Looking Ahead to 2020

By Lindsay Frankel
Inside Subprime: Feb 11, 2020

Americans are holding more debt, but their credit scores peaked last year. But how will the picture change in 2020, as the economy slows, new technology impacts the financial landscape, and new legislation attempts to improve financial outcomes?

Economic growth may slow down

Several indicators of a strong economy remain, but predicted growth has slowed from previous years, and the risk of a recession will increase in 2020. Auto loan delinquencies for subprime borrowers are higher than they were during the Great Recession, and experts say high holiday spending may be a negative indicator for some families. Speedy rent hikes are making it difficult for renters to get ahead, and most people are still living paycheck to paycheck.

Add to that trade disputes and an uncertain political environment that is affecting businesses, and you’ve got a recipe for slowed growth. According to a survey of 53 forecasters by the National Association for Business Economics, economists predict growth of 1.8 percent in the new year, down 0.5 percentage points from 2019, and the odds of a recession will increase from 5 percent to 43 percent by the end of the year.

Interest rates will remain the same

The Federal Reserve does not plan to cut interest rates in 2020, despite Trump’s recommendations. The current interest rate can fluctuate between 1.5 and 1.75 percent, down from almost 2.5 percent a year ago. A lower interest rate makes it easier for people to borrow, opening the door to homeownership, vehicle ownership, and even entrepreneurship for many Americans. But it also means that people with savings accounts aren’t earning as much, and retirees have said that keeping rates low hurts their finances.

More people will reach retirement age

As more baby boomers reach retirement age, more jobs will open up for younger Americans, indicating a strong labor market through 2025, when the trend will begin to decrease. But how will those baby boomers fare in retirement?

Thankfully, the U.S. Government Accountability Office has observed a decreasing trend in the percentage of older Americans with no retirement savings. Only 48 percent of households headed by someone aged 55 or older had no retirement savings in 2016, the most recent year for which data was available. That’s down from 52 percent a few years before. However, that still leaves almost half of older adults unprepared for retirement, which could strain public resources and slow economic growth.

Technology will change banking

Since 2008, a slew of online-only banks have emerged, providing options for customers that cost less than the fees associated with brick-and-mortar banking. Business Insider estimates that global neobanks, which have some 39 million users currently, will grow to 98 million users by 2024. In addition, legacy banks are utilizing mobile banking, and mobile payment platforms are surging in popularity.

This is good news for unbanked and underbanked consumers, who are often excluded from mainstream banking because of the high fees. In previous years, these consumers relied on payday lenders and check cashers, but financial technology companies are starting to provide borrowers who lack an established credit history with access to credit. They’re utilizing technology to analyze other information, like rent and utility payments, to determine risk. If subprime borrowers can access cash at a lower rate when they need it, they’ll be more likely to be able to stay on top of their debt and build wealth for the future.

Your financial future in 2020

With slowing economic growth and the increased risk of a recession, U.S. consumers need to be vigilant when planning for their financial futures. That includes diverting more income into an emergency fund to be able to manage unexpected expenses or job loss. Individuals can also take advantage of innovations in banking to access the services they need at a lower cost. While there will always be factors outside of our control, personal financial planning allows us to protect ourselves from setbacks and build wealth for the future. So while you keep in mind the financial forecast for 2020, start working towards your own financial goals.

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