Even The Joneses Cut Back

What lessons have borrowers learned from recession?


American consumers are still keeping up with the Joneses, perhaps just as much as they did during the boom era. But are Americans today spending and borrowing smarter? According to the New York Times, many sectors (excluding government spending) reduced outstanding debt throughout 2010.

“Over the last two years, financial sector debt fell by nearly 9% each year, for a total reduction of $2.9 trillion,” the New York Times says. That is more than the entire outstanding financial sector debt in 1990, but it’s not just corporations that have tightened the belt.

Household debt also fell in 2010, its third straight year, driven by adjustments in consumer behavior and an emerging preference for consumer loans over other types of credit. Credit unions forecasted this shift and met members’ needs with products that matched their financial goals, says Callahan EVP Jay Johnson in the fourth quarter issue of CUSP. Credit card balances, which fell nationally, grew 3.1% at credit unions as members took advantage of lower rates.

Credit unions aggressively modified home loans in 2010, at a rate up 46% from the year before, while helping members reduce their debt burden through other lending products. Programs such as Educators Credit Union’s ($1.3B, Racine, WI) “Sit and Save” engaged consumers in conversations about refinancing and helped the credit union meet its goal of saving members $10 million in interest paid.

But there is still work to be done. According to a February Federal Reserve report, 65% of the drop in consumer debt was more heavily linked to write-offs, foreclosures, and financial institutions’ purging of bad debt rather than to borrowers’ financial choices, indicating the potential for unwise future spending still lurks within American consumers.

From what we’ve seen, though, credit union members have learned to spend and borrow smarter, not harder, in the past year, leading to dramatic success for the not-for-profit financial model. First mortgage, used auto, credit card, and member business loan balances all rose during the past year by a combined $11 billion!

Credit unions around the industry are identifying fresh revenue streams and deploying innovative tactics to enhance relationships and the bottom line. Read more in this week’s featured article “Ask and You Shall Receive.” Although they can’t tell their members how to spend their hard-earned gains, credit unions can give members the products and tools to consolidate debt and trigger long-term changes for wiser consumer spending behavior.


March 21, 2011



No comments have been posted yet. Be the first one.