Rising interest rates, an abysmal housing market, the resumption of student loan payments, and record inflation have all had an enormous impact on consumer finances in 2023. Though financial concerns are on the rise for many Americans — a study from Ramsey Solutions found that 51% of Americans surveyed are struggling to pay their bills, and 42% said the same about paying for food — will 2024 be any better? Or worse?
We asked Erica Sandberg, the nation’s top consumer finance expert and journalist, a series of questions about Americans’ finances in 2023 and trends she foresees in the New Year.
- Consumer spending and travel demand increased in 2023, as did the cost of goods and services.
- The average store card APR hit a record 28.93% in 2023.
- Student loans will be problematic in 2024, and more people may see credit score damage due to borrower default.
- Neobanks and digital banks will continue to introduce new borrower-friendly products, while major issuers may pull back on expensive rewards and perks.
- AI will be a major force in the financial services sector in 2024, but this is not exclusive to the finance industry.
- Increased prices and labor shortages may reduce travel demand in 2024.
- Gen Z may be encouraged to save more in 2024.
- Regardless of a resurgence to return to the office, downtown districts are suffering.
What was the most impactful 2023 development in the finance industry?
“We saw a flurry of intense consumer spending in 2023 despite rising inflation that caused the price of goods and services to escalate. Travel, in particular, took off. There was a huge pent-up demand for vacations, as well as major events, such as weddings and parties, that people had put off during the pandemic.
Meanwhile, the Fed hiked interest rates, causing credit card APRs to increase. The cost of consumer borrowing shot up. For example, in 2023, the average store card APRs hit a record 28.93% APR.”
What are likely to be the biggest stories in 2024 relating to the finance industry?
“Student loans will emerge as one of the top stories as borrowers struggle to make their payments. Some will stop paying altogether, being willing to sacrifice their credit scores without understanding how damaging that action will be.
We will see an increase in the number of student loan borrowers with damaged credit when they fail to pay as expected. In 90 days, the lender will mark their accounts as delinquent. That will cause their credit scores to decrease, making it much more difficult to borrow at preferable rates. Past-due accounts will also impact their ability to rent a home, an essential for most young adults.
If they do not handle their accounts appropriately, in 270 days, they will be officially in default, causing collection action and other penalties. If that happens, we will see many more people seeking financial assistance.”
What trends do you expect to emerge in 2024?
“Creative banking and credit products are on the horizon. Neobanks and digital banks will introduce innovative products and services. We will see more ways for consumers to save, debit cards that offer rewards, and flexible credit products that are both secured and unsecured.
Conversely, traditional credit card issuers may pull back on perks that are expensive to offer. We saw that happening in 2023, but issuers will continue to reevaluate the suite of costly benefits that greatly impact their bottom line.”
Which trends will ascend/gain greater traction/have a huge impact in 2024?
“Artificial intelligence (AI) will become a major force in the financial services industry. Consumers will experience chatbots that will revolutionize the customer service experience. This technology will make it easier to be connected to appropriate credit products and mitigate problems before and after they occur.
Security will be tightened by biometrics, with an increasing number of companies using eye, palm, voice, and palm prints. AI will also help people make more refined shopping decisions.”
Which trends will fall out of favor in 2024?
“Travel was hot in 2023, but there may be a cooling in 2024. Hotel rates are expected to increase, both domestically and internationally, as inflation rises and labor issues put pressure on the hospitality industry.
The days of relying on expensive credit products to get by may also be slowing down. Credit lines may decrease as lenders aim to reduce risk amidst recession fears.”
What predictions might others find surprising?
“I believe there will be a greater interest in saving money, especially among younger consumers. Gen Zers are or will be confronting an uncertain job market, particularly as the tech sector rebalances with layoffs and hiring freezes. How will they react?
Although some who are burdened with high student loan debt may struggle to make their payments, they will also pull back on spending and increase their savings — a conventional financial approach that this generation hasn’t been known for.”
How have any leading trends from years past evolved this year?
“The COVID-19 pandemic, which lasted for approximately three years, profoundly affected how consumers view and treat money today. The impact cannot be overstated. The reverberations will last for many years to come.
At the beginning of the pandemic, there was an assumption that people no longer would go to the office, but there has been a resurgence of in-person work. Still, cities across the United States have suffered as their downtown and financial districts hollowed out. 2024 is an election year, and these issues will certainly arise.”
If there’s one thing that a predictions-focused story should convey, what is that one thing?
“Spend a lot more time talking to and listening to consumers from a wide variety of demographics. Experts and academics produce excellent studies and reports, but the real nuggets of truth typically come from people trying to manage their money. Anecdotal evidence is essential.”