Why Banks and Creditors Can Bet on Affluent, High Net Worth Consumers Even During Recession

Why Banks and Creditors Can Bet on Affluent, High Net Worth Consumers Even During Recession

Post-recession trends have been good for affluent and high-net worth families, according to Packaged Facts in the recent report Affluent and High Net Worth Market: Wealth, Banking, and Payments Trends, 8th Edition.  

From 2010 to 2019, the number of affluent households has risen by 90%, and average affluent household net worth has risen 12%. Meanwhile, there are an estimated 16.2 million high net worth households, up 47% from 2010. On average, these households have $5.2 million in wealth. A seismic generational shift is underway. While affluent Baby Boomer households still control the most wealth, growth is on the side of Generation X, which has seen aggregate affluent wealth almost double in 10 years. While Millennials are important marketing targets, marketers seeking their wealth must be patient: As of 2019, Millennial households contribute only 2% of aggregate affluent household wealth. For more immediate gratification, marketers can target $5 million+ net worth households, which have a whopping $82 trillion in wealth.

But what about the next recession? As prognosticators attempt to call the beginning of the next recession, one thing is fairly certain: Affluent and high-net worth families are a decent recession bet.

Consider credit cards. By volume, credit cards comprise 40% of $200K+ HH income consumers’ payments and 30% of those made by $100K-$199K HH income consumers—huge percentages that translate to a respective 370 and 183 credit card transactions annually—and significant interchange and related fee revenue generated by each transaction. While spending rates would likely decline in a recession, they would still generate sizable purchase value and less risk.

Part of this is because (as suggested by Packaged Facts data), compared to the average household, affluent households are less apt to spend beyond their immediate means (most do not spend more than they earn in income), which means they are more apt to have ready, liquid funds to meet everyday obligations, including lending obligations. Moreover, when faced with financial emergencies that put those obligations at risk, roughly 80% of affluent households say they would tap savings/investments to meet them, and only 6% would choose to borrow. These households have ready means to meet those obligations and would not seek methods that add debt—and greater risk to lenders—to solve the problem. And only 11% of high-net worth credit card holders revolve unpaid balances on the card they use most, and they are even less likely to revolve balances on the rest. While this translates to less interest income for card issuers, it also translates to a stable recession play, given the ample assets on hand to pay for expenses.

-- by David Morris, senior consultant