FAQ: What is a K-Shaped Economy?

Many hope for a post-pandemic fresh start. The reality is that the financial landscape is a K-shaped economy, where the impact of economic challenges is not uniform for everyone.

Let's dive into what this means and how it's shaping our financial world in 2024. A K-shaped recovery describes how an economy bounces back from a recession or economic downturn. For example: We are post-pandemic. Imagine the letter "K." It has two lines – one that goes up and another that goes down. In a K-shaped recovery, some industries and groups rebound while others struggle. This creates a gap – like the two lines of the "K" – between those who bounce back and those who do not. In a K-shaped recovery, the economy as a whole might seem to be improving. However, not everyone equally benefits.

Understanding the K-shaped Economy

In a V-shaped economy, things go down but then bounce back for everyone. In a K-shaped economy, the overall economy might go down. Only some parts of it recover, while others keep struggling.

In a K-shaped economy, people's financial situations vary widely. Not everyone faces the same struggles. Lenders and financial institutions need to be flexible with strategy. They need to understand the different challenges their customers are dealing with.

Navigate with caution: The gaps in economic recovery highlight the importance of taking a careful, strategic approach.

How did we end up with a K-shaped recovery in 2024?

Inflation-driven price increases seem to be getting more stable. But, they may not reach the goal set by the government until 2026. This has made things more expensive for regular families. People with student loan debt had to start paying it back in October 2023. This was after a pandemic-induced grace period. Student loan repayment made budgeting harder. Borrowers might need to spend more on average than expected. For young adults (Gen Z), it could be even more. Finally, more people are using credit cards because things are getting more expensive. Some are struggling to pay their credit card bills on time.

To stay on top of trends in the K-shaped economy...

• Join the next Market Pulse webinar
• Listen to the latest podcast
• Use the monthly Portfolio and Origination Credit Trends
• Review the monthly Small Business Indices
• Check out the Q1 2024 Lending Trends ebook