A Closer Look at How COVID-19 is Smashing American’s Finances

Coronavirus impacts the U.S. economy deepens and more and more citizens will be suffering financial anxiety. A concern is that where banks and credit unions are reaching out with messages of potential relief for consumers, they are failing to connect.

The impact of the coronavirus pandemic on the U.S. economy is all over the nation’s front pages, but nothing registers quite like news directly from the home front. Fresh findings of the impact on the individual from an ongoing consumer poll by J.D. Power indicate that the pain of shuttered businesses, layoffs, furloughs, and pay cuts has not yet hit its own peak, even as the nation awaits the peak of the virus at the local, state and national level.

J.D. Power has been performing its poll since late February. In the latest, taken between April 3-5, the firm asked how the COVID-19 crisis has affected respondents’ personal financial situation. Nationally, they answered:

• Devastated my financial situation 9%
• Severely hurt my financial situation 19%
• Somewhat hurt my financial situation 43%
• Has not impacted my financial situation 26%
• Has improved my financial situation 2%

This is the state of things one week into another full month of social distancing, voluntary isolation, and schooling and working from home. The journey to April 30 will be a rough one. The research found that 55% of those surveyed report being somewhat stressed over their overall financial situation — and 27% say they are very stressed.

In terms of employment, respondents told J.D. Power this:

• 25% are working fewer hours.
• 21% have temporarily lost their jobs.
• 14% have a lower commission or bonus income.
• 5% report lowered tip income.
• 6% have permanently lost their jobs.
• 13% have applied for unemployment.

In an earlier edition of the research, in mid-March, 44% of those responding said they have to go into work to get paid. While some shuttered companies have kept people on the payroll, how long that lasts even with federal assistance is iffy at best.

In terms of the outlook, these Americans are veering to the pessimistic. While 55% of the sample expect the unemployment rate to return to pre-coronavirus crisis levels within a year, 37% expect the employment slump to continue beyond that, with 14% predicting that it will last three years or more.

While many scoffed at the illness in its early days here — the TV interviews with arrogant spring breakers complaining that beaches and bars were closing up in Florida are still fresh in mind — 71% of Americans now consider the pandemic to be extremely serious.

The COVID-19 pandemic’s economic impact has hit two out of three Americans ‘ pay. While 33% have not seen a change, and 2% have seen an increase — perhaps they are scalping toilet paper — of the rest, their paycheck has:

• Declined by 75% or more: 11%
• Declined by 50%-74%: 14%
• Declined by 25%-49%: 17%
• Declined by 10%-24%: 14%
• Declined by less than 10%: 10%

Reality Check: A point that is troubling for financial institution marketers is that an increasingly anxious public may not be hearing its messages.

More about this later in this article, but here are some figures on communications from primary financial institutions about coronavirus issues of all kinds:

• 40% of respondents have heard from their financial institution and found it helpful.
• 21% have heard but didn’t find what they heard helpful.
• 16% say they haven’t heard but would like to hear something.
• 12% haven’t heard anything and don’t want to.
• 10% don’t know if they’ve received any messages.

Further, while 32% of respondents said they felt their primary financial institution had shown concern for their personal financial situation, 35% said it had not. Another 32% didn’t know.

For only a third of consumers to think financial institutions care is “a huge emotional disconnect,” according to Bob Neuhaus, Vice-President of Financial Services Intelligence for J.D. Power. He says institutions need to start getting more specific about how they can help and what consumers should be doing. As the following will show, the hunger for help is going to grow.

Where and How Badly Economic Impact is Hitting

Looking at the two major economic status measures in the poll — personal financial situation and family income — by region and by other groupings highlights trends of concern.

In terms of personal financial status, the middle of the country, as demonstrated by the map above, has been hit somewhat more lightly than the Pacific and Eastern coastal regions.

Among age groups, the impact for all groups except people over 60 was about the same, around 30% devastated or severely hurt. The oldest group saw only 20% in those categories. Generally the higher someone’s income level, the less likely they had been affected badly so far. Among ethnic groupings, however, the range of those devastated or severely hurt is extreme:

• Native American 47%
• Black/African American 41%
• Latino/Hispanic 40%
• Asian/Asian American 35%
• White/Caucasian 24%

Remember the Day After Tomorrow. In relief efforts now and in later credit decision making as the economy comes back, banks and credit unions will need to be careful that well-intentioned efforts don’t backfire and trigger “disparate impact” lawsuits by private groups or federal agencies such as the Justice Department and the Consumer Financial Protection Bureau.

In terms of the impact on family income, looking at the trend regionally for those who saw a decline of 50% or more, the Mountain region has actually felt the least pain so far and the Pacific Coast the most.

By age, 30-44 year-olds have felt the biggest effects on income, with 29% saying they have seen declines of 50% or more. Again, people over 60 have seen the least effect, only 12% reporting such declines.