4 new trends in consumer finance that you should now
Nothing in the world of finance stays still for long, particularly trends that affect the consumer. As finance and technology grow more and more intertwined, lenders increasingly must rethink long-standing practices, while creating new products and services to attract consumers and expanding their market share. Here's a look at some recent trends, and how they're affecting consumers' pocketbooks in 2017, and beyond:
1) The growing diversity of America's population
By 2044, the U.S. is expected to become a majority-minority country, or a society in which Asians, Hispanics and other races outnumber whites. This shifting demographic picture carries consequences for the finance industry, which will have to change its practices to win over different types of consumers than they're already used to serving now.
For example, Latinos are expected to make up the majority of new home buyers by 2020, according to the Center for American Progress. Yet one in five African-American or Latino residents don't have a bank account. These gaps in financial access will require lenders to develop new products and services.
2) The exploding auto title loan industry
Consumers taking out an auto title loan borrow against the value of their vehicle title, which the lender then keeps for collateral. The borrower must fully own the car, whose value must also greatly exceed the amount being loaned. This option is attractive for consumers with poor credit, who often have no other access to it. About two million people take out auto titles per year, the Los Angeles Times reported in 2015.
Auto title loan critics view it as predatory lending, citing interest rates that average 100 to 300 percent. The borrower risks losing his car if he can't repay, or getting stuck in a long-term debt cycle after resolving his immediate problem. Proponents argue that auto title lending serves a market that lenders otherwise tend to bypass.
3) The increasing influence of technology
The portability of digital technology is giving consumers more access to capital than they've ever enjoyed before. Adults in nine states and the District of Columbia, for example, now have more access to cell phones than bank accounts, the Center notes.
The days of actually walking into a bank, or even using an automatic teller machine to access an account are slowly becoming a thing of the past. According to the Center, this development opens up access to capital for markets that have traditionally been ignored, while creating opportunities for online financiers and peer-to-peer networks to challenge the roles of traditional banks.
4) The yawning gap between savers and non-savers
Many groups have not fully recovered from the 2008 financial crisis that shook confidence in bankers and markets. One snapshot is the growing gap between those who can save money, and those who can't, the Federal Reserve notes, in a 2015 survey of household financial well-being. For example, only 53 percent of those surveyed felt they could come up with $400 to handle an emergency.
By contrast, 14 percent said they wouldn't be able to cover the cost, while 10 percent suggested they'd have to sell something. Two-thirds of those households who said they'd either borrow or sell something had incomes of $40,000 or less, the survey showed. Survey participants who reported saving money are setting it aside for emergencies, and likely to have household incomes of $40,000 or less. Households with incomes of $100,000 or higher are more likely to be saving for retirement.
These types of findings, the center suggests, will require U.S. bankers and policymakers to collaborate on new ways of closing the financial gaps between American's various population groups.
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