no direct relationship between the type of consumption and the major factors used to support more inflation (government debt levels, beyond-full employment, etc.).
Is it possible that the lack of inflation in prices for consumers is showing up in inflation in asset prices because of the Federal Reserve’s easy money policies and low interest rates?
Amy Crews Cutts: No, as the definition of inflation does not consider asset values of equities.
What are the household wealth ranges for “Mass Market”, “Mass Affluent” and “Affluent”?
Ian Wright: Based on estimated total household wealth (not income):
- Mass Market: <$100K
- Mass Affluent: $100K-$1M
- Affluent: $1M+
All of this analysis cuts off one quarter into the COVID-19 pandemic (June ’20). How is this indicative of what has happened over the course of the pandemic (March ’20 – March ’21)?
Ian Wright: Through the IXI Network, we have data on bank and investment activity through June 2020, so the quantitative results reflect that time period.
Since that time, the market recovered more fully, so we expect our December 2020 data to show even more increased investment balances. We expect the same with bank deposit balances as deposit levels are overall very high. We expect a continuation of the K-shaped recovery where certain segments are experiencing considerable increases in financial wellness while others continue to struggle.
Moving forward with the easing of social distancing restrictions, we could see consumers who have been undergoing financial stress start to see pressures ease, as the market and the economy grows.
The data referenced in Ian’s slides goes through June 2020. How are we reaching these conclusions?
Ian Wright: It is based on June 2020; the immediate, short-term recovery results as well as the year-over-year trends we saw, especially as compared to previous year-over-year trends.
What is the reason for consumers requesting possible accommodation despite the rise in disposable income and stimulus, considering low delinquency rates?
Tom Aliff: The accommodations have been gradually declining. What we are seeing now is that the note requested has just remained in that status. And, they have not necessarily made an uptick. I think it is important to understand what is the potential driver or cause for that by understanding employment, income, and types of verifications. How many accommodations do consumers potentially have as a percentage of their total file? And what is happening on the remaining part of that file if error and accommodation have their accounts reduced and balances or delinquencies, etc.?
Generation Wealth Divide:
What is the difference in the wealth divide between Millennials & Generation X compared to the Baby Boomers tied to student loan debt?
Ian Wright: Student loan debt is certainly a factor but it is only one factor as is lower rates of homeownership. The St. Louis Federal Reserve has done some nice research on generational wealth gaps that analyzes possible reasons for the divide.
With the large disparity in wealth between Baby Boomers and younger generations, do you foresee a large wealth transfer occurring as the older generation passes away in the next 20-30 years? (i.e. estate transfers that help close the gap).
Ian Wright: Yes, there will be a transfer of wealth at historic levels. These transitions will be interesting not only for their size but also in how investing attitudes are different between generations. For instance, younger generations are much more eager to invest on their own with at least a portion of their portfolios. We expect more self-directed investment activity. These generations are more inclined to look beyond results to evaluate their financial relationships, (e.g., socially responsible investing, environment social and corporate governance investing) so firms that provide these options may find new investors.
In addition, changes in the brokerage industry with different revenue models, new technology enabling successful advisors to open up their own shops and FinTech investing applications are changing the nature of the industry. On its own, we are seeing market dynamics change the wealth management business. Coupled with transfers of wealth being a strategic opportunity for advisors to capture new business, there could very well be significant shifts in the wealth management market.
What do you believe are the long-term implications of wealth accumulating to the higher income households and older generations? What are the long-term implications for Millennials and Generation Z?
Ian Wright: The wealth gap will continue to grow as long as the stock market’s performance continues. Households that have the ability to invest and have money sit in accounts for extended periods of time will reap the benefit of being able to invest. These households will take advantage of equities continuing to perform and increase in value, while households with little discretionary income, that have more pressure to keep what little they can save in more liquid deposit accounts, will continue to miss these benefits.
However, the coming transfer of wealth that will occur as Baby Boomers pass away will infuse younger generations with wealth. There will be pockets of growth in younger generations, as long as equities continue to perform. While Generation Z and Millennials are behind where Baby Boomers were at their age, Baby Boomers did not benefit from what will likely be a historic transfer of wealth.
Are there Fair Lending implications for leveraging the wealth information referenced in the presentation?
Amy Crews Cutts: Wealth is used in underwriting for evaluating capacity, particularly in mortgage lending. This is provided by the consumer applicant to the lender, or through direct connections to the financial companies to verify accounts. The data contained in the IXI Network database is not for use in credit decisions because it is aggregated data and is thus not compliant with the Fair Credit Reporting Act.
Click here to watch the April Market Pulse webinar for more economic predictions and consumer spending insights.
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