Confidence In Borrowing: Survey 2016

Executive Summary

When I was eight, I made my first big purchase with money I had saved forever: a bedside alarm clock with gold trim and a Lucite case from the shelves of Payless Drug Store. This fine machine held the promise of independence; no more relying on my parents to wake me in the morning. I felt so confident that I could save my money and use it to buy whatever I needed.

Fast-forward many years, and you and I know that sometimes making a purchase isn’t as simple as that. Paying with credit is commonplace, and it’s usually the contract we make when we buy a car or a house, or invest in higher education. 

Knowing how consumers feel about borrowing is useful for predicting their behavior, and can be instrumental for developing strategies to support consumers as they navigate how and when to borrow and invest. And, for credit unions that rely on a thriving loan portfolio to support their financial condition, gaining insight into consumer borrowing sentiment can aid in critical planning activities.

What Is the Research About?

Through a national survey fielded in September 2016, Filene researchers set out to gain an understanding of Americans’ borrowing confidence and outlook for the next six months. Among those surveyed, 85% currently had loans outstanding.

• Nearly 93% of current borrowers report they plan to avoid incurring more debt over the next six months.
• More than 80% of respondents are concerned or stressed about their current debt. Healthcare, credit card, and student loan debt are perceived as the most stressful forms of debt, whereas mortgage, entertainment, and auto loan debt are perceived as less stressful forms of debt.
• Lack of earning power, worry about credit scores, and unfavorable economic conditions are the most important barriers to borrowing.
• More than half of the respondents report planning to avoid debt unless completely necessary, and less than 10% feel confident taking out more debt. 

What Are the Credit Union Implications?

There is a strong hesitation to borrow on the part of consumers. And yet despite this reluctance, history has shown that people do indeed borrow. So what insight does this information provide credit unions? 

For most credit union members, the necessity of taking out a car loan will not be associated with the joy and pleasure demonstrated in current car advertisements. Nor will the cap and gown of graduation signify the unambiguous joy of educational accomplishment.

Picture instead the car loan applicant’s need for dependable and safe transportation to work as the primary driver for their decision to go into debt. And picture the recent graduate—saddled with student loans, embarking on a career and hoping for a healthy return on their college investment, concerned about their ability to pay off existing debt without a hiccup. 

Knowing that consumer confidence in borrowing is low provides actionable information that credit unions can use to their benefit:

• Understanding the fears and concerns members have toward debt allows credit unions to rethink their marketing and communications strategies.
• Credit unions can create services that speak to low consumer confidence, and provide support and reassurance to help develop trust among members in making investments.
• Credit unions can use the reality of low consumer confidence to reevaluate their loan growth forecasts and goals to better reflect the tepid member demand for debt. 

Maybe someday buying a car or a home will be as simple as buying an alarm clock. Until then, Filene will periodically update data on consumer borrowing attitudes and intentions and keep credit unions informed on consumer confidence in borrowing into the future.