Jaspreet Singh Says Banks Are Getting Worried: Here’s How You Need To Prepare
Money expert Jaspreet Singh opened his latest Minority Mindset video on YouTube by citing a statistic from a Financial TImes article. It said the largest U.S. banks reported the biggest jump in loan losses since the start of the COVID-19 pandemic. According to the piece, JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley set aside an estimated $7.6 billion to cover loans that could go bad.
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When a bank puts aside this amount of money, it is money it cannot use to generate revenue. Singh said banks make money by lending out money and generating interest back. If a bank isn’t lending money, it isn’t getting interest back which means less revenue.
What is getting banks worried enough to set billions aside — and what should you do to prepare?
Why Are Banks Worried?
In this instance, the six banks mentioned in the article are worried about loans defaulting. Setting aside $7.6 billion will help protect them against loan losses.
Why would banks set this kind of money aside if everything looks like it’s booming in the economy? Singh cited two reasons behind this decision. The first is the stalled impact of higher interest rates. While we have yet to see the full impact of higher interest rates, Singh said banks may be thinking these higher rates may cause some landlords and commercial business owners to default or be unable to make loan payments.
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The second reason is because of slowing consumer spending. Consumer spending is one of the main drivers of the economy. If consumers don’t spend their money, businesses stop making money and are unable to keep expanding and hiring more employees.
Aside from living in a consumer-driven society, we also live in a credit-based society. Singh said regular people can spend money not based on how much is in their bank account, but how much they have available in credit. Singh said we’ve been seeing the economy grow, incomes rise and creditworthiness rise, all of which equals a spending boom. Rising creditworthiness means banks and credit cards look at consumers and their incomes. They notice they are making more money and suggest bigger lines of credit or another home equity loan.
However, consumer spending is cooling down in 2023 because the prices have risen so fast. Singh said people have to dig into their savings to afford everyday necessities and are getting deep into credit card debt to continue living their lives.
Imbalance in Finances
More and more Americans are now realizing their income is not enough money to fund their lifestyles. Should they cut back or go into debt? Statistically, Singh said many are continuing to get deeper in debt which causes credit card balances to skyrocket.
Eventually, this will hit a breaking point. By the end of 2023, Singh said the general consensus among big banks is that the majority of Americans will no longer have access to spending. If the spending power of Americans goes down, it may cause a break in the economy.
The final factor to consider is the resumption of federal student loan repayments in October 2023. With inflation remaining high, people staying in massive amounts of credit card debt and using their savings to pay for expenses, those who are unprepared for an additional monthly bill in the form of student loans will be unable to juggle all these expenses.
Jaspreet’s Preparation Advice
Before your student loan payments kick in, Singh recommends preparing for this additional monthly bill now.
Put money aside to aggressively pay down the balance before the interest rate kicks back in. Those who use this approach will have less money, and less interest, to pay back in student debt.
What does it all mean when spending is slowing down, credit card debt is rising and student loans are about to resume? In the coming 18 to 24 months, Singh said we’ll see many shifts in the economy. Your job is to get financially smart by learning how to invest and prepare by putting money aside with enough money set aside to protect yourself in the event of an emergency.
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