From small things (utility bills) to big things (banking), Americans will earn and spend differently long after the pandemic ends
During traumatic times in our history, pollsters scramble to ask Americans not only how they feel in the moment, but how the current crisis will affect them later. This pandemic is no different.
For example, the 2020 Healthy Handwashing Survey shows 9 in 10 Americans are washing their hands these days – more than double what the pre-pandemic number. When the danger passes, many say they’ll keep washing their hands.
As a parent, I care about those handwashing numbers (Wouldn’t it be nice to never have to ask your kids again, “Did you wash your hands?”). But as a CPA and financial counselor, I care most about the financial habits that will forever change after the danger passes.
As I told Fox24 News in South Carolina, during the pandemic “Americans did a great job of paying down credit card debt.” Why? “They weren’t spending money, they weren’t going out. They haven’t traveled. They had a lot of cash and used it wisely.”
If anything, we all got to spend a lot of times with ourselves in 2020 and definitely learned something in the process. Not just that elastic waist bands are a wonderful invention, but that money doesn’t grow on trees.
On this “Money Monday” we’d like to welcome back our good friend Howard Dvorkin, chairman of Debt.com. Happy New Year and it’s good to see you.
Happy New Year to you, young lady.
So, elastic waist bands we can all agree wonderful invention. We all learned if you eat too much you put on weight. We also learned that if you pay down debt, your credit score goes up and it looks like a lot of Americans did that.
Well, it’s been an interesting year to say the least. And 2020 I think a lot of people really got to figure out a lot of things. One of those things is how to stay healthy and try to stay healthy on their finances as well.
The fact of the matter is Americans did a great job paying down credit card, which is tremendous. The reason that happened is because a lot of banks did not make these Americans pay their mortgages, their rent, their student loans, their credit cards, and auto payments. They then diverted that cash to their credit cards.
The other side is they weren’t spending money. They weren’t going out. I mean, I don’t remember the last time I went to a restaurant. The fact of the matter is a lot of people they haven’t traveled, they haven’t gone to restaurants; there’s no entertainment. So really, they had a lot of extra cash floating around and they used it wisely, which is tremendous.
Of course, we do like to know that people are patronizing their local restaurants because especially in a town like Charleston we rely on these types of entertainment if you will but within reason. I think a lot of people can be a little bit more conservative and certainly exercised that in 2020 as far as the credit card companies go, are we not seeing an extension of credit because of these good habits people have been putting into practice?
The problem you’re going to see in 2021 is that the banks are terrified right now to lend people more money because they really don’t know what the economy is going to do. By all best guesses we’re in a recession and we’re going to continue to be in a recession.
The extension of credit is going to depend on how the people have reacted over the last year. Some people were unemployed. Some people missed payments. Some people were sick.
The fact of the matter is you can get extensions of credit but you might have some explaining to do in order to get those extensions.
So a couple of pieces of advice you have is maybe eliminate credit cards from your life: Pay them off and then cut them up. The other one is to become a homeowner. The first one is a little controversial. You believe Americans shouldn’t own a single credit card?
Listen, I know that’s crazy. But if you really want to stop paying the bank and being a slave, the best thing to do is don’t have any credit cards; use a debit card and live your life in that manner. Now is that an easy thing to say for every human being in America? Probably not.
I mean we are conditioned to spend, spend, spend. The fact of the matter is we’ve been told we deserve a certain lifestyle and whether we can afford it or not, we still want that lifestyle. At the end of the day, yes, you don’t need a credit card. But you do need some way to charge in 2021.
Well, it’s a little bit of a Catch 22, though. Because the other piece of advice is become a homeowner if you can and not waste your money on rent. You’ve got to have credit to qualify for a loan in order to buy a house. So it’s all about being conservative with the credit cards but why is being a homeowner so important?
First of all, when you’re renting you’re just throwing away your money. Right now, the interest rates are the lowest that I’ve ever seen in my career and probably we’re ever going to see again. So if you’re thinking about buying a house, now is the time to buy a house.
Certainly you have to have some money in the bank. You have to have credit you’ve earned. You have to realize you get credit from lots of things: If you have student loans you get reported on that. If you have a car payment you have credit on that.
It’s not necessarily just a credit card. And frankly, it’s pretty easy to incur a credit history. You just have to make sure that you do the right thing when the bills come in to make sure they get paid in a timely manner.
And to do whatever Howard says. Howard, you always give us such good advice. And were so happy that you’re going to be joining us next week when we’re going to be talking about the dichotomy of those FICO scores people have been earning because they’re been paying down those other debts and less credit loans available to consumers.
So we’re going to talk about that. Howard I want to thank you for joining us this week.
Thank you so much, and Happy New Year!
Here are five polls that puts numbers to my opinion…
1. Working at home
While there’s no reliable data on just how many more Americans are working at home during this pandemic, a poll by an organization called The Center for Generational Kinetics asked 1,000 employees about how they feel about working from home. Here’s how the researchers themselves described the top result:
“Most shockingly, a majority (53 percent) of Americans do not want to work remotely even part-time after the pandemic ends.”
The reason? More than 4 in 10 felt they “do not have the tools they need to successfully work remotely.” If they don’t have those tools six months into the pandemic, they’re unlikely to get them before it ends. Which means predictions of a seismic shift to work-at-home probably isn’t happening.
2. Going to the bank
Unlike what we just discussed, this poll result is anything but shocking: Americans are banking online in record numbers during the pandemic.
What happens after the pandemic? Citizen’s Bank asked more than 1,000 consumers and nearly 250 business leaders what they think will happen to banking post-COVID. The result: “Of these respondents, 66 percent of consumers and 73 percent of businesses feel that these changes will be permanent.”
In other words, bye-bye branch banks.
Yet nearly two-thirds also told pollsters “they prefer human expertise when receiving financial advice.” By almost the same margin, they’ve grown comfortable giving personal information over the phone and online – because, during this pandemic, they simply don’t have a choice. So these consumers are themselves predicting “banks will use AI” (artificial intelligence) to meld the remote with the personal.
The most successful post-pandemic banks just might be the ones that offer secure Zoom-like services, so their customers get the personal attention of a branch bank without having to drive there.
3. Utility bills
This might seem like the smallest item on the list, but it actually comes with a big lesson.
A smart-tech company called Sense asked more than 1,300 Americans how they’re keeping their utility bills down since they’re spending so much more time at home.
Turns out their methods are decidedly old-school, and this summer “the most popular energy-saving measure will be to use fans as much as possible rather than air conditioning (55 percent), while about a third (35 percent) plan to turn off their AC entirely and open windows to stay cool.”
The pollsters for the smart-tech company sponsoring this poll were a little stunned that Americans aren’t embracing smart tech:
A surprisingly small number of people are turning to smart home technology to reduce their energy costs. Only 24 percent have or plan to install a smart or programmable thermostat for the first time and only 10 percent plan to install a home energy monitor to see what’s using energy in their home.
That doesn’t surprise me at all. These uncertain economic times mean most families rate smart thermometers way down the list of must-have purchases, especially when they can fire up a fan and still save.
However, one big change will outlast the pandemic: Free stuff.
As a financial counselor, I’ve long been frustrated by cash-strapped Americans who don’t take advantage of all the free services that can help them save money. Most utility companies I’ve known offer these services, yet Sense found:
Nearly half (45 percent) of those surveyed didn’t know if their utility offers rebates or free home assessments for smart thermostats or air conditioning upgrades. In fact, many utilities offer these kinds of incentives to residents.
Now that many Americans are discovering these services, they won’t forget them. So I expect many more people will take advantage of them, even when they’re no longer housebound.
4. Saving for retirement
A new survey about retirement sounds like it’s negative, but I consider it positive: “Anxiety about long-term retirement savings is up.”
Charles Schwab polled 1,000 employees who have 401(k)s and learned the current pandemic has most of them worried about their long-term financial prospects. I like that. Why? Because worrying can be the first step to acting. In fact, that’s happening, according to pollsters:
Two in five participants also say they made a change to their 401(k) account due to COVID-19, citing rebalancing and increasing contribution rates as the most common changes.
I wish it were more, but I’ll take it. Another huge frustration for personal finance experts is that most employees have a “set it and forget it” attitude about their 401(k)s. Instead, you need to look hard at the rate of return and the investment categories – at least annually. After this pandemic, I expect many employees will have realized the value of doing this, and they’ll continue.
5. Valuing their homes
I’ve never met a homeowner who didn’t know this: It’s the most expensive and important purchase you’ll ever make. The pandemic has moved the discussion from knowing to doing, according to Hippo Insurance Services, which polled 1,000 homeowners.
“Most Americans (58 percent) plan to make long-term investments for their home when the pandemic ends,” the poll revealed.
The reason is simple. Sheltering at home and worrying about their next paycheck has driven home to homeowners “the importance of protecting the financial value of their home is more important today than when they first bought their house.”
Once this pandemic ends – and it will – we’ll still wash our hands more often. Not all of us, but more of us than before the pandemic. I expect the same thing will happen with our money. I sure hope so.
Published by Debt.com, LLC