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Consumer Confidence Rebounds—
Or Does It?

Over the past 12 months, we have seen a bottoming-out of consumer confidence in the United States.

The uptick in both the University of Michigan and Conference Board indices (see chart below) has resulted from a combination of the stock market rebound, housing price stabilization, and other factors.

However, despite this improvement in confidence, the Bridge Strategy Consumer Financial Pulse survey continues to indicate that the actual financial behaviors of consumers are more consistent with a "recession mindset". We believe that consumer-oriented finance businesses are wise to pay more attention to these observed behaviors than to stated confidence levels when marketing to current and prospective customers.

Our view into consumers' financial behavior over the last two quarters shows that the level of economic stress remains high, as evidenced by:

  • A continued reduction in the demand for credit driven by lower consumption as well as a shift to debit and/or cash.
  • A significant increase the number of consumers who are liquidating retirement assets (IRAs, 401Ks) to cover day-to-day expenses. This is especially troubling when coupled with the reduction in asset value experienced in late 2008 and 2009 as investors are selling assets at a low point.
  • An increase in the proportion of consumers who report that they have shifted from "pay-in-full" payment behavior to "partial" or "skipped" payments on recent credit cards statements and a fairly significant reduction in the proportion of card users who describe themselves as convenience or points-oriented card-users.
  • A decrease in regular contributions to investment accounts - presumably because of nervousness as well as to maintain personal liquidity.

This does not sound like a rebound

Consumer Confidence: Jan 2007 – Mar 2010Why the apparent divergence between the rebound in consumer confidence and actual consumer behaviors? A simple answer is that although consumer confidence has rebounded, it remains well below the levels reached in 2006 and 2007. While true, we don't believe this is a complete explanation. We believe that consumers view the drop in the value of retirement assets to be a long term issue. While the rate of job loss has declined, and unemployment is off its lows, anxiety surrounding personal job security and income sustainability remain high. Even though the recession may technically be over, it will take job creation and income growth to truly change consumer behavior and sustain higher levels of consumption. Until the recovery becomes personal and is felt by consumers, it will not be perceived as real.

What does this mean to financial services marketers? While there has been an overall erosion of confidence in financial institutions, there has been very little switching behavior in response. Financial institutions need to re-examine their value propositions and brand positioning in light of shifting consumer priorities. An emphasis on trust, open communication, and personal relationships is becoming increasingly important. Continually look for opportunities to simplify customers' financial lives - anything that can be done to reduce confusion and enhance the sense of open, constant communications will help. Don't throw out the baby with the bathwater! Simply shedding consumers who are under stress may be getting rid of the most valuable long-term customers. Identifying those who are under temporary economic stress (i.e. job loss or income cut due to company stress) - and helping them through the situation - will pay dividends in the long-run.

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©Bridge Strategy Group LLC, 2010

Bridge Strategy's Consumer Financial Pulse is a quarterly survey of consumer financial behaviors. Each quarter, we dig deeply into a particular product area, e.g. mortgages, cards/payments, student lending, insurance, or retirement products.

For questions, comments, or additional information about the Consumer Financial Pulse, please contact us at: fs(at)