As 2022 is slowly approaching the end of the year, it’s important to take a moment to look back and reflect. We all know that the past few years have been a rollercoaster with significant events like the covid-19 pandemic, the Ukraine War, and the rise of inflation. Such significant effects on consumer debt are crucial to examine and bring to light in order to better understand your consumer and their buying behaviours. Otherwise your company risks on losing revenue and heading towards a downward spiral.
This year has seen a whirlwind of events that have had unprecedented effects on society, putting a significant financial strain on individuals, and resulting in economies worldwide to produce the highest inflation rates seen in decades. Inflation has hit, and it has hit hard, with the resurgence of credit card debt being seen all across the globe. For example, in the United States, 43% of consumers are expected to add to their debt in the second half of the year. It’s a domino effect that we’ve seen this year, with external factors creating higher prices – and higher prices resulting in budgets not being able to be stretched as far as they were previously. In the end, limited budgets are pushing the consumer to resort to credit card debt, which combined with higher interest rates, place the consumer in a difficult position that will make it difficult to dig out of for a very long time. A hard pullback in consumer spending means that your company needs to work harder (and smarter) than ever to show that you can bring some sort of value to the customer if they were to go with your brand.
(Image Source: Investopedia)
The pandemic, albeit began a couple of years ago, has seen a trickle-down effect on both individual consumers and economies globally. The most predominant being the rise of unemployment in 2020, instability in the economy, and waves of unforeseen circumstances such as the need to work from home and adapting to a flexible work environment. There’s no doubt that the world was not prepared for what was to come, and two years later, the world is still trying to work around the way daily life has changed. As a result of covid-19, the pandemic has caused a tremendous shift, creating instability and financial difficulties for markets all over the world. A spike in insurance created challenges for consumers, as some insurance companies did not cover individuals as a direct result of the pandemic. Moreover, the insurance systems around the world were overwhelmed by the number of claims, causing a massive backlog. This redefined the insurance industry, as employees had started to significantly rely on unemployment benefits from the government. The challenge that comes from this is what happens afterwards…extended unemployment insurance, eviction moratoria, and mortgage and student loan flexibilities were bound to end eventually, leaving individuals in an unstable situation with no way of escaping debt. Will markets be able to turn this around and will consumer spending ever go back to the way it was? Your company needs to consider how debt can be affecting your target consumer’s priority and decision-making.
The rippling effects of the War in Ukraine have exacerbated a global cost-of-living crisis that has not been seen in years. This has created a domino effect, beginning with countries fiscal balances deteriorating, and in turn, increasing poverty levels, food & energy prices, and more. Immense changes in importing and exporting created challenges not seen for decades, such as the gas crisis, with prices skyrocketing around the world faster than ever seen. Such trends have resulted in a unilateral challenge for the world economy, which as seen below, has resulted in a massive increase in inflation. Your company must take a step back and examine the trending price pressures, and determine the best strategy when deciding which prices to have as a brand, which products, and even which messaging.
(Image Source: European Union – External Action)
Such situations as mentioned before, all show that no one dimension of the current economic crisis can be fixed in isolation. So what is the next step? Will it be possible to get out of this current financial crisis and bring stability back to the global market?