How COVID-19 Impacted Black-White Financial Inequality
COVID-19 has disrupted everything from economic markets to personal finances, but not everyone feels its effects equally. When compared with White Americans, Black Americans’ financial situations have been disproportionately affected by the pandemic.
In this infographic from McKinsey & Co., we outline the financial vulnerabilities of Black Americans, their increased usage of financial services since the onset of the pandemic, and their lower satisfaction levels with those services.
Financial Vulnerabilities of Black Americans
Compared to White Americans, more Black Americans say their job and income have been negatively impacted by COVID-19.
|My job has been negatively impacted by COVID-19||My income has been negatively impacted by COVID-19|
Looking forward, Black Americans also report greater job security concerns and have less savings to protect themselves financially. In the event of a job loss, 57% of Black Americans report their savings would last four months or less, compared with 44% of White Americans.
With less of a cash buffer on hand, Black consumers are also more likely to have missed a recent bill payment.
|Skipped at least 1 payment||Partially paid at least 1 bill||Paid in full|
This includes being unable to pay for basic items such as utilities, telephone and internet, and mortgage payments.
How do they begin to manage these challenges?
Use of Financial Services
Black Americans increased their use of financial services more than White Americans.
Banking activities in the past two weeks, per March-June 2020 surveys
|Withdrew cash||Deposited cash||Deposited checks||Contacted bank for service on account||Opened new accounts||Received advice on digital tool usage|
For example, Black Americans were about twice as likely to request account service, open an account, or receive advice on digital tools. In addition, Black families were more likely to leverage a fintech platform and have been more active in opening fintech accounts since the start of the COVID-19 crisis.
However, as Black Americans seek out more financial help, some are not happy with the service they receive.
Satisfaction with Financial Services
Overall, Black families are less satisfied than White families across all types of financial activities. These differences were most pronounced for digital tool advice, where 38% of Black Americans were dissatisfied or very dissatisfied, compared with just 12% of White Americans.
Even though Black people were less satisfied with banking services, they were more likely to say that bank performance was above their expectations. This may suggest that expectations are lower for Black families than they are for White families.
Black Americans were also much less likely to trust their financial advisor.
|Do not trust/losing trust||Indifferent||Gaining trust/trust|
From March-June 2020, the percentage of Black people distrusting their advisors rose from 12% to 32%. Over the same time period, White people’s distrust of financial advisors remained stable at 10%.
A notable exception: White and Black Americans were both satisfied with fintech providers. Only 5% of White Americans and 8% of Black Americans expressed some level of dissatisfaction with fintech companies.
Time to Examine the Financial System?
COVID-19 has perpetuated Black-White financial inequality. Data shows that Black families are more likely to be financially vulnerable, and increase their use of financial services during the COVID-19 crisis. However, they are less likely to feel satisfied with these services.
Financial institutions can urgently review their remote and in-person customer service procedures to ensure the needs of all families are being met.
5 Big Picture Trends Being Accelerated by the Pandemic
In some cases, COVID-19 has sped up societal and economic trends that were already in motion. Here we examine five examples.
As every email introduction has reminded us in 2020, we’re living in “unprecedented times”.
No doubt, even after a viable vaccine is released to the general public and things begin to return to some semblance of normalcy, there will be long lasting effects on society and the economy. It’s been said that COVID-19 has hit fast forward on a number of trends, from e-commerce to workplace culture.
Today, we’ll highlight five of these accelerating trends.
#1: Screen Life Takes Hold
Smartphones have drastically altered many parts our lives – including how we spend time. In the decade from 2008 to 2018, screen time on mobile devices increased 12x.
Fast forward to today, and screen time is up across the board, with some of the most dramatic increases seen among kids and teenagers. 44% of people under the age of 18 now report four hours or more of screen time per day – up from 21% prior to the pandemic.
Gaming is another digital segment that has benefited from the pandemic. Video game revenue spiked in the springtime, and sales have remained strong going further into 2020. Companies are hoping that casual gamers won over during lockdown will continue playing once the pandemic has come to an end.
Acceleration signal: International bandwidth and internet traffic was already increasing steadily, but COVID-19 stay-at-home activity has blown away previous numbers.
Even as more workplaces and schools begin to operate normally again, it’s doubtful that screen time will drop back down to pre-COVID levels.
#2: The Big Consumer Shake-Up
The consumer economy has been innovating on two fronts: making physical buying as “frictionless” as possible, and making e-commerce as nimble as possible. COVID-19 broke old habits and sped up that evolution.
Innovations in real world shopping appear to be moving in the direction of cashierless checkouts, but in order for that model to work, people first need to embrace contactless payment methods such as mobile wallets and cards with tap payment.
So far, the pandemic has been an accelerant in moving people away from cash and pin-and-swipe credit cards in lagging markets. Once people get used to the convenience of contactless payments, it’s likely they’ll continue using those methods.
Of course, no conversation about e-commerce is complete without talking about Amazon. The company has seen consistent growth in subscription revenue in recent years, and the company’s actions have a wide-reaching effect on the rest of the industry.
Much like the gaming industry, e-commerce companies like Amazon are hoping that people who dabbled with online ordering during the pandemic months, will convert into lifelong customers.
Acceleration signal: E-commerce penetration projections have shifted upward.
In hindsight, 2020 could be an inflection point where e-commerce gained a much bigger slice of the overall retail pie.
#3: Peak Globalization
Globalization went on a tear starting from the mid-1980s until it hit a plateau during the financial crisis. Since that point, global trade as a percentage of GDP has flat-lined in the face of trade wars, and now COVID-19.
Trade was obviously impacted by the pandemic, and it’s too early to say what the long-term effects will be. One thing that is clear is that the information component of globalization is becoming an even more important piece of the world’s economic puzzle.
Even before COVID-19 took hold, the global services trade was growing 60% faster than the goods trade, and was valued at approximately $13.4 trillion in 2019.
Acceleration signal: The dip in merchandise trade looks eerily similar to the one that took place in 2008.
#4: The Wealth Chasm
On the high end of the wealth spectrum, billionaires are worth more than ever.
Meanwhile, in the broader economy, inequality has grown over the last few decades. Those in the top 50% wealth bracket have seen increasing gains, while the bottom 50% have seen stagnation.
This issue is sure to be compounded by economic turmoil brought on by COVID-19. Younger generations face the dual challenges of being more likely to be negatively impacted by the pandemic, while also being the least likely to have savings to cover an interruption in income.
In fact, nearly half of people in the 18–24 year old age group have nothing saved at all.
The longer the economy is affected by COVID-19 measures, the more of a wedge will be driven between people who have continued working and those who are employed in impacted industries (e.g. tourism, events).
Acceleration signal: Growth in the net worth of billionaires has been largely unaffected by COVID-19.
#5: The Flexible Workplace
As of 2019, over half of companies that didn’t have a flexible or remote workplace policy cited “longstanding company policy” as the reason. In other words, that is just the way things have always worked.
Of course, the pandemic has forced many companies to rethink these policies.
This grand experiment in remote work and distributed teams will have an impact on office life as we know it, potentially reshaping the entire “office economy”. The impact is already being felt, with global commercial property investment volume falling by 48% in Q3 2020.
Acceleration signal: Thousands of people are moving out of pricy urban areas, presumably because they are able to work remotely from a cheaper location.
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How Holiday Spending Compares Around the World
This graphic illustrates some of the largest and most anticipated retail holidays by region and explores their origins.
How Holiday Spending Compares Around the World
View the high-resolution of the infographic by clicking here.
While COVID-19 has triggered a tsunami of challenges for retailers the world over, they can take solace in knowing that retail events throughout the year can contribute to an uptick in sales.
But consumer spending for events like Back to School, Halloween, or Easter pales in comparison to what people spend between Thanksgiving and New Years—otherwise known as “the holidays”.
The graphic above explores holiday spending across the world, as well as some of the major events that contribute to it, based on MoEngage and AppFollow’s Holiday Marketing Guide.
Retail Events by Region
While Christmas is celebrated in some form across most parts of the world, U.S. consumers spend more than any other nation, with retailers raking in an estimated $1 trillion in sales in 2019.
As another major retail holiday, Black Friday originated in the U.S. but has since become a global phenomenon. In 2019, sales for the one day event reached a staggering $7.4 billion in the U.S. alone, but it was surpassed by Cyber Monday, which garnered a total of $9.4 billion in sales.
Over in India, holiday season spending in 2019 reached a total of $46 billion due to a number of events such as Amazon’s Great Indian Festival. Orders were placed during the event from over 99% of India’s postal codes, and on the busiest day, more than 600 flights delivered Amazon orders to customers.
In other parts of Asia, Alibaba’s Singles’ Day is quickly becoming a highly anticipated event attracting attention from consumers in other parts of the world. But while it recorded $38 billion in revenue in 2019, it was meager in comparison to Chinese New Year sales during the same year, which topped $149 billion—although it does not take place during the holiday months covered in this graphic.
2020 Trends Impacting Retailers
Despite many retailers banking on the success of these holiday events, they are up against some critical challenges due to the ongoing COVID-19 pandemic.
According to the report, consumers have become more cautious about their spending, due to economic uncertainty of their finances. In fact, personal savings rates in the U.S. reached a historic 33% in May of this year.
More Value-Conscious Buyers
It’s no surprise that consumers’ concerns about the economy and their job prospects are affecting how they spend their hard-earned cash. They are spending less on items that may be considered a luxury, and investing more on things that can add value to their lives day-to-day, like media and entertainment.
Reluctance to Shop In-Store
Tightening lockdown restrictions and social distancing have raised some questions around how much of a role brick and mortar stores will play this year for consumers. Interestingly, a study shows that 36% of shoppers now prefer shopping online, up from 28% before the pandemic.
Supply Chain Issues
COVID-19 has wreaked havoc on retail supply chains, resulting in a number of issues arising such as labor shortages and transport restrictions. This has put many retailers under tremendous pressure to reimagine how they can best serve their customers.
The Most Wonderful Time of the Year?
Holiday shopping in 2020 will be anything but typical. Businesses of all shapes and sizes are having to adjust to changing consumer behaviors to ensure they make it through to 2021 intact.
With tightening restrictions across the world, brick and mortar stores are becoming less of an option for millions of people, challenging retailers to focus efforts on their online experience.
Forrester predicts that total retail sales in North America will decline in 2020 overall, while online sales will increase by 18.5%—growth not seen since 2008.
Whether the reimagined supply chains of 2020 can keep up with more online demand is another question.
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