This is a guest post from contributors Jason Harvison, Elevate CEO, and Rochelle Gorey, SpringFour CEO.
Households that struggled financially during the pandemic could find some relief through government, nonprofit, and private sector resources.
Now, those temporary stopgaps are disappearing – but COVID-related financial hardships are not going away.
Financial services companies must reckon with a consumer base that is hurting and anxious about what’s coming next and ask: How do we transition from temporary relief to a more permanent financial recovery?
How Americans coped with financial instability
According to a recent study, the COVID-19 pandemic’s effect on American households was uneven.
The pandemic was a crisis that impacted everyone, but those already struggling financially felt it more acutely than those who were not.
And while some Americans maintained or improved their finances, others reported unexpected expenses, unemployment, food instability, and debt. Many were eligible for the U.S government stimulus payments distributed in 2020 and 2021, yet not everyone could save and invest.
The study also found that, among both prime and non-prime consumers, households primarily spent their stimulus payments on necessities like groceries and on paying back credit card debts. Even as the pandemic eases, those who face financial struggles will continue to do so.
NerdWallet found that 42% of households feel the pandemic has worsened their financial condition. Of that percentage, 45% say they’ve taken on debt because of it. The same proportion, 45%, say they took money from their savings to pay for bills and necessities.
Though they were helpful in the short term, the stimulus checks were just that – temporary relief. Suppose struggling households were more aware of resources to help them pay for food, utilities, medical costs, and other basic needs.
In that case, they might have been in a better position to save, pay down debt, and contribute to their local economies in various ways.
How financial institutions can step up
This moment is a crucial time. COVID-19 worsened the financial struggles of so many, and those issues are not going away. Financial services companies have the unique opportunity to provide relief through their products and connect them to resources and services that could lead to permanent recovery.
Struggling households need continued support – yet, they do not always know where to turn.
According to a 2020 study of lower-to-middle-income families, only 17% of households know local resources that can help them pay their bills, but 83% are interested in receiving information and resources from their banks and financial institutions.
Even in the third quarter of 2021, as many began to return to work, there was a demand for hundreds of thousands of referrals to financial assistance resources from financial institutions.
These are promising metrics for financial services companies, and we should see them as the green light they need to take the extra step in offering assistance to their customers.
From relief to recovery
Customers already trust their financial institutions to protect their savings. They should trust them to recommend products and resources, and to provide referrals for improving their financial health, too.
Providing other types of direction, assistance, and resources would go a long way to building the trust and engagement of their borrowers.
Being a trusted partner in financial health is beneficial for customers, companies, and our economy.
Customers who successfully engage with vetted, recommended resources and appropriate and fair products can avoid the pitfalls of predatory lenders and scams – because they no longer need to look for help beyond their trusted lenders.
In addition to avoiding further financial hardships, customers grow more loyal to their financial institutions and get closer to achieving financial health.
This step should not be abandoned when the pandemic is in our rearview mirror.
Providing these resources should be part of financial institutions’ strategic business strategies in the future. The pandemic exacerbated significant issues lying in wait and revealed how close many are to economic devastation.
Financial institutions should design for this reality as an industry, offering products, partnerships, resources, and referrals that improve financial stability in real-time.
What if consumers were better equipped to deal with financial crises the next time they came around because the financial institutions they trust had done the work beforehand – and were prepared to help them through the recovery?