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How the K-Shaped Economy is Reshaping Financial Services · Market Pulse

0:02
Welcome to the Market Pulse Podcast from Equifax,
0:05
where we break down the latest economic and credit insights to help you navigate
0:09
today's business landscape.
0:14
Hello, and welcome to our Market Pulse webcast,
0:17
where today we are going to be talking about the state of consumer wealth and
0:21
the overall condition of the US consumer in general. But first,
0:25
let's have an overview of the economic condition within the United States by
0:29
Justin Begley of Moody's. Justin?
0:31
The US economy continues to weather a string of significant shocks.
0:36
In just the past year, the economy has grappled with broad-based tariffs,
0:40
restrictive immigration policies,
0:42
and a global energy price shock from the war in Iran.
0:46
But the economy's resilience appears tenuous and it wouldn't take much for it to
0:50
falter. For the economy to grow,
0:53
consumers need to do their part and maintain their spending.
0:56
And they are at least in the aggregate.
0:59
Real consumer spending grew just over 2% last year and has continued to grow at
1:04
a similar pace in 2026.
1:07
Nominal retail sales growth cooled in June,
1:10
rising just 0.2% after advancing an average 1.1% over the previous
1:15
four months. Much of the deceleration though was due to lower gas prices.
1:20
And if we exclude gas stations,
1:22
sales rose a healthy 0.7% on the month,
1:26
and the breadth of the strength in core sales suggests that households used some
1:30
of the relief at the pump to buy other goods. Now,
1:34
the decline in energy prices stemming from the temporary ceasefire agreement
1:38
between the US and Iran resulted in meaningful inflation relief in
1:43
June. The Consumer Price Index fell 0.4% on the month,
1:47
lowering the year-over-year inflation rate from 4.2% in May to
1:52
3.5%. However,
1:54
hostilities between the two nations have escalated over the past few weeks,
1:58
causing oil prices to rebound above $80 per barrel.
2:02
This is well below April's peak, near $120,
2:06
but suggests that high energy costs will once again put strain on
2:11
household budgets in July and in the coming months if sustained.
2:15
And this will negatively affect the consumer outlook.
2:18
The level of anxiety among consumers is already unprecedented,
2:22
even in the deepest of past recessions.
2:24
Consumers are still recovering from the post-pandemic inflation surge and
2:29
are generally discontented with the higher price level.
2:33
Tariffs have exacerbated cost of living concerns and the recent jump in gas
2:37
prices has further squeezed household budgets.
2:41
And the labor market is also wobbly as demand for workers is soft and real
2:45
disposable incomes are virtually unchanged from the past year. Meanwhile,
2:50
credit stress is rising among the most financially vulnerable subprime cohorts,
2:55
and there is risk that performance deterioration could become systemic if the
3:00
labor market weakens further. For now,
3:02
Moody's Analytics expects that the consumer will continue to support the economy
3:07
through the rest of 2026, but downside risks abound.
3:11
Thank you, Justin. Today,
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we're going to be addressing a topic that many of you have been telling us is of
3:17
high importance to you, and that is the state of the US consumer overall.
3:21
And what is the,
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the impact of consumer wealth on that condition and their ability to handle
3:26
affordability as prices continue to, to rise?
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I'm joined today by our IXI chief strategy officer, Ian Wright,
3:35
who's going to help us unpack some of these, these details,
3:39
and we'll dive into how different populations are being impacted by the economic
3:44
conditions in different ways. So Ian, thanks for joining us.
3:48
Thanks, Tom. Happy to be here and looking forward to our conversation.
3:51
So one of the ways that we're going to frame this conversation is sort of
3:56
setting the stage by talking about how different populations are
4:00
defined, you know, before we even start going into how they are, ,
4:05
how they are impacted by rising prices and other economic conditions that we're
4:09
seeing today. So it, we all know that, that it's not a blanket, you know,
4:14
condition that, that all people are affected, you know, equally by rising,
4:19
, daily necessity prices like utilities, food, rent, and so forth.
4:23
But rather than infer, , these, these, , issues,
4:29
we want to actually put some quantifications, put some some
4:33
definition around these.
4:35
So we're going to be referencing things like the K-shaped economy to
4:41
illustrate how some people are actually thriving in these conditions and others
4:44
are struggling and what's happening to the people in between.
4:47
And we're also going to be talking about the impact of wealth and,
4:52
and other consumer finance elements on those trajectories
4:57
that different populations are, are going. So to start us off though,
5:02
we thought it would be useful to have a brief overview of what the overall
5:07
conditions are like. And,
5:08
and I'll ask Ian to give a state of what he's seeing in terms of the overall
5:13
wealth of the US population.
5:15
And I'll follow up with some insights around the credit. So Ian,
5:19
if you could take a stab at, at giving an overview of,
5:22
of what the wealth conditions are like out there.
5:25
Sure. I'd be happy to. And, and from a top level, high level, you know,
5:29
across the national story,
5:31
it's been a great story actually since the Great Recession.
5:34
So about the last 18 years or so,
5:36
we've seen consumer wealth really skyrocket with a little bit of a,
5:40
a hockey stick growth, especially since COVID. So if we look at post - COVID,
5:44
let's say, 2021 we've seen consumer wealth grow by about 20%.
5:50
Oh. I should mention when we're discussing consumer wealth,
5:53
the way we defined it is liquid assets.
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So the deposits that you have in the bank and your investments that you can move
6:00
between institutions.
6:02
So those that you control joint accounts IRA accounts,
6:07
but not your workplace savings that are,
6:09
are locked up and associated really with your employer.
6:12
So it's that liquid wealth that consumers can bring to bear to pay for their
6:16
necessities of life and also for their discretionary purposes and use
6:21
themselves to plan for the future. And with that 20% growth,
6:26
our last figure has consumer wealth at $74 trillion.
6:30
With the last year that we've got data for the growth being about $8 trillion.
6:35
So again, at a very high level, it's been a fantastic story.
6:40
But I think as we'll see when we walk through some of the numbers and break them
6:43
down in the populations, you'll see, ,
6:45
not everyone has been able to take advantage of that growth. Yeah.
6:49
One of the metrics that shows that,
6:51
we looked at wealth in 2021 versus 2025,
6:55
we wanted to see what the typical consumer had in wealth. You know,
6:59
how are they doing overall for that mythical kind of middle... Well,
7:02
it's not mythical, it is the middle households in the US.
7:05
And we use medians instead of averages because ultra-high net worth households
7:09
can really skew some results. We did that.
7:12
We looked at the median household wealth in 21. We compared it to 2025.
7:18
It was $75,000, which is, you know, fairly good number,
7:22
but it actually went down by 1%.
7:24
So if we had that 20% increase in that time period, why did the median go down?
7:28
Well,
7:29
I think we'll see it's because we didn't see a significant number of households
7:33
be able to take advantage of that growth.
7:35
Yeah. And,
7:36
and you hit upon a number of really key things that we're going to go deeper
7:41
into during the course of this, this podcast here,
7:44
that difference between just something as easy as average versus, ,
7:49
versus median and, and how they,
7:51
they tell different stories because of what's happening underneath those top
7:56
level numbers. And we'll certainly dive into those. From a,
8:01
a credit standpoint, you know, we've,
8:03
we've also been seeing a rather encouraging story, again,
8:07
at that top level that you referenced. So when we look at those,
8:10
those high level numbers, we look at things like delinquencies,
8:14
auto delinquencies, card delinquencies, personal loan delinquencies.
8:19
Those have actually been very stable and in some cases even declining overall,
8:24
you know, for the past couple years now.
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Certainly when we entered the pandemic period several years back,
8:32
conditions dictated that,
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that delinquencies sort of became artificially low. You know,
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we were all staying indoors, you know,
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we weren't spending to the same degree that we were before. ,
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And we were getting stimulus checks. And, and there were other,
8:47
other conditions that helped many of us not only
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help, you know, pay down some of that, that higher interest debt,
8:55
but also build up savings and build up some of the wealth that you've been
8:58
seeing accumulate over the last several years.
9:02
And we knew that that wasn't sustainable. At least we were hoping it would,
9:06
it wasn't sustainable because we were hoping to come out of the pandemic and
9:09
resume life as usual. And, and to a degree, that's what happened.
9:13
So it wasn't a surprise when we started to see credit
9:16
card and auto delinquencies start to rise and some of the other, you know,
9:20
lending categories start to rise as well.
9:23
The question was how fast and how far are they going to rise?
9:26
How much reliance upon debt are people going to be coming back
9:31
to? And that's where we've been seeing a number of the interesting stories. Yes,
9:35
delinquencies did come back to pre-pandemic levels and in most
9:40
cases actually exceeded it a little bit. But like I said, they've,
9:44
they've largely been stable.
9:45
Mortgage has started to really pick up lately and we're keeping an eye on that.
9:50
But overall, the delinquency story is rather solid.
9:54
But we start to look at other things like the rise in consumer debt.
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And there we see not just a rise in total debt,
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but also particularly the rise in revolving debt.
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People utilizing their,
10:09
their cards for larger and larger portions of their overall spending
10:13
capacity.
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And that's certainly related to the higher prices and what's come about with
10:18
inflation and, and whatnot.
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But like everything else we're talking about, it's not a blanket statement.
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We don't see the same patterns happening across different populations in the
10:30
same way. So again, we will dive into that a bit more.
10:37
And one of the ways that we will dive into it is, is by referencing, you know,
10:41
what many of you have probably already heard quite a bit about, and that's the,
10:45
the K-shaped economy. And as I've often mentioned,
10:50
there, there is no magic to the K.
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It is not a complicated definition.
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It simply a very useful visual illustration of what we're seeing
11:00
in the data,
11:01
that there are populations that given the conditions of a
11:06
rising stock market, you know,
11:08
increased property values for homeowners higher incomes
11:14
for many portions of the population,
11:16
we're seeing people that have been thriving,
11:18
that whose financial wealth and financial status has been increasing over the
11:23
last several years and continues to increase. And at the same time, of course,
11:28
we have people that are falling. We,
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we see people that are struggling with higher higher prices,
11:33
trying to make monthly ends meet, having to rely more upon credit to, to do so,
11:39
and,
11:39
and ultimately having to start making choices about what bills can they afford
11:43
to pay this month and what, what do they have to let slide. So,
11:46
so the K is basically just that. It's,
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it's referencing the fact that people are thriving and people are struggling,
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which is not a new phenomenon. It's always been the case.
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The reason that it's so prominent now is that we see that
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both of those sides of the K are growing simultaneously.
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We have more people growing in their financial lives, and at the same time,
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we have more people struggling,
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which obviously means that the people in that middle, the mythical middle,
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Ian called them, they are shrinking. That population is, is shrinking.
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And that's, that's important because that's the middle class. That's,
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that's the... Those are where the averages that we've been talking about live.
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And those, those high level average numbers are describing less and less of the
12:36
population.
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And even the populations that those numbers are describing right now
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doesn't tell where they're heading. It's,
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it's simply saying what they are right now and, and, and things are going, yeah,
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in different directions. So, so Ian, let me,
12:52
let me toss out a question to you. I've been talking about, you know,
12:56
the difference of averages and you mentioned, you know, differences
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between average and median.
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Could you sort of go into some of the explanation of, of what we mean by that,
13:07
that illusion of average and, and what you're seeing on the wealth side?
13:10
When we're talking about wealth,
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which is just one component of the sort of series of financial levers
13:17
or pressures that people have when they look at their overall financial being,
13:21
and you touched on, on really the breadth of them. In wealth,
13:24
we see that it's a very sharp picture of who has the ability to
13:29
increase in wealth and who has actually the pressures on them that they don't
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have that luxury to put money aside to be able to do that.
13:37
And that really does affect that middle section.
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Although I'll get to a little bit where we did see a bit of a buffering of that
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middle in the last year. And
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what we're seeing is not only a sharpness in the curve,
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you're looking at the households in terms of which households are on either end
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of the K, and you might think, "Gosh,
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that angle of that K is getting a lot sharper. It's kind of breaking out.
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" I would like to also always look at a second sort of
14:06
metric associated with that, which is for us in wealth, the assets.
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And so how thick is that line? So we are seeing the, you know,
14:14
the households shift and, and separate,
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but are we also seeing the assets get more heavily weighted on one end or the
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other?
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And, and on that, we're talking about the K and, and we're...
14:27
Historically, a lot of folks have referenced it, you know,
14:30
from an inferring standpoint. You know, we infer that some people are,
14:34
are struggling.
14:35
We infer that some people are thriving because we look at a single dimension,
14:40
income, assets, credit score, things like that. What might be helpful is,
14:45
is to sort of set the table by saying, you know,
14:49
we have the ability to look holistically,
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you know across these households, these consumers, ,
14:57
through the Market Pulse Index,
14:58
which is a measure that looks across household wealth, income,
15:03
credit, durability, all of these different - Yeah. You know,
15:08
financial components, and creates an index score of one to 100.
15:12
So when we're talking about the thrivers,
15:16
the people that, that have a, a growing financial life,
15:22
we're talking about consumers that have an index value of
15:27
80 or greater. Conversely, if we're talking about the,
15:31
the strugglers who we are referencing in, in that case are,
15:35
are populations whose index values are below 50. Mm-Hmm.
15:40
So that 50 to 79 range is that, is the middle tier that's,
15:45
that we're focused
15:47
so much on that is both shrinking as well as continuing to move
15:52
up and down. Some of those are moving up and joining the thrivers.
15:55
Some of them are moving down and joining the strugglers, creating this,
15:59
this bifurcated trajectory here. So that's,
16:03
that's what we're talking about. And, and yeah, I like what,
16:06
what you were saying about the averages.
16:09
There was an analogy that I had heard a long time ago and,
16:13
and had forgotten about it.
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And then it came up recently in a conversation and I really liked it.
16:17
I'm going to use it, yep, many times in the coming months.
16:22
And that is the man in the oven. If you have a
16:27
guy in a kitchen whose head is in the oven and whose
16:32
feet are in the freezer, his average body temperature is, is perfectly normal.
16:37
That's right. Yeah.
16:39
But that's not telling the story of what's going on with that individual. Yeah.
16:43
And, and I think that's a very useful visceral illustration of
16:49
what we're seeing to a degree in the data. And it's why, you know,
16:53
to your comment very early on in this podcast when you said, you know,
16:57
we look at median because that's,
16:59
we see that shrinking even as total wealth and average wealth is increasing,
17:05
the median is going down. That's obviously telling the story.
17:09
There's more of those consumers with their feet in the freezer that -
17:13
Correct. Yeah. That are experiencing
17:17
a draw down on their wealth, you know, even if overall wealth is increasing.
17:22
Yeah. I like that. I'm gonna steal that one, man. In the oven.
17:25
You go right ahead.
17:27
Now that we've sort of established what we mean by the K, and,
17:30
and that we are in fact seeing that, you know, within the,
17:34
the data that we're looking at, what are some,
17:38
some either obvious or less obvious long-term
17:43
impacts of this K,
17:46
of these trajectories that different populations are taking? I mean at
17:52
the end of the day, why does it matter that,
17:54
that we're seeing this split across different consumer groups?
17:58
You could look at it in several different ways. You know,
18:00
I have heard lately that we might be entering a new gilded age.
18:03
And if you're a history buff,
18:06
you can kind of remember that the previous gilded age that the - US went through
18:10
didn't end very well.
18:11
And so when you see significant populations that don't have the economic
18:16
resources,
18:17
or maybe some of the levers to raise themselves up that they previously had it's
18:21
really going to disrupt the economy, not only in financial institutions,
18:25
but we will see disruption there. I think one of maybe the,
18:28
the hidden impacts of what's going to happen in financial institutions is you're
18:33
going to see a reduction in the number of banks, for instance.
18:36
We've got about 9,000 credit unions and banks and neobanks together. Now,
18:40
there are other competitive pressures that they are faced with,
18:44
especially kind of your more traditional brick and mortar banks.
18:47
But as we see a concentration of the population who can
18:52
provide banks and credit unions with the deposits that they
18:57
need to offset their loan balances to then also be profitable,
19:01
a shrinking population at the top of the K, right now it's, you know,
19:04
about 10% of the US households hold about 72.
19:09
You could think about 10% hold about three quarters.
19:12
You're gonna have so many institutions that are going to be able to engage
19:16
those, , households. And the bottom as it grows, you know,
19:20
it's already half the households, about 54% don't have over $100,000.
19:25
And their assets have been shrinking in the last four years.
19:29
We've seen them decline by about, I don't know, 17, 18%.
19:33
The number of financial institutions that are going to be able to serve that
19:37
mass market,
19:39
it's gonna get a lot smaller because they're just not gonna be able to be
19:42
profitable.
19:43
There's going to be many more consumer households that need those services,
19:47
but there's not going to be as many financial institutions that can remain
19:51
solvent, , and be able to support that part of the market.
19:54
So you can see this increased competition and a reduction, really a,
19:57
a reduction in those financial institutions. ,
20:01
You're only going to see it there though. You can also see it, you know,
20:04
in different parts of the economy. , W - in,
20:08
in ways maybe that we didn't expect. If you're familiar with Delta Airlines,
20:12
the way they're reacting to, ,
20:14
the K shape is not by maybe increasing the number of seats in the
20:19
airplanes that have economy seats.
20:21
They're going the opposite direction because travel is discretionary.
20:25
So they're seeing that people who have money are traveling more and they're
20:28
increasing their premium footprint in their airplanes.
20:32
But if you go to sort of the consumer durables, you know, the,
20:36
the things that people buy every day that are mass market,
20:40
you see the premium branch having to start actually discount. ,
20:44
I just read that PepsiCo would reduce the, the price of their chips,
20:48
for instance, so they can start competing against generics.
20:52
So you're going to see these ripple effects across the economy, ,
20:55
where people who don't have enough money to afford what was maybe be an
20:59
affordable luxury in the past when times were tough are going to have to start
21:04
turning to focusing on really just paying for those non-discretionary items and
21:09
having very, very little discretionary, , spend.
21:13
But you're also going to see more creative services come up. I,
21:16
I think we're probably all familiar with buy now, pay later. ,
21:20
We're starting to see a, a new term, FNPL, or fly now, pay later.
21:25
Or people will say, "Hey,
21:26
I've gotta take a vacation." They're putting it on cars. They're financing,
21:30
you know, these sort of discretionary trips and,
21:33
and expenses that they previously would save for, your old Christmas club. ,
21:38
They just don't have the resources to do that anymore. ,
21:41
So they have to put more of their money onto credit,
21:45
which is going to change the nature of that cycle when the first comment I made
21:48
about what's going on with banks and credit unions. If you put,
21:52
have more consumer debt, more consumer credit,
21:54
you're going to have to have higher deposits.
21:56
And if those aren't available in certain populations,
21:58
then you're going to have new players come in to try to service that in more
22:02
creative ways. So that's what we're seeing kind of in the general area.
22:05
I'm sure you're seeing the same in credit and lending or, or something.
22:07
Similar. Yeah. I was just going to say, you,
22:09
you bring up some fascinating examples in sort of the retail and,
22:13
and broader commercial space. Yeah.
22:15
And I was going to mention that we do see very similar patterns within
22:20
the FI industry. , Well, the financial indus - , within FI. ,
22:26
And, and I liked the, the delta, you know, example that,
22:30
that you provided because it's so easy for most of us when
22:35
we think of the K, we get drawn to the lower part of the K.
22:41
, For a good reason. I mean, it's totally understandable. Tha's,
22:43
that's where the struggle is, that's where risk is. , That's,
22:48
that's where narrower margins are. Right. , But,
22:54
but it's important for us to not lose sight of the other part of the K.
22:58
It's smaller, but it's, it's, it, it's important. And,
23:03
and I think with financial institutions, it's,
23:08
it is important to understand, okay,
23:11
who is more likely to be struggling and, and becoming, you know,
23:16
under more financial stress? We want to - Yeah.
23:18
Be able to proactively work with that and, and manage that as best we can.
23:24
But there is also that other side of the K, and who is growing?
23:29
Who has the, the money to, to grow deposits?
23:32
Who has the money to invest to, to grow assets and, and,
23:36
and have the financial activity that, that's many of our institutions are,
23:42
are focused on, on trying to grow? , So I,
23:45
I love that example because it's, it's,
23:48
it's ill- illustrative of needing to keep both sides of the, ,
23:53
of the K in mind. You also said, , one thing, ,
23:58
that, that I wanted to pick at a little bit as well in, in the growing,
24:03
the growing population that has assets under $100,000.
24:09
Yeah. , You call the mass market, you know, population we call it. Yeah.
24:14
I think that's, that's important because what we have seen on the credit side,
24:18
on the overall financial health side,
24:20
when we look at the market pulse index for those populations,
24:24
that is the one
24:27
distinguishing metric above all others that
24:32
can predict, you know, who is going to have a tougher time in,
24:37
in the future - Right. And who is going to thrive, you know, moving forward.
24:41
Yeah. And when you think about it, it makes sense because for those,
24:46
those households,
24:47
those consumers who don't have those liquid assets that you mentioned to draw
24:52
upon as prices get higher, when emergencies come around,
24:58
that's, they're going to struggle. Yeah,
25:01
they won't have those assets to fall back on. ,
25:04
They are going to slide down. And in fact,
25:07
when we looked at the population over the last year and a half that went from
25:11
the middle tier down into the bottom tier, the strugglers, the strivers,
25:16
99% of them fell in that mass market population.
25:20
They had under $100,000 - Yeah. , In,
25:22
in liquid assets that they could draw upon. Conversely,
25:27
of those po - of the population that moved from that middle class up into the
25:31
strivers that grew over the last year and a half, not shockingly,
25:37
they had over $100,000. Yeah. And, and of course,
25:41
this doesn't negate the fact that, you know, every situation is different and,
25:45
and it doesn't mean that if you have less than $100,000, you're doomed to,
25:49
to fall down. But that pattern is very distinctive, you know, that...
25:55
And, and the reality dictates that that's the, the case,
25:58
that as prices rise, if you are dealt with an emergency,
26:03
you know, , expense or even a planned expense - That's right.
26:07
You're going to have a tougher time meeting that and certainly a much
26:12
tougher time in growing your overall wealth and,
26:15
and assets and financial status, you know, given what you're starting with.
26:19
And that's why we particularly see that exasperated in the younger generations
26:24
who haven't had the time to build up that nest egg, so to speak, those assets.
26:30
Definitely true. So that might be a, a good transition to start, you know,
26:33
talk about, , some of those younger generations and, and what we see.
26:39
I, I do want to talk about the wealth transfer that's coming up .
26:44
That because it - , that little event if that's on the horizon? Yeah. We've.
26:48
Heard that loud and clear that,
26:49
that there's a lot of interest in knowing about that. Yeah.
26:52
But before we do that, let me, let me maybe set the stage a little bit.
26:57
And let's talk about some of those younger generations, Gen Z in particular. ,
27:02
What are you seeing in terms of Gen Z?
27:04
How are they different from previous generations? And, and, and what,
27:09
what makes them worthy of our attention?
27:12
Why are they valuable customers at this point?
27:14
Yeah, those young kids, right? They're always kids.
27:17
It seems like every generation, they're, they're different. I,
27:21
I do think that there is a little bit of a different situation with the Gen Z
27:24
than maybe we saw in the millennials or,
27:26
or previous generations where they were younger.
27:28
A- and a lot of it is because they're have been grown up in a frictionless sort
27:33
of experience. , Whether it's their kind of consumer behavior,
27:38
, of the Amazon experience or the Grubhub experience of when they,
27:42
they want something, they can get it. Doesnt mean they're lazy,
27:45
but they're able to control a lot more of their lives on the schedule that they
27:49
want.
27:50
I call it an happy life versus a happy life because it's - Okay. You.
27:54
Could borrow my, , my man in the oven. , I'm gonna borrow happy life. That's.
27:59
Good. Deal. Deal.
28:00
And that's not always happy because of the fear of missing out for all those
28:04
sort of, sort of other presures. But they also, ,
28:07
have the ability to switch their financial relationships much easier than
28:11
previous generations.
28:13
I can walk into a bank or I can go online and open up an account and within
28:18
minutes, have that account established. Within several more minutes,
28:22
I can transfer funds in between accounts so I can leave you behind if I don't
28:27
like the experience that you've just given me and go to a new player.
28:32
They have also grown up not following their parents into
28:37
the local branch always where, you know, the traditional pattern would be,
28:43
you know,
28:43
I would follow my parents into the local bank branch and I would open my
28:46
checking account there and that's what start me on my financial journey and
28:50
establish my relationship with firm
28:54
with options like Chime out there and others that kind of started as spending
28:59
cards that you would create a relationship as a teen with. And now,
29:02
guess who's opening up checking accounts that have already then anchored my
29:06
relationship with you on, on my card?
29:09
They have many more options than others had in the past and the
29:14
ability to shift their relationships when they want. You know,
29:18
we also hear that they're more values-based, the ESP investing,
29:22
those sorts of things.
29:24
I don't know if that's so different than previous generations. For instance,
29:27
when I came out of college I'm going to date myself here.
29:31
I worked in socially responsible investing when, you know,
29:34
apartheid was still in South Africa. We were tracking who was you know,
29:38
active in South Africa and screening stocks for those issues and others.
29:42
So I think that's always been there, especially with younger generations.
29:46
But so we've got this sort of ability for them to decide on their own
29:51
much more frequently and with a lot more power how they wanna control their
29:55
financial life. What makes them valuable is they're young.
29:59
They can be a customer for 50 to 70 years.
30:03
So if you treat them right and you establish that relationship and maybe
30:09
for that formative relationship years for when they're below 30,
30:13
you do have that sort of go - to-market presence that they wanna
30:18
be associated with because they're, another term here you might wanna use,
30:23
they live a FinTech life.
30:25
They're also not going to the traditional sources of information for financial
30:29
advice. , They're leveraging the tools that are out there,
30:32
like on TikTok and other areas then to guide them.
30:36
I'd say at least until they get money.
30:38
Always have this though that once you get over a certain level,
30:42
whether it's a million dollars or maybe some other level,
30:45
I think everyone takes a little pause and say, "Well,
30:47
maybe I should actually consider, ,
30:49
some more traditional or brick and mortar solutions where I feel a little more
30:53
confident that they're going to do that.".
30:55
Something, something outside of TikTok for - Yeah. My financial advice.
30:59
That's right. That's right. Well... You know, it's going to be there tomorrow.
31:02
.
31:03
Let's talk about that wealth. Yeah,
31:06
because a lot of folks are looking at Gen Z as well as millennials, obviously,
31:12
when we are discussing what's,
31:15
what's being termed as the great wealth transfer. And
31:23
on the one hand,
31:24
I hear why people are interested. And on the other hand,
31:30
I'm thinking, well,
31:31
how is this different from any other generation passing the wealth that they
31:35
accumulated to their offspring - Yeah. To the younger generations?
31:39
What's making this so,
31:42
so fascinating and so much of a focus for so many people as opposed to any other
31:47
period in human history?
31:50
I say the principle and the driving factor is the dollar amount,
31:53
especially as the stock market, you know, continues to perform, you know,
31:57
the early sort of numbers you'd hear about this great wealth transfer where the
32:01
baby boomers and the silent generation that are also a significant part of the
32:05
population also hold more than half the wealth and early
32:11
estimates I would hear were like, "Hey,
32:12
$70 trillion is going to transfer." And that would've been the largest sort of
32:16
transfer in history. So even though we talk about the concentration of wealth,
32:21
it's actually been democratized
32:24
to those who can invest in the stock market, mm-hmm.
32:27
Which has been a larger group than, than in the past.
32:30
It's not just kind of the land of gentry pass it down to the land of gentry
32:34
because if you could hold stock,
32:35
you kind of moved up then economically or been able to leverage your home value
32:40
to invest in stock and,
32:42
and do some othersort of wealth growth exercises.
32:46
But it's really that amount to the point now I've heard estimates of it being
32:50
125 to $130 trillion.
32:52
So it's this amazing amount of money that is going to transfer as,
32:58
you know,the baby boomers and, and the silent generation pass on.
33:03
And then you do have some of those new characteristics that we just talked about
33:06
with the Gen Z. However, I see that sort of as the second wave.
33:10
There's a lot of talk about the Gen Z inheriting this wealth.
33:13
The first wave of inheritors are really going to be the Gen X and maybe some of
33:17
some of your older millennials.
33:19
They are the direct children ofthe silent generationand some of those
33:24
baby Boomers.
33:24
So it's not that a wave is coming, it's the size of the wave.
33:29
That's, that's - Yeah.
33:31
Worthy. Just a wave that's never been seen in the past. Yeah.
33:34
Yeah. Now, do you think, and you mentioned that, you know,
33:39
the democratization of the, of the wealth,
33:41
and we see that maybe unintuitively at the same time that we're
33:46
seeing this widening gap, that yes, more people have access to wealth.
33:51
But at the same time, we're seeing, you know, more people that are,
33:55
that are struggling at the same time. And I look ahead at the,
34:00
the great wealth transfer and I wonder how much that's going to
34:04
exasperate that,
34:07
that split between the haves and the have - nots
34:13
in the younger generations where we already see it more exasperated than,
34:17
than in the older generations. There's more variability when we look at the,
34:22
the overall financial health layout of those younger
34:26
generations than we do the boomers and the silent generations and,
34:30
and the retired, you know, generations, essentially.
34:33
And I wonder how much of that transfer
34:38
when it happens is going to exasperate that even further. One
34:44
of the things that we're already starting to see,
34:46
and this is potentially just inferment on my part when I'm, I'm looking at it,
34:52
but when we do see some of the Gen Zs and,
34:55
and the millennials that are in the upper part of the K,
35:00
certainly a good chunk of them are because they've come out of college,
35:02
they're going into high-paying jobs. Yeah, they're,
35:05
they're taking out their first mortgages,
35:06
they're handling their credit responsibility responsibly.
35:10
They're off to a great start in their financial lives. But there is also
35:16
a
35:18
presence of proximity to wealth that many of them have,
35:22
and that's harder to measure.
35:24
So they're still able to live with their folks, you know,
35:29
that's perfectly understandable as they're paying off student loan debts and
35:33
other things.
35:34
Or they live in the same neighborhors as maybe there's a higher concentration of
35:40
wealth.
35:41
And so there is already that split
35:46
between, you know,
35:48
the upper and lower parts of the K within the lower generations.
35:51
Any thoughts in terms of how the wealth transfer may,
35:55
may impact that or exasperate it?
35:59
Yeah, and I think you've, you kind of touched on this. I think the first wave,
36:03
so going to the Gen Xers,
36:05
I don't think that's going to help kind of flatten out the K and disperse wealth
36:10
further significantly in the economy.
36:13
Because also a lot of the Gen Xers who have been able to accumulate wealth have
36:17
done so, again, if they've been able to invest in the stock market.
36:21
So I think you're going to see sort of wealthy parents passing on their wealth
36:26
to wealthy children in general. You know, there's always exceptions, right?
36:31
But I don't think it's going to be able to help kind of lessen the angles of
36:35
those K shapes that we're seeing, that either the, the upper or the lower line.
36:40
I think the bigger question is really what's going to happen when it goes down
36:44
to the younger millennials and the Gen Z who, you're right,
36:48
today don't have significant wealth and it's highly concentrated if you're
36:52
trying to find who has let's say $250,000 already and is a Gen Z
36:57
or there's probably less than a million of them.
36:59
I can't remember the number off the top of my head.
37:02
But do those households,
37:05
do those consumers have the ability to accumulate wealth as those previous
37:09
generations did?
37:11
And I think what we're seeing in really this K-shaped economy is to do so,
37:15
they're gonna have to have jobs that are high paying.
37:18
They're going to have to have really the ability at some point to be able to buy
37:22
a house and then start using that equity in their house to grow their wealth.
37:28
And we're seeing significant pressures that are working against that occurring.
37:33
And then when we also look at the job market, we've seen some disruption, but,
37:37
you know, what's going to happen with AI in the job market in the next,
37:41
let's say, three to eight years is that's going to also start to impact them.
37:45
So will this generation have on their own the ability to increase wealth?
37:50
So maybe when they inherit some of that wealth at a second level in
37:55
this transfer, will it be a significant amount of money then?
37:59
And then will they have the base that the parents and their,
38:02
their grandparents had to then be in that wealthy segment?
38:06
So I think it's really in that second tier where we start to see the Gen Zs in
38:10
here at the wealth,
38:11
though we might start to see some flattening because of these other pressures, ,
38:15
that are occurring in the economy in society in general.
38:19
But the biggest linchpin on will the stock market continue to perform? Right.
38:25
If it does, if it stays on fire, if we don't hit this AI bubble that people,
38:29
you know, are,
38:30
are seeing on the horizon and it stays on the horizon and hopefully it does then
38:35
yeah, if what we see today grows by 10% next year and 15 or 18%
38:40
year after year after year,
38:42
then we will see more of that wealth transfer go down, ,
38:47
generationally and the K-shape continue to occur with the same
38:52
sort of lineage, if you wanna use that term at least the top end.
38:56
And maybe some folks, as you said, can pull up from the bottom end,
38:59
but there are gonna be these societal pressures on their ability to do so. Yeah.
39:04
Oh, those are big ifs. Yeah. That's what we're talking about, aren't we?
39:07
Yeah. So let's in
39:11
the couple minutes that we've got, you know, remaining here, let's turn
39:15
it a little more tactical. We're talking about what we're seeing, you know,
39:19
all of these different things that we're seeing in terms of different
39:21
populations and you know, glimpses into possibilities in the future.
39:27
What can FIs do to prepare for any of this,
39:32
you know, given the, given the current state and, you know, the,
39:36
the big ifs that we talked about, you know,
39:39
in terms of what the future may bring? How does, how does,
39:43
how do all of the changes that we're talking about impact how financial
39:48
institutions look at Gen Z and millennials and,
39:51
and the broader US consumer base?
39:53
Yeah,
39:53
so some of the ways that they can kind of prepare themselves for this great
39:57
wealth transfer and start putting themselves in a position for success is to
40:01
really start now,
40:04
start to create relationships not only with, you know, your,
40:08
your baby boomer and your silent generation customers,
40:13
but also the people around them. Now, you wanna do this in a non-creepy way,
40:18
you wanna do it in a way that provides value to them. For instance,
40:22
if they are a caretaker of that silent generation or baby boomer parent
40:27
have a caretaker tool, a package,
40:31
a platform that enables them to help manage the money of their mother or father,
40:36
give them the ability to do so kind of in an easy way,
40:39
give them the triggers and the warnings when,
40:41
when things happen that they wanna be alerted about. Basically,
40:45
give them a reason to have a relationship with you now that provides them with a
40:49
benefit even though it's indirect.
40:51
And you can also then kinda look at the other side of that coin for that direct
40:56
account holder who maybe has a premium tier with you,
40:59
a platinum level of service, you enable that person to,
41:03
to gift it to their family members. So again,
41:06
that family member sees value in creating a relationship with you now before
41:11
that money transfers and, you know, numbers are 70, 75% of,
41:15
of those account transitions might also include an sorry those transfers of
41:20
wealth might include an account transfer from, away from that institution.
41:24
So give them value now, create that relationship with them now, ,
41:29
start treating them as your customers now so then when the money does
41:34
transfer,
41:35
they already have sort of that positive thoughts about you,
41:39
they already have a relationship with you. They're more likely than to keep that
41:44
money with you. You can also do things like add, you know, PFM tools,
41:49
personal financial management tools for them to leverage.
41:52
So a number of ways that you can establish that relationship with them today.
41:56
So some of those consumers that may not have high present values may have.That's
42:00
right. You know, exceedingly high lifetime values,
42:04
and that needs to be accounted for when you're.
42:06
When you're... Yeah. And, and it's gonna be difficult.
42:09
It's going to be seen as a cost because there might not be significant benefit
42:12
today, but you're really trying to invest in the future, , that future state of,
42:16
of having that positive relationship.
42:19
And then for some of the other items we talked about, you know,
42:23
get out on TikTok, which just about everybody is,
42:26
but get out into the social media, get out into even Reddit,
42:29
because that's where search engines, you know, using AI are using,
42:33
and start providing advice to those caregivers. How do you help your parents?
42:38
Give them educational materials. Give them pathways to be able to be able to
42:45
make a difficult process and maybe a difficult time of their
42:50
relationship with their lives with their parents easier they
42:55
don't feel the friction of having to handle the,
42:57
the financial life of their parent,
42:59
but it's actually something that you've made an experience that has been very
43:02
beneficial for them.
43:04
It's not an easy A plus B equals C sort of engagement there.
43:09
I'm.
43:10
Going to go completely into my grumpy old man on the porch yelling at the kids
43:14
to get off his long, , yeah, persona, which is not a stretch for me.
43:19
But I have never been on TikTok. So the, just the thought of, like,
43:24
being out there offering financial advice. Yeah. I'm like, really? .
43:28
That's - Yeah, that's the number one channel, definitely.
43:30
It's a world I need to familiarize myself more with. All right.
43:35
Last question before we wrap up. We've talked a bunch about, you know,
43:39
how different populations are being impacted. We've
43:44
talked about populations in terms of age, in terms of wealth tiers. ,
43:49
We've talked about them in terms of overall
43:53
financial status or financial well- wellbeing.
43:58
How about.
43:59
Regional? How about geographic differences? When we pull back and,
44:03
and we're talking about, you know, the US averages, for instance,
44:09
there's obviously differences between different
44:13
locations within the US. Yeah.
44:15
Is there anything that you're seeing in terms of wealth movement or, you
44:20
know, volatility across different regions that
44:25
institutions should know about?
44:28
I think we're starting to see some significant changes. If you look at,
44:33
you know, which states provide the largest markets overall for assets,
44:36
it's still what people refer to as the big five of California, Florida,
44:41
you know, Illinois, New York, and Texas. Those are still the big five.
44:44
And if you wanna look at median levels too,
44:47
it's been traditionally the Northeast and it still is the Northeast with,
44:50
with also Hawaii included.
44:52
But if you break it down a level and start to look at, well,
44:55
where are we seeing growth in maybe the affluent populations or growth in
44:59
households that have at least $100,000 in deposits?
45:03
We are starting to see some shifts. You know,
45:05
when I look at some of those lists,
45:07
and I previously saw New York very high New York as a city,
45:11
I don't see on those lists as high. Now,
45:14
does that mean all the money's moving to Florida? Maybe,
45:17
but also some of the move,
45:18
money might be moving to Northeastern Pennsylvania and, and Northern Jersey.
45:22
We also don't see Los Angeles as high on that list,
45:25
and San Francisco as high on that list.
45:27
So we are starting to see some of those shifts.
45:30
The areas that we see some of that growth are really in the Southeast,
45:33
and there's intense competition among banks to move to the Southeast and you
45:38
create that brick and mortar presence for when I'm driving by and I understand,
45:42
okay, I've moved to this market, you're in this market.
45:45
One of the developments I wanna keep track of though over the next, let's say,
45:49
three to six years,
45:50
is to see if the presence of neobanks that only have a digital landline
45:55
presence, or the need to have brick and mortar locally.
45:59
If that becomes less of an issue on the deposit side then what it
46:04
has been on the investment side,
46:05
which is if my broker's making money for me and I move across the country,
46:09
I'm not going to change that relationship.
46:11
I might keep it with my broker because he's making money with me.
46:14
If I'm happy with my bank account and I've got a, you know,
46:17
relationship banking experience with them where I've got my card there,
46:21
I need a reason then to shift it.
46:22
And maybe the reasons haven't been as strong now as they were in the past
46:26
because so much can be done online.
46:29
So that's a development I wanna see if that really occurs as wealth moves and
46:33
the account holder moves to the institution that they still have a relationship
46:37
change. Interesting. I'll have to see if that, that does happen. But yes,
46:40
we are seeing this population.
46:42
Shifts. And that's significant.
46:44
Something very valuable for our listeners to understand, not just, you know,
46:49
what is happening, but, but where. So thank you for that.
46:52
That's all the time that we have for today. ,
46:55
Thank you very much for listening in.
46:57
If you have any further questions or have any other topics that you'd love us to
47:02
discuss in, in upcoming podcasts,
47:04
feel free to reach out to us at advisors@equifax.com.
47:08
Ian, thank you so much for joining me today.
47:11
This has been a delightful conversation and hope to do more of it soon.
47:15
Yeah. Thanks, Tom. I always enjoy it anytime.
47:19
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47:23
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47:26
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