JD Power found in its recent survey report that as inflation hits a four-decade high of 7.5%, consumers are feeling increased stress about their financial health. It’s no surprise that 62% of all survey respondents indicated that the price of goods was rising faster than their income, and 30% revealed that they were worried about money at work.
The study is a monthly pulse survey of 4,000 respondents in the United States.
Inflation has the biggest impact on vulnerable, stressed and overwhelmed bank customers, according to the study. Vulnerable customers are defined as people who struggle from month to month to meet their basic needs such as paying bills. Stressed customers make monthly payments but can’t plan for future finances, and overwhelmed customers have a future plan — like a 401K through their job — but struggle to meet monthly needs.
The study found that 75% of stressed customers and 71% of vulnerable customers indicated that the price of products exceeded their income. At work, 40% of vulnerable customers worry about their finances and indicated that getting paid more frequently would alleviate some of that stress.
Employers struggling with employee retention and staffing for their businesses could address these issues and ease the financial burden on their employees by looking beyond the standard payroll cycle.
According to the study, 76% of hotel and restaurant workers said they would change employers if it meant getting paid more often, with 51% of all workers saying they would change as well.
“I believe the tides have turned, and [employers] who do not plan to give consumers and their employees greater control over the money they earn, with more frequent deposits, will add this to a list of reasons why they lose employees in the big quit Jennifer White, senior banking and payment intelligence consultant at JD Power, said ZDNet.
As payment technology advances and payments become more streamlined – like with FinTechs like Venmo, Square, and PayPal – the standard weekly, bi-weekly, or monthly payment cycle is starting to look obsolete.
When employees have greater control over their finances, they experience increased levels of empowerment. White said those empowerment levels are the lowest since February 2021.
Different payment systems, such as pay-as-you-go, could give employees back that sense of empowerment at a time when financial stress weighs heavily on them. As inflation rises, the demand for pay-as-you-go or other systems that give employees more control over their finances could also increase.
“Workforce sentiment, particularly in sectors like hospitality, services or retail, [is that the palate] as more frequent wages go up,” White said.
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However, it is not up to the employer to promote the financial well-being of consumers. According to the study, 83% of respondents said it is at least “somewhat important” that banks offer financial health programs to their customers. More than a quarter of respondents said their banks had failed to support financial health.
White said banks need to support financial health with a “three-tier” approach: How useful are these programs or products? Are the programs and products reaching the right consumers? And how effective are the programs once the consumer uses them?
“Once consumers use these products, banks need to make sure they operate seamlessly. The chance to delight is there on the surface, but so is the chance to deceive,” White said.
Banks could help ease some of the stress consumers are currently feeling by offering programs that give customers faster access to direct deposit or emergency funds to help bridge the gap between paychecks when bills are looming.
“Banks need to make sure that they are useful, that they have the right products in their product range and that [they’re] mindful of the need for consumer support. It’s not just about transactions anymore,” White said.
If customers feel their financial needs are not being met by large financial institutions, they might start turning to neo-banking options like Chime or SoFi. American Express has also introduced an online consumer-only checking account as a banking alternative.
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These digital banks typically offer very low fees – which vulnerable consumers might find more appealing – and transparent systems. But what impact that change might have on big banks remains to be seen, White said.