Be There When Customers Need You Most

Jim Marous (0:00)

An estimated 16.5 million American households slid down the level in their financial health in just one year.

They are hurting, and many of them are customers of our banks and credit unions.

That information is from the Financial Health Network's new Financial Health Pulse, which has tracked the financial health of American households for nine years. What surprised me is who's sliding. It's homeowners and business owners. It's people with auto loans and people who own more than they owe. In other words, a lot of the customers, most of us would call safe. Before a payment is ever missed, there's a window where our banks or credit unions can actually help. I think that's where trust gets decided. I talked to a friend a couple of weeks ago. He's someone just like a lot of people in our database. He owns his home. He's had an auto loan with a small bank for three years, and his checking account has been there for decades. He has rarely been late on any payments, and he's not the kind of person who calls the bank to talk about a financial situation. This spring, however, a few things changed all at once. He had some medical expenses that came up unexpectedly, and the balances in account took a hit. A payment to a buy now, pay later provider showed up in his account for the first time, and a couple weeks later, a transfer to a cash advance app. Now, any one of those on its own may mean nothing.

Together, though, against more than 20 years of normal behavior, they tell a story. I don't know whether anybody at his bank ever noticed. My guess is that each piece lives in a different system, owned by a different team, and nobody's connecting the dots. My friend is still paying on his car loan. If nothing changes, the first time his bank reaches out could be a late notice. Hold on to my friend's story, because I'm going to come back to him. The research shows how widespread this kind of pressure has become. The share of households the report calls financially vulnerable went from 15 to 17 percent, which matches the highest level it has ever recorded. That two-point increase may not sound like much, but look underneath that number, and nearly one in four households moved up or down a level on financial health in a single year. Some moved up about 14 million by the report's estimate, but more moved down. And the share of households the report considers financially healthy has only been about 31 percent for the last five years. Here's why that matters to us.

Most of our reporting we look at inside our institutions is built on portfolio averages, average balances, average delinquency, average products for a household. An average can hold steady, while a lot of individual customers move quite a bit underneath it.

Most of our dashboards probably weren't built to show us who.

This is already showing up among customers who carry loans that we make. Among households with an auto loan, 40 percent now say their overall debt is more than they can manage, up from 36 percent a year ago. That's a significant move in a single year.

Across all households, the shares saying their debt is unmanageable is at its highest level in nine years the survey is run. Fewer households pay every bill on time this year, and among lower income households, only about half did. The Financial Health Network fielded the National Survey of more than 7,600 households to see this. Most of us can see pieces of it in our own systems every day, the same way my friend's bank could have. The real question is whether anybody at our institution is putting these pieces together as one customer story. Now, most would say our customers look fine. Deposits are stable, delinquency is manageable, and to be fair, the report partially agrees. Emergency savings questions have held up so far, and the data from some of the largest banks shows that balances still are sitting above where they were before the pandemic. I think the obvious read misses something important. A portfolio average blends the customers who are doing well with customers who are quietly struggling. Fewer than half of the households spent less than they earned over the past year, which means most aren't adding to their cushion, and some are covering the gap with either savings or with credit. The report itself warns that the cushion may not hold up much longer, and it describes its own estimate of decline as being relatively conservative. What the average won't show you is which customer is exactly like my friend, loyal, usually stable, but financially insecure.