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PCBB Banc Investment Daily June 10, 2014
Banc Investment Daily
June 10, 2014

The Revolving Door Of Consumer Credit

As a youngster, we loved to go to the big downtown department store because there were huge revolving doors. While the parents shopped, you could push the doors faster and faster, oblivious to the little old ladies tottering along in compartments on the opposite side bouncing off the glass walls. The idea of a revolving door came about as a way to keep weather out of a large interior that saw a lot of traffic as an air lock of sorts. The first patent came in 1888 to a Philadelphia engineer and while the idea was to keep weather out, it was reported that the engineer was really motivated by a phobia of opening doors for others, especially women.
We have no idea whether that story is true, but bankers are really familiar with another sort of revolver. That is because Americans cumulatively have $854B in revolving loans, primarily credit card debt according to the Fed. According to Experian, the average credit card debt is almost $28,000, the average number of cards per person is 2.2 and the average revolving utilization rate is about 30%. Further, the age group carrying the highest average balance per card and the highest number of cards is the Baby Boomers (ages of 47 to 65Ys), many of whom are both sending kids to college and caring for elderly parents. Of note, for every demographic these numbers have declined over the past few years as consumers have cut spending and paid down debt.
Not every household is the same of course and the lowest income households probably don't have access to credit cards, while people with more assets may have more cards but less credit card debt. As community bankers, we have all come across people with large incomes and lots of assets but who still carry a great deal of credit card debt. In these cases, there could be an issue of financial literacy believe it or not. It has been widely documented that financial literacy is at a low level, but according to a recent survey by TD Bank, there is room for encouragement.
TD Bank did a study focusing on the habits of the Millennial generation (ages 19 to 29Ys) and found some interesting results. This group has entered the workforce in the worst of economic times and as such seems to have tendencies towards financial conservatism quite similar to people who grew up in the Great Depression. Job prospects have been difficult for this group at best and financial markets were roiled within their formative years. Many also carry high levels of student debt.
What is new according to the study is that 76% of this group is seeking financial advice and often they are seeking it in banks. Family members were cited as a significant influence, with 49% reporting that their parents shaped their views on money matters. In good news for banks, an even larger percentage of 54% reported going to their banks for financial advice. This is interesting given about 90% of them bank online or on their smartphone.
Most community bankers are confident that their service levels exceed the big banks in their markets. While digital offerings may not be as strong, given a lack of options from core system providers, advice turns out to be one important area where you can capture more of these customers. As the data shows, they are actively seeking help from banks, so be sure to actively market to them in return to raise awareness. Baby Boomers invented do-it-yourself and while their children may be different in some areas, we think this offers an opportunity for community banks to penetrate more deeply into this next generation. Perhaps it is time to push forward as this financial door spins.