FRISCO, Texas–Is a recession really coming? What do the upcoming elections mean? Why do people let social media drive them to spend money they don’t have? Some answers to those questions and many more across a wide range of subjects were offered to credit unions here—but not before CU executives were given some questions of their own to answer.
Putting all of those questions into play was Dr. Mary Kelly, a former naval commander, an author and an economist, who told Catalyst Corporate FCU’s Economic Forum that amid all those big issues there are also smaller ones that CU leaders must give attention, especially issues that aren’t small to members. Among those: many people who come to their credit union are “scared” and in need of help.
First, the subject on many people’s minds: the prospects for a recession.
“We tend to be so worried about this long growth period that we just think it can’t last, that maybe it’s too good to be true,” said Kelly. “But the U.S. economy right now is pretty gosh-darned OK. Our GDP remains high at $65,000 per person. This is great. U.S. GDP will end 2019 at $21.3 trillion, up 2.3%.”
A recession is defined as two successive quarters of decreasing growth, and Kelly pointed to a Wall Street Journal poll of that found 59% of economists believe a recession is likely in 2020, with 22% predicting it will occur in 2021.
“A lot of this is about the political spectrum,” said Kelly. “I do think that starting next summer we are going to see some market fluctuations. The market does not like uncertainty. It will start in July and last into November. If someone else is elected other than President Trump, it will last longer, into 2021. That’s not about political views; again, the market doesn’t like uncertainty.”
Other Economic & CU Issues
Other economic and credit union issues touched on by Kelly during her remarks included:
Worries over China’s threats to the U.S. are overblown, at least for now, said Kelly, noting the world’s most populous country has a GDP of $14.2 trillion. But the trade dispute with the U.S. is having an effect on both countries, she said.
Kelly noted the U.S. and China have been in active negotiations for more than 30 years, with increasing attention and tension just in the last two. China has been hit hard by the drop in exports to the U.S., she added.
Kelly said she is a bit “worried” about Japan, where the national sales tax will increase to 10% from 8% on Oct. 19. An anticipated boom in consumption prior to implementation of the tax has not taken place, indicating consumers may be lacking in confidence.
Kelly said India is often forgotten, but it’s economy has “been the darling of the markets. It is going through its worst slowdown in six years,” even though it cut corporate tax rates to 22% from 30%. The big problem has been low domestic demand for goods manufactured in India.
Kelly urged credit unions to remember that by next year Millennials will be 50% of the workforce. “If you don’t have any in your workforce, you should be thinking about getting some,” she joked.
By 2025, Millennials will be 75% of the workforce.
“So, you need to be getting them into the workforce and getting them into leadership positions,” said Kelly.
Kelly noted CEOs have been moving into those positions approximately six years later in life than CEOs did just 10 years ago, in part because there is so much more to know now.
“Even with 10,000 Baby Boomers retiring every day, Millennials are wondering if their bosses are ever going to retire,” said Kelly.
One result is Millennials are making a lot of life decisions seven years later than what had been the norm.
“The markets are pretty happy. Unemployment is low. So why would the Fed lower interest rates? Because we are trying to compete with the rest of the world,” said Kelly.
She noted consumer confidence remains high, which is critical given that consumer spending is 70% of U.S. GDP.
“This is a huge issue, folks, in terms of how your members are feeling about their finances, their credit cards, how much they want to spend,” Kelly said. “Last year, consumers were not that excited about Black Friday and holiday spending as they usually are. That’s a little bit concerning. But it’s still pretty good.”
Why People Spend (Even When They Can’t Afford It)
Citing the 2019 Modern Wealth Survey, Kelly said some of the findings worth attention include:
- Fear of Missing Out (FOMO) is fueling expenditures. “More than a third of Americans admit their spending habits have been influenced by images and experiences shared by their friends on social media. They confess to spending more than they can afford to avoid missing out on the fun. “
- Survey respondents place blame on social media platforms and not people. “They rank social media as the biggest ‘bad’ influence when it comes to how they manage their money. So, I would like to encourage you as credit unions to look at your social media at what you’re putting out there about how people spend money. Be the experts in your field.
- Friends and family are good influences. “You are the family,” she said.
- Three-in-five Americans pay more attention to how their friends spend compared to how they save, with an equal number saying they’re at a loss to understand how their friends are able to afford the expensive vacations and trendy restaurant meals they portray on social media.
- 59% of Americans consider themselves to be savers (“and they lie,” said Kelly. “There are lots of opportunities for credit unions here.”
- 65% say they’re willing to sacrifice spending money on experiences now to save money for later in life.
The National Debt
Kelly pointed her audience to the website, www.USDebtClock.org.
“If you’re feeling cheerful, log in here. This is concerning,” she said.
The latest data show that debt-per-citizen is currently at $68,000. The figure for debt-per-taxpayer is about $183,000.
Kelly said 59% of people are living paycheck to paycheck. “Often, the problem isn’t about not having as much money as it is not budgeting well,” said Kelly. Data also show 44% are carrying card debt and just 38% have an emergency savings fund.
“Keep in mind when people come to your credit union they are often a little bit scared and they don’t know what you know,” said Kelly.
She pointed to other research showing just one-third of people without a financial plan feel “comfortable,” and that among those without a financial plan, 46% say they don’t feel they have enough money to merit a plan.
Debt by Age Group
Kelly said people age 45-54 are carrying the most debt at $134,600, followed by people age 35-44 at $133,100. One group that concerns Kelly are those over age 75, with data showing that cohort is carrying $34,500 in debt.
Thinking Like Members
Kelly urged credit unions to think like their members, including:
What Members Like:
- Common courtesy (and don’t call me by my first name)
- Accurate statements that show up on time
- Websites that work all the time
- Getting a live person when we need one
- When you catch fraudulent purchases
- Great loan processes
- Seeing transactions right away
- That you are part of the community
- We trust you
What Members Dislike
- Staff on their phones while members wait in line
- Staff who seem unhappy to talk with us
- Things you advertise but that don’t work
- Stupid fees that surprise people
- Debit/credit cards that don’t work in other countries after we notified you
- Being charged for things we don’t understand
Questions to Ask
Finally, Kelly offered these questions she said CU leaders need to be asking of themselves:
- Do people seek my perspectives and insights?
- How open am I to different perspectives about tough issues?
- What situations or feedback cause me to become defensive?
- Do I take certain situations personally?
- How does my communication style affect others?
- When I show up, are people glad I’m there?
- How does my mood or state of mind influence the decision-making of others?
- Do people view me as negative and cynical or positive and passionate?