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Lisa Hronek Investment
Poor Baby (Boomers that is)
In my last few webinars I have talked about the plight of the younger Boomers/older Gen Xers (those aged 45-54). The most recent data is quite dramatic in showing how difficult their current situation is. Here is the rest of the data that I was unable to present because of time limitations:
I intend to permanently decrease the amount of unnecessary stuff I buy: All Agree – 44%; Aged 45-54 Agree: 51%
I have only been spending money on necessities for at least a year: All Agree - 33%; Aged 45-54 Agree - 52%
I intend to permanently decrease my use of credit cards: All Agree – 28%; Aged 45-54 Agree – 38%
I intend to permanently increase the amount of money I save: All Agree - 28%; Aged 45-54 Agree – 44%
I worry more about my retirement now more than I ever have: All Agree - 27%; Aged 45-54 Agree – 39%
I don’t think I will ever be able to retire All Agree -20%; Aged 45-54 Agree – 31%
I will probably only have social security for income in my retirement: All Agree -19%; Aged 45-54 Agree – 29
I feel that I have too much credit card debt: All Agree -19%; Aged 45-54 Agree – 23%
I feel happy less often than I did before the recession began: All Agree – 26%; Aged 45-54 Agree – 29%
The good news is that even though they are paying down debt and are more worried about their retirement, they are not significantly less happy than other age groups (see the last row “I feel happy less often than I did before the recession began”).
This could be because they are still employed. According to the Bureau of Labor Statistics there is a huge difference between the unemployment rates of different age groups. Below are the unemployment rates by age group as of December 2010:
20 – 24 – 15.3%
25-34 – 10.1%
35-44 – 7.8%
45-54 – 7.5%
55+ – 6.9%
This is traditionally the group at the peak of their earning power so obviously there is something else going on—such as too much debt, children in college to pay for, and other demands on their income. The good news is that once they are feeling more comfortable with their economic situation, they could loosen up their spending somewhat, which is good news for the economy.
Securitization is a good thing?
I stopped in at the Chicago Federal Reserve’s Community Banking conference last Friday and I must say, it was the glummest room full of people I have ever been in. The Fed economist who spoke was the only one who livened up the place. THAT certainly doesn’t happen very often.
In between jokes about the Fed printing money and keeping it on pallets in the conference rooms upstairs, he made the same succinct point about the current economy that we have been using in presentations recently – that credit conditions have improved but securitization has not.
What does that mean? Banks have slowly been recapitalizing and their balance sheets are looking much better, but—poor loan demand not withstanding—until the securitization markets return to at least a semblance of their former selves, we will not have lending anywhere near levels we have seen in the past.
What is slowing the return to “normal” securitization markets that can help banks lay off risk and make more loans? Basically, it is regulatory—we are in the process of developing regulations that can deal with the fact that the process is broken.
As evidence of that fact, every day there is more news about how logistics in the marketplace were handled poorly, such as the news today about how Countrywide (now owned by BofA) failed to send documents to MBS trustees.
The primary issue being addressed by regulations such as Dodd Frank is transparency. Basically, when the loans were sold to be pooled into securities, there wasn’t a lot of communication between all of the parties involved. If you don’t know what you have, then you can’t price it correctly. And the ultimate investor (such as pension funds that many of us rely on) ends up not knowing what they have. Call it consumer protection with about eighteen stops in between.
It is going to take a few years for everything to shake out. As Mr. Tannenbaum characterized it (and I agree) we are trying to move from a pro-cyclical to a counter-cyclical banking system.
Fixing the derivatives markets will play a hand in that. Can that happen? Well something has to happen – because we can’t afford to take the chance of standing at the edge of the precipice again like we did in 2008. But we also can’t afford to ignore the positive impact that (healthy) securitization markets can have on economic growth.
Recession—not yet over in people’s lives
According to the National Bureau of Economic Research (NBER), the recession is over. And it’s been over for at least 15 months. So how come nobody is celebrating?
Because the “recession” hasn’t ended in people’s lives. Basically, we are now in the “New Normal” where less credit availability means that things are still slowly contracting.
Less credit means that unemployment will probably stay high (by historical standards) for a while. There are a lot of numbers showing up in our consumer data that indicate the effects of the recession are reaching far beyond what is reflected in the current 10% unemployment rate (or the 20% or so under-employment rate).
Fully half of under-35’s say their parents have been impacted by the recession and that has influenced their own spending and saving behavior. About a third overall say that their children have been affected, which is having an effect on them. Considering that only 56% of the adult population 18+ have children (including children too young to have been impacted by the recession), this number is even more significant.
Seventy percent of survey respondents say that they themselves have been directly impacted by the recession and have changed their spending habits accordingly. That’s a whole lot more than 10%.
What this means is that consumer spending isn’t going to contribute to an acceleration in GDP growth anytime soon.
Loyalty programs, a hot topic for marketers and consumers
I am publishing a report on loyalty programs this week, and the report has been especially popular with Mintel clients.
The subject of loyalty programs is particularly timely in light of how consumer shopping habits have changed with the Great Recession. Loyalty marketers are aware that their loyalty program members are quite often their most profitable customers, and people who actually use loyalty programs tend to become even more loyal to a brand.
So the question is – why isn’t every company upgrading their rewards program to a loyalty program right now?
There are several ways this can be accomplished:
1) Offer rewards that customers see as having real value
2) Personalize offers and communications
3) Offer easy-to-redeem savings on those targeted products and services
It can’t be denied that loyalty programs are becoming a very important part of the relationship with the customer. For instance, according to Mintel’s research for this report, the quality of the rewards program is the number one reason people choose the credit card company they do.
Keeping this in mind, companies can add features to their programs that will really stand out with customers. Instant redemption is one feature that was cited by half of our respondents. Having a large number of redemption opportunities available was cited by a third. And it is the higher income groups (and therefore the most attractive groups for marketers) that are really focusing on these offerings.
It seems that now is the time to focus on adding or improving loyalty programs to help engage customers and maintain the relationship with the post-recession consumer.