These financial behaviors have changed – some maybe forever – with COVID


Daily life hardly looks like it did a year ago. Many of us work differently, save differently and certainly spend differently. The COVID-19 pandemic has halted some financial behaviors while creating new ones.

Some of these trends may dissipate in the coming months, once vaccines are widely distributed and health risks abate. But others could last much longer, perhaps becoming permanent installations.

Here are some money-oriented themes for 2021 and possibly beyond that were created at least in part by the health crisis.

Pent-up demand could lead to a spike in spending

As consumer confidence returns, spending will return as pent-up demand is released. “This has been the experience of all previous economic downturns,” said an emerging trends report from management consultant McKinsey & Co. A key difference this time is suppressed economic activity in many service and Hobbies.

“The rebound will therefore likely emphasize those businesses, particularly those with a community element,” the report said, citing leisure travel as an area that could recover quickly and much faster than business travel. business.

Jack Ablin, chief investment officer at Cresset Capital, sees a wave of YOLO spending coming, tapping into a “you only live once” mentality that will focus on hobbies, hobbies and other experiences emphasizing social interaction.

A related spending trend could see the continued popularity of online shopping, curbside pickups and other retail shifts accelerated by the coronavirus pandemic and social distancing measures to control it.

In nine of the top 13 countries studied by McKinsey, at least two-thirds of consumers said they had tried new types of purchases, and nearly two-thirds of consumers said they continued to use them.

“The shift to online retail is real, and much of it will remain,” the report said.

Gains in e-commerce sales in the early months of the pandemic roughly matched gains made in the previous decade, McKinsey added.

Savings gains could evaporate

One of the standout aspects of a year in which so many have struggled is the health of consumer finances. The country’s personal savings rate jumped to nearly 13% at the end of last year – about double recent multi-year averages – while credit ratings hit record highs and bankruptcies fell to their lowest level in three decades.

Some of these improvements reflect unusual monetary assistance from the federal government, ranging from stimulus payments to improved unemployment benefits. In addition, many consumers have really tightened their belts, as often happens in difficult economic times.

But much of the improvement in economies reflected an inability to spend money as freely as before, with lavish holidays discouraged, restaurants curtailing service and live entertainment severely restricted.

“Americans saved a record share of their income last year, with disposable income exceeding $1 trillion despite record job losses,” Ablin noted.

If the spending push materializes from pent-up demand, as seems likely, it could undo much of the savings progress Americans made last year. The ironic result of a stronger economy with broad job gains could worsen credit problems, reduce savings and increase bankruptcies.

Remote work could change spending

Another dramatic development in the past year has been the transition of millions of office workers to working from home virtually overnight. This change has altered some personal finance and investment behaviors.

As people set up home offices, commutes were shortened or eliminated, car insurance premiums dropped (due to a drop in traffic accidents), and some people decided that they didn’t need so many vehicles. It has also caused a boom in home buying away from city centers to more suburban and even rural areas where housing is more affordable. Extremely low interest rates accelerated by the recession contributed to the boom.

Some of these changes may reverse as the pandemic subsides and more employees return to work, but the workplace will not return entirely to the old status quo. More than 20% of workers worldwide could spend the majority of their working time outside the office and be just as productive, McKinsey estimates.

“This is happening not only because of the COVID-19 crisis, but also because advances in automation and digitalization have made it possible,” the report says. “Use of these technologies has accelerated during the pandemic.”

The pension gap will widen

The pandemic has deepened wealth inequality, with low-income earners, rural residents, less-educated workers and some minority groups suffering more than others. This divide manifested itself in retirement planning.

For one thing, a powerful stock market rally over the past year has driven up the value of 401(k) plans and other retirement accounts for many people. The same goes for the large increase in real estate prices. Millions of Americans are richer than a year ago.

But not everyone has these types of growth investments, and this group includes a large proportion of workers who have suffered job losses or other income disruptions.

Well-meaning rules enacted during the pandemic to relax early withdrawal penalties might have done more harm than good to some Americans living on the edge, encouraging them to dip into their accounts and therefore deplete them.

“Ultimately, half of today’s households will not have enough retirement income” to maintain their standard of living during their working years, even if they delay retirement and take other measures , warned a recent report from the Center for Retirement Research at Boston College.

It was a problem even before COVID-19 hit, and the pandemic made it worse for people who could least afford it.

Benefits will grow, evolve

One thing the pandemic has revealed is that tens of millions of Americans rely heavily on their employers for more than just a paycheck. Benefit choices had expanded even before COVID-19 arrived, and this trend is likely to continue.

Aside from the mainstays that include health insurance and 401(k)-style retirement accounts, workers at many companies will see other choices available to them. An emerging theme cited by Fidelity Investments involves employers offering more help to employees struggling with high student debt.

More than $1.5 trillion in unpaid student debt has diverted money from other goals such as retirement planning, Fidelity noted in a recent commentary. Women and people of color face some of the heaviest burdens. Among the solutions: More companies will choose to pay money directly on behalf of workers to help them meet these obligations.

Other emerging benefits trends cited by Fidelity include more employer-sponsored volunteer/workplace giving programs, more help to help employees build emergency savings, and more great concern for the welfare of staff, including emotional/mental support for those now working from home.

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