Many things were made clear by a promising economy ravaged by the coronavirus in 2020, but how Americans think about money and its future are among the most interesting revelations. For example, contrary to the norm, credit debt decreased while unemployment soared. Kiplinger reports this is largely due to the first round of economic impact payments (EIP) being applied to pay down debt among consumers. However, that is not to say that debt was not leveraged by those experiencing unemployment, wage cuts or layoffs. This seemingly good news is also undercut by an overall increase in unpaid medical bills caused by the pandemic1.
So, if the rampant accumulation of credit debt isn’t the lesson of the day, then what has 2020 really taught us about shifting perspectives on money? Well, for starters, cash is no longer king. Aside from the fact that paper money is actually disgusting, digital transactions are safer, cleaner and can even save money. According to Huff Post, this extends to credit cards, which offer fraud protection, cash back offers and other benefits with which cold, hard cash just can’t compete2.
Speaking of credit, another huge counter to the norm appears to be the accepted approach to conquering debt. In the olden days, it was customary to focus on eliminating debt before working toward a nest egg. According to Time, however, when uncertainty is high and unemployment is rampant, savings should always be the priority. Financial advisors should help their clients seek those relief programs offered by credit card companies and other lenders, reassuring that carrying a balance is necessary at times to guarantee essential needs are met3.
Further, as millions of recently unemployed or laid off workers continue to wait on unemployment benefits, the time has come to break that age-old rule of never taking early 401(k) withdrawals, Huff Post suggests2. If your clients’ books on are on fire, break the glass on those penalty-free withdrawals to neutralize the more immediate threat. As mass unemployment abounds, those with the funds available should be tapping them as the needs arises.
To that end, why wait to pay off debt before investing? Money reports that, historically, recovering economies tend to see investors warm up to small caps, with returns shooting ahead of bigger names like Apple and Amazon. As effective COVID vaccinations begin large-scale distributions, now could be the time to strike as Wall Street analysts are eyeing small stocks to turn the corner in 20214.
Furthermore, the recent rise in investment app usage during the pandemic suggests that financial advisors still on the fence need to familiarize themselves with these apps ASAP. According to Bloomberg Businessweek, “Critics say Robinhood’s app encourages users to see investing like a game.” Financial advisors with new or younger clients (80% of Robinhood’s assets under management are owned by Millennials) need to be able to use these platforms in order to guide investors under their advisement on how to use them responsibly5.
No one knows better than those working in the financial space how quickly tech is transforming the landscape of the world, and money in particular. According to CompareCamp, cash does not hold value in a digital realm, and that is where people are and will continue to be. Therefore, the time for opening our minds to the idea that money is data, multiple digital currencies are the way of the future and government-backed currency virtualization will be ‘a thing’ is upon us6. As the 21st century rolls on, financial advisors are poised to lead the charge on how and where and when to tread. Old schools of thought must give way to the modern approach to living and spending.
References
- Bortz, Daniel. “Smart Strategies to Tackle Your Debt.” Kiplinger. 24 Nov. 2020. Accessed on 11 Jan. 2021.
- Bond, Casey. “11 Money ‘Rules’ That No Longer Hold True in 2021.” Huff Post. 5 Jan. 2021. Accessed on 11 Jan. 2021.
- Torabi, Farnoosh. “5 Old Money Rules That Just Aren’t True Anymore.” Time. 31 Dec. 2020. Accessed on 11 Jan. 2021.
- “The 21 Smartest Money Moves to Make in 2021.” Money. 15 Dec. 2020. Accessed on 11 Jan. 2021.
- Massa, Annie & Sarah Ponczek. “Robinhood’s Addictive App Made Trading a Pandemic Pastime.” Bloomberg Businessweek. 22 Oct. 2020. Accessed on 11 Jan. 2021.
- Zuckerman, Arthur. “7 Future Money Trends: 2002/2021 Data, Statistics & Predictions.” CompareCamp. 27 May 2020. Accessed on 11 Jan. 2021.