From a retail perspective, it’s hard to find numbers or analysis of the past year without also finding the word “cautious” in close proximity. Holiday spending for 2014: Cautious. Consumer attitude from recent gasoline price drops: Cautious. Outlook for 2015…. You get the picture.
Given the depth of the financial crisis in 2008 and the habits of the post-crisis consumer, this attitude can hardly be blamed. For retailers, however, the state of the American consumer might better be described as “tempered.”
It describes a cohort that has been tried, toughened and come through stronger. That’s what MasterCard Global Insights research shows. Our most recent work on the attitude toward credit and debit spending — arguably a leading indicator for retailers — captures a more nuanced portrait of how Americans are feeling about the economy and their own pocket five years into the recovery. In short: The post-crisis consumer has learned some tough lessons and come through with a tempered but tactical attitude toward credit and debit usage, disposable income, and saving for the future.
Our research focused on past-year usage data and attitudes, mapping these against behaviors that manifested in changing spending patterns as evinced in publicly available numbers. Global Insights’ work during this period has yielded longitudinal results plotting the state of U.S. consumer spend post-crisis. According to the University of Michigan’s American Consumer Satisfaction Survey, consumer sentiment improved by 13.1 percent during 2013 — growth that has carried into 2014. But it is the environment as it evolves over time that shapes how consumers build and consider their financial goals. As Global Insights continues to monitor the U.S. consumer response five years on, it appears that U.S. consumers have continued to internalize the lessons of the crisis. They do not seem to be choosing either debit or credit cards, or using credit cards as wish-fulfillment devices, but rather using both as each fits their purposes. Global Insights analysis shows that as U.S. consumers emerge from the shadow of financial collapse of 2008, credit and debit come together as two necessary products, the functionality of each increasing the value of the other, in budget and spending management.
To understand the impact of these changing economic conditions, MasterCard’s research surveyed 5,000 people across the country to learn how they view the wider economy, their own place within it and how they are making changes and planning for the future. Some of the broad results speak to an improved sentiment — 79 percent of those surveyed had confidence in reaching their financial goals, and 68 percent said they were confident they have enough for their retirement.
But more valuable insight comes from nuances in the survey. Global Insights has identified four clusters of consumers, each with different attitudes, behaviors and goals. Understanding how these groups are different is critical for those financial institutions dealing with them — there is too much complexity at stake to simply invoke a “one-size-fits-all” strategy.
The methodology that gives rise to the segments is new to this iteration of Global Insights’ work on the relationship between credit and debit and deserves some explanation. In the immediate aftermath of the financial crisis, the early editions of the paper grouped the consumers surveyed into two super-segments: “Credit Worthy” and “Credit on the Edge.” Such a broad-stroke approach allowed Global Insights to capture a wide range of attitudes, motivations, behaviors and array them under rubrics that broadly translated into “more confident/less impacted by the crisis” and “less confident/more impacted by the crisis.” While this served its purpose at the time, the latest version of the paper took the opportunity to update and improve this methodology.
By surveying twice as many people as in previous surveys, Global Insights was able to identify more finely grained segments that provide detailed insight as to which attitudes, motivations, and behaviors drive spending changes; what emerged in the four clusters was just that.
While there are obviously more than four types of motivations, and therefore some elements of the clusters overlap, they present a clearer view of how U.S. consumers view the changes in the economy since the start of the financial crisis. The changes can be understood not just as charts and tables, but as a shift in the financial goals and confidence of the American consumer.
- For many of the Positive Newcomers, the financial crisis hit them at the start of their earning years, so while it was a significant hurdle to cross, it didn’t necessarily wipe out an established asset base.
- For the Settled and Self-Possessed, their more significant savings and investments, coupled with being more likely to be retired, result in a greater level of confidence in meeting their simpler financial needs at this life stage.
Differences like these will be important in understanding how to craft the products and services each cluster needs.
That’s why as the U.S. consumer internalizes the lessons of the financial crisis, retailers should take note of the changes that go beyond simply “cautious.” Credit and debit spending have both grown since the bottom fell out of the economy. What has shrunk, and shrunk drastically, is Americans’ willingness to borrow long-term to finance either consumer goods or necessary purchases — as evinced, for example, in year-over-year growth in credit card receivables.
As the recovery ticks along, different approaches are needed for different consumers. Both credit and debit are growing, so focusing on only one from marketing and operational standpoint will not be effective. Some consumers prefer one to the other, but it is not as simple as only credit or only debit. Some (Settled and Self-Possessed) are using credit and managing their debt, but others (Feeling the Pinch) are using debit and cash as they look to develop and stick to budgets to avoid debt.
Merchants need to understand this consumer mindset.
It has not been top-of-mind for American consumers since the 1970s — and maybe since the second World War, when the Greatest Generation, which remembered the Great Depression all too well, also sought to get its share of the great post-war boom. It’s not — or not simply — that responding to U.S. consumers’ desire to save as well as to spend is responsible citizenship. Most of all, it’s where the U.S. consumer is leading retailers, financial services institutions and, most importantly, their own children as they educate them explicitly and by example in how to handle money.