Thursday, September 17, 2020

Personal Finance Trends in the Age of COVID-19 (Part 2)

In a previous post three weeks ago, I described 11 recent personal finance trends, most of which were informed by the pandemic. This post continues this analysis with a description of nine more financial current events. 

As the popular saying goes, “knowledge is power.” Knowing what is happening in the world of personal finance can help you make better financial decisions, seek out resources (if needed), anticipate future changes, and reduce stress during this very uncertain time.

Below are brief summaries of recent events affecting different aspects of personal finance:

¨       OASDI Tax-Deferral Plan- The plan to defer 6.2% OASDI (Social Security) payroll taxes from September-December 2020 to January-April 2021 is seeing mixed results in different workplace settings. While it is being implemented for federal government workers and service members, many large companies are not changing their workers’ tax withholding. A major reason, in addition to administrative hassles, is uncertainty about whether deferred taxes would be eventually forgiven by Congress and concerns about collecting double OASDI tax from workers in early 2021.

¨       Bifurcated COVID-19 Impacts- Existing income and asset disparities among Americans have widened as a result of COVID-19. As I explained in a recent webinar for Rutgers Cooperative Extension, there are people who are worried about finding food, paying bills, and being evicted. There are also those with secure incomes or pensions who have been saving more because there are fewer opportunities to spend money, including work-related expenses such as commuting and eating out. A Wall Street Journal article described this trend as follows: “For Workers, Downturn Bares Deep Rifts.”

¨       End of Airline Change Fees- In an attempt to lure back wary customers and eliminate a barrier to making advance travel plans during the pandemic, the “big three” U.S. airlines (United, American, and Delta) announced that they were removing flight change fees on most U.S. domestic flights. American has also dropped fees for many international flights and Delta said that it continues to block middle seat assignments to promote social distancing. Major airline workforce reductions are expected on October 1 after federal government payroll support ends.

¨       Coupon Clipping vs. Digital Coupons- For the first time ever, the use of digital coupons surpassed the redemption of paper coupons in the U.S. In July 2020, 31% of coupons were redeemed digitally and 26% from newspaper inserts (vs. 23% and 31% , respectively, in 2019). COVID-19 accelerated the shift to “digital deals” as more people shopped online. Companies now view digital coupons as providing a better return on investment and a way to nimbly respond to pandemic-induced consumer demand. Inserts and circulars, on the other hand, require months of advance planning.

¨       Business Interruption Insurance Rulings- Court rulings have upheld rejections of business interruption insurance claims by insurance companies. Most business owners with policies purchased to cover the risk of having to close down their business have not been able to successfully make claims. The insurance industry has maintained that these policies were intended to cover events, such as fires, where rebuilding can occur and that pandemics are not a covered risk.  In addition, insurance companies cannot operate profitably when so many people experience losses at the same time.

¨       Young Adults Living with Parents- For the first time ever, more than half (52%) of 18 to 34-year old young adults are living with their parents, up from 47% in February. According to the Pew Research Center, “we are now at levels last seen during the Great Depression” (48% in 1940). This statistic includes jobless college graduates, undergraduates taking online classes at home, and those taking a gap year. Parents’ finances are impacted as a result (e.g., food, utilities, car insurance, computer software, and faster wifi service), which reduces income available for retirement savings.

¨       Money Market Fund Fee Waivers- In the wake of COVID-19 induced interest rate reductions, money market fund yields have gotten so low that some investment firms have had to waive management fees in order to prevent their account owners from experiencing negative returns. Companies reported to have done this include Blackrock, Inc., Fidelity Investments, and J.P. Morgan Asset Management. Money market fund account owners should carefully review shareholder reports and compare available options for holding cash equivalent assets.

¨       Low Mortgage Rates- In August 2020, the average interest rate on a 30-year mortgage fell to 2.88%, its lowest level in almost 50 years. In early September, the rate rose slightly to 3.05%, still a bargain vs. 2019. Home values have remained strong as many homeowners delayed putting their houses on the market as a result of the pandemic, thereby reducing the number of homes available for sale to buyers looking to make a move while interest rates are historically low.

¨       Fewer Purchase Options- Retailers and restaurants have been “slimming down” consumer choices as a result of supply chain bottlenecks, production slowdowns, lower sales volumes on less profitable products, and concerns about product preparation safety. Examples include fewer unique items on supermarket shelves, fewer items on restaurant menus, and reduced or delayed shipments of “big ticket” items including motorcycles and cars.

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