The Road to Recovery: Consumers as Small BusinessesNitin Sumangali |
Since the latest version of the Global Insights team’s paper on changing credit and debit card spending dynamics, I’ve had opportunities to talk about the paper’s findings with journalists and people in the industry who are interested in the nature of these changes. One of the interesting parts of these discussions is to see what readers find compelling, and what they’d like to discuss further. The result of a recent interview shows that the paper’s idea that U.S. consumers are starting to view their personal finances as similar to a small business has gained some traction.
In an article by the ABA Banking Journal, Steve Cocheo writes about the conversation we had and talks specifically about the idea of the consumer viewing his personal finances as a small business. The paper shows a small increase in consumers who report they are revolving balances more, but it simultaneously shows that the average balances they carry are dropping. In 2012, credit card spending grew 8.4 percent, and debit card spending grew 7 percent. These data points show that consumers are not choosing credit cards or debit cards, but are using both. The reducing in average balances even as more consumers report revolving shows that consumers are changing habits to borrow more prudently, and are diligent about paying down debt when they’re able. Consumers also report feeling more control over their finances, and a general increase in their confidence in their ability to manage their spending and savings goals than in years past. This combination is what we liken to being like a small business—being very conscious of the inflows and outflows, and planning how to use both the money they have at the ready (debit cards) and how to borrow intelligently and pay down debts when able (credit cards).
The paper notes that U.S. consumers do feel more confident than before, but there remains an element of caution. One of the biggest tolls the financial crisis took on consumers was on the idea that they were in control of their finances, and could manage their money for the future. While this has improved of late, it remains an animating factor in how decisions are made. As consumers look to derive more value from their payments, they will continue to seek tools that allow them to get a broader picture of their finances and plan accordingly. Adopting the mindset of a small business may prove to be one of their more valuable strategies.