Q1 Check-In: Align Goals in a K-Shaped Economy

As we are solidly into 2024 Q1, it is the perfect time to reevaluate our financial resolutions. We are living through a K-shaped economy. Which means it is important to remember to frame our goals within that paradigm. 

In our last post, we defined the K-shaped economy--discussing what it means and how we got here. Now, we will move into what Q1 trends are revealing. Plus, how to reassess our 2024 resolutions. 

INSIGHTS FROM 2024 Q1 TRENDS 

In our K-shaped economy, no two consumers experience financial pressures the same way. Lenders and financial institutions must understand how shifting dynamics impact their customers.

Redefining Financial Goals in a K-Shaped Economy

• Inflation,

• affordability,

• student loan repayment,

• credit use,

• delinquencies,
  ... mean no two consumers experience financial pressures the same way. For example, with prices rising and savings slim, credit utilization is up. And, delinquency rates are nearing 3%. Still, there are ways to focus on moving forward no matter the economy. 

Inflation and Affordability

Even with inflation stabilizing, middle-income households feel the impact on essential goods. On a positive note, a robust job market is offering some protection to those still employed.

Student Loan Repayment

This year, the return to student loan payments is poised to strain personal finances. As a result, borrowers face monthly increases. Acknowledging these discrepancies is crucial for lenders to tailor their strategies.

Credit Utilization and Delinquencies

As prices climb and savings dwindle, credit usage - as well as delinquency - is on the rise. There are bright spots. Since 2020, 30% of millennials and Gen X have bolstered their financial resilience. An impressive 74.6% of Gen Z are actively saving to enhance their financial standing.

Strategies for Thriving in a K-Shaped Economy

Resolution 1: Enhance Focus on Unique Data Insights

To enhance credit decisions, it's imperative to go beyond surface-level assessments. Lenders must adopt a comprehensive approach. One that considers various aspects of consumers' financial profiles, including

• Utility payments

• Income sources

• Employment history

Resolution 2: Embrace Frequent Evaluation

Consumers are in a volatile situation. Given that, relying solely on traditional periodic reviews is insufficient. Identify and address emerging risks by transitioning to monthly account evaluations. Being proactive could safeguard up to six times more of their exposed dollar risk.

Resolution 3: Maintain Agility

In a rapidly evolving landscape, the key is to anticipate and respond swiftly to changes. Incorporate automatic alerts into account management processes. Alerts enable lenders to remain agile and responsive.

CONCLUSION

Now, you have a more holistic understanding of the K-shaped economy. Focus on moving forward with more market insights:

• Read more on delinquencies by viewing our blog, Understanding Auto Loan Delinquency.

• Revisit our foundational blog outlining a K-shaped economy.

Register for the monthly Market Pulse webinar. We host a dynamic discussion with economic and financial experts. Panelists focus on timely trends. Attendees can interact with and ask questions of our panelists.