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On the surface, budget-setting and issues related to credit aren’t the glamor topics advisors seek out. Rather, advisors prefer to emphasize portfolio management, estate planning and tax issues, among others. After all, those are avenues for appearing intelligent.
However, for as mundane as budgeting and credit counseling appear on the surface, these are credible additions to a holistic practice and provide new avenues for advisors to connect with clients, particularly those in younger demographics.
In fact, data confirm now is an ideal for advisors to discuss debt reduction plans with clients. The combination of rising interest rates and ballooning consumer debt is a toxic brew for clients and presents hurdles when it comes to more important issues, such as saving for a home, a child’s education and retirement planning.
Advisors, know this: 70% of consumers hold some of debt and 72% saw their credit card debt increase last year. That’s bad news, but the good news is advisors can help with that scenario.
Inflation, Income Issues Contribute to Debt Woes
As advisors know, inflation spiked in 2022 and real wages didn’t keep pace, prompting many consumers to turn to credit to cover rising costs. This problem was particularly acute among folks in lower to middle income brackets.
“Almost half of those (48 percent) who have added to their credit card debt in the last year point to the rising costs that accompany inflation as the culprit, while 34 percent say it’s because of rising interest rates. And 24 percent blame it on a disruption in their household income,” notes CreditCards.com. “Not surprisingly, 75 percent of lower-income households (less than $50,000 in annual income) and middle-income households (between $50,000 and $99,999 in annual income) added to their debt in the past year, compared to 65 percent of upper-income households (more than $100,000 in annual income).”
There are also generational issues when it comes to debt accumulation. Notably, Gen X are more indebted than other groups. That’s a worthwhile issue for advisors to tackle because Gen X are the first recipients of the great wealth transfer and it’s likely they (and their parents) want more from inheritances than devoting portions of it to paying down credit card bills.
“There’s also a generational divide in terms of credit card debt, with older people more likely to carry credit card debt. Generation Z is least likely to carry this type of debt (18 percent), whereas baby boomers and Generation X cohorts are most likely to do so (49 percent respectively for each of these groups). Millennials fall in between, with 38 percent of this group having credit card debt,” adds CreditCards.com.
Silver Linings for Advisors, Clients
A positive for advisors is that indebted clients are proactive about this conundrum, indicating they’re likely open to related advice and education.
“It seems most cardholders (92 percent) are actively looking for ways to shed their credit card debt. Paying more than the monthly minimum payment required proved to be the most popular method of resolving debt among cardholders at 61 percent,” concludes CreditCards.com.
That’s an indication clients see value in eliminating debt and moving onto more fruitful endeavors, such as bolstering retirement accounts and the like.