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According to the FDIC, banks and credit unions saw a collective increase in deposits of 3.5 trillion dollars during 2020 amid COVID-19. In other words, banks and credit unions have been flooded with cash. In fact, CNBC reports that Bank of America CEO, Brian Moynihan, said that in May of 2020 “checking accounts below $5,000 in balances actually had up to 40% more money in them than before the pandemic.”
At a glance, all this sounds like positive news. People are saving more and the economy is slowly on the rebound. However, how well does this reflect America as a whole? In a recent survey, we asked 1,000 respondents how they plan to use their third stimulus check and if it would be enough to get them by. According to our findings, 25% of respondents said without the support of stimulus checks, they will feel insecure about their financial situation. Additionally, nearly 50% said that without the stimulus check they would struggle to cover their monthly living expenses such as rent, mortgage, and recurring bills.
What’s more, according to our findings, it seems that some Americans are still struggling to save. One-third of people surveyed said they save less than $100 per month and about 30% said they weren’t able to put their previous stimulus checks into savings at all. It seems that not only are people unable to save, they’re also relying heavily on credit cards to get by. Close to 50% of respondents have relied on credit to make ends meet on average of at least one time every six months. Within that same group, nearly half (44.6%) depend on credit every single month to make ends meet.
If the stimulus checks aren’t being used as a savings buffer, how are people spending the money? Around 44% of respondents said they plan to use the stimulus check towards their living expenses, with 25% planning on applying it towards credit card debt.
So what exactly is going on here? How can banks and credit unions be increasing deposits and swimming in cash, while people are still struggling to save and pay down debt? Perhaps it has something to do with unemployment. According to the Bureau of Labor, the unemployment rate in April of 2020 skyrocketed to 14.7%, the highest level since the Great Depression with the number of unemployed persons having increased from 15.9 million to 23.1 million in April alone.
Simply put, what we might be seeing here is two sides to the story, while some Americans have been able to save due to, possibly, job stability, a significant group who experienced job loss or hardship during COVID-19 has been struggling to rebound.
Although the government has stepped in to help Americans stay afloat during this turbulent time, it seems that a significant group of people might still need more help to make it through this last year. So if the stimulus payments are not enough to help a big portion of the population, what can financial institutions and fintechs do to help? Luckily, with the use of data, financial services providers can get to know their customers better. Data can help identify which customers are struggling the most, and give financial providers insights into how they can best help them turn their financial situation around. Furthermore, financial services providers can make it easier for consumers to budget smarter and spend more wisely without the heavy lifting. Intelligent financial wellness solutions make it so consumers can automate budget creating and tracking, while predictive alerts are able to notify them of any upcoming charges in real-time, so they can proactively manage their financial accounts.
Simply put, financial institutions and fintechs should use data to create powerful financial wellness tools that guide their customers towards better financial habits while taking the hard work out of the equation.
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