Stubborn inflation, rising prices, tighter budgets. These six words have described the economic landscape for the American consumer over the past few years. However, American consumers have proven resilient in the face of economic headwinds. They have adapted to the conditions by changing their spending priorities, making compromises and, in some cases, adjusting the way they live. As a result, the American consumer has weathered this inflationary period and remains optimistic about the future.
As the Federal Reserve now begins what is expected to be a series of interest rate cuts, a new economic phase will begin for today’s consumer. To better support customers and help them navigate future dynamics, financial service providers should assess their current offerings to ensure they meet evolving needs. To do this, they need to understand how Americans have responded to recent financial challenges.
Spending cuts and compromises
Santander US tracked the financial behaviors of middle-income American households over an 18-month period, and our research shows that the American consumer is making the necessary trade-offs to navigate today’s environment.
Americans reworked their budgets to manage inflation. For example, nine out of 10 consumers indicated that they are cutting back on certain areas of spending and 64% noted that they have made significant budget cuts to avoid spending through their savings. In particular, to combat rising food and gas prices, most middle-income Americans reported cutting back on summer spending in areas such as vacations, dining out and entertainment.
They also delayed major purchases. For example, more than half of middle-income households have delayed purchasing a vehicle in the past year. By making these trade-offs, many consumers have continued to meet their expenses while working toward their long-term financial goals. Eight in 10 middle-income households stayed on top of their bills, and 72% said they were on track to financial prosperity. Achieving financial prosperity includes the ability to meet living expenses, manage emergencies, and pursue life goals without significant compromise.
Changing consumer mindsets and priorities
As spending habits have changed, so have consumer preferences and mindsets. American households are experiencing a transformational shift in how they view financial success. Traditional markers that have defined prosperity for generations of Americans, such as home ownership, are no longer the priorities they once were. As home prices continue to rise, most middle-income Americans no longer view home ownership as a necessary path to financial prosperity. Instead, renting is considered a more realistic alternative for many households. For today’s consumer, affordability trumps home equity, with six in 10 renters believing that owning an affordable home, even if renting, is more important to achieving financial prosperity than the historic “American Dream” of home ownership.
As consumers place less emphasis on home ownership, many place a higher priority on maintaining access to vehicles, as cars are vital for getting to and from work and accessing expanded employment opportunities. With few middle-income Americans having commuting alternatives, three in four said not having access to a vehicle would hurt their financial situation, and 70% indicated they would be willing to sacrifice other budget items to maintain access to a vehicle.
With this change in consumer behaviors and attitudes, Santander has adapted its products and services to meet current consumer needs. In recent years, we have exited the retail mortgage space while prioritizing our multifamily home loan business to enable more housing options that consumers need and demand. Like Blackstone, Santander was selected to initiate a joint venture with the Federal Deposit Insurance Corporation (FDIC) to provide critical financing and servicing assistance for the rent-controlled and rent-stabilized multifamily loans that were part of the failed portfolio of Signature Banks.
And given the importance of vehicles to American households, we continue to expand our auto lending business to ensure we can provide the vehicle financing needed for customers from first-time buyers to those with less-than-perfect credit to super borrowers – premiums . In that effort, we join banks like Capital One, among other national banks, that offer customers across the credit spectrum.
Next cycle
So what’s next? This tapering by the Federal Reserve is likely to be the start of a series of moves that reflect a long-awaited cooling of inflation. While price stability is a welcome sign, it will not represent the finish line for consumers, but rather the beginning of the next chapter.
Many consumers have delayed making big purchases – they will need help financing them. Many consumers have missed opportunities to grow their savings – they will need simple and affordable options that can help them achieve their goals.
If the last few years have taught us anything, the consumer will act and be resilient, regardless of the conditions. Financial service providers that are able to evolve with consumers’ changing needs and preferences will be critical partners in helping them achieve their goals and vision of financial prosperity.
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