Everyday life barely resembles what it did a year ago. Many of us work differently, save differently and certainly spend differently. The COVID-19 pandemic halted some financial behaviors while creating new ones.
Some of these trends might unwind in coming months, once vaccines are widely distributed and the health risks subside. But others could endure much longer, possibly becoming permanent fixtures. Here are some money-oriented themes for 2021 and possibly beyond that were created at least partly by the health crisis.
Pent-up demand could lead to spending surge
As consumer confidence returns, so will spending as pent-up demand is unleashed. “That has been the experience of all previous economic downturns,” said a report on emerging trends from management consultant McKinsey & Co. One key difference this time is repressed economic activity in many service and leisure areas. “The bounce back will therefore likely emphasize those businesses, particularly the ones that have a communal element,” the report said, citing leisure travel as an area that could recover quickly and much faster than business travel. Jack Ablin, chief investment officer at Cresset Capital, sees a coming wave of YOLO spending, tapping into a “you only live once” mentality that will center on recreation, leisure and other experiences stressing social interaction. A related spending trend could see the continued popularity of online shopping, curbside pickups and other retail shifts hastened by the coronavirus pandemic and social-distancing measures to control it.
In nine of 13 major countries surveyed by McKinsey, at least two-thirds of consumers said they have tried new kinds of shopping, and nearly two-thirds of consumers said they continue to use them.
“The shift to online retail is real, and much of it will stick,” the report said. E-commerce sales gains over the first few months of the pandemic roughly equaled the gains achieved over the prior decade, McKinsey added.
Savings gains could evaporate
One of the remarkable aspects during a year when so many people struggled is how well consumer finances held up. The nation’s personal savings rate jumped to near 13% late last year – about twice the recent multiyear averages – while credit scores rose to record-high levels and bankruptcies fell to three-decade lows. Some of these improvements reflect unusual monetary assistance from the federal government, from stimulus payments to enhanced unemployment benefits. Also, many consumers really did tighten their belts, as often happens amid tough economic times.
But much of the savings improvement reflected an inability to spend money as freely as before, with lavish vacations discouraged, restaurants restricting service and live entertainment severely curbed. “Americans saved a record share of their income last year, with disposable income topping $1 trillion despite record job losses,” Ablin noted.