High Number of Americans Struggling Financially
The Center for Financial Services Innovation, an organization that monitors consumer financial health, released a study that shows the importance of proper risk management practices to protect an institution’s performance. According to the study, which was released in March, 138 million adults in the U.S. struggled to manage and control their finances. This trend can have serious implications for lenders and credit risk managers, and could impact institution’s strategies for growth in the coming quarters.
The number of U.S. adults struggling financially represents 57 percent of U.S. consumers, and is made up of four distinct types of consumers:
- Financial Strivers: This group has some savings, but carries an unhealthy amount of debt to income, making it difficult to plan for future large expenses.
- Financially Tenuous: More than half of this group is living paycheck to paycheck, while also straddled with an unhealthy ratio of debt to income.
- Financially Unengaged: The majority of this group have poor financial literacy, and do not know how much debt they hold.
- Financially At Risk: Two-thirds of this group say they would only be able to make ends meet for a month in the event of a loss of income. Three quarters say they cannot or do not save.
“If we are going to meaningfully and measurably address financial health in this country, we have to start with a deep understanding of consumer preferences, behaviors and pain points,” CFSI President/CEO Jennifer Tescher explained in the report. “This study reveals significant opportunities for policymakers, nonprofit organizations and financial service providers to create real solutions and empower millions of Americans to live healthy financial lives.”
With so many unbanked and underbanked consumers, lenders need the right tools to adjust to changing risks. As the number of underbanked borrowers continues to swell, leveraging insight from alternative data sources can help provide a fuller and more accurate picture of a borrower’s ability to repay.