Millennials' spending doesn't reflect their economic plight, TD warns

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Millennials’ finances have been hit hard during the pandemic, but their discretionary spending hasn’t slowed down much, a new TD Bank survey indicates.

The findings suggest that targeting millennials for new credit cards will require surgical risk-management as the economy lurches toward an uneven recovery, said Mike Kinane, who heads TD’s U.S. bankcard unit.

“Some folks are faring better than others as we come out of the pandemic, but we saw some interesting differences among millennials — they’ve tapped out savings and emergency funds and they’re still out there spending on takeout food and other discretionary items,” Kinane said.

More millennials admitted to overspending on online shopping and food delivery during the pandemic compared to other groups, and millennials were also more likely than others to have used up their rainy-day funds this year, according to TD Bank’s second annual Consumer Spending Index.

TD Bank in June surveyed more than 1,000 U.S. adults across all demographic groups, pushing for details in the way bank customers are handling their money during the pandemic.

Millennials stood out in a few ways, particularly in their enthusiasm for digital wallets and their lack of long-term financial planning.

According to the survey, 48% of millennials said they don’t keep a budget, and more than 25% don’t plan on starting one.

One in four millennials said they’ve wiped out their emergency savings this year, compared with 18% of all survey respondents, and 26% of millennials confessed they've accidentally hit a negative bank account balance since the pandemic began, versus 14% of all survey respondents whose accounts went negative.

Yet 42% of millennials said they still splurge on themselves, higher than other generational groups responding to the survey.

One factor that may be boosting millennials’ spending through the pandemic are student loan deferrals lenders have extended to borrowers this year, Kinane said.

“Student loans have grown substantially over the last 12 years, and going into the pandemic millennials were carrying more student loan debt than prior generations. With many lenders forgiving payments during the pandemic, it’s provided relief for these consumers,” he said.

More than three-quarters, or 77%, of all survey respondents received a stimulus check this year, and 42% of millennials said they planned to set it aside for a large purchase, versus 30% of all respondents.

Half of millennials surveyed said they have used a mobile wallet at least once, and 93% believe COVID-19 will accelerate use of cashless payments.

Millennials also evinced relatively high trust in their financial services providers. More than a third, or 34%, of millennials reported positive trust in their bank since the outbreak of coronavirus, versus 15% of all respondents.

“I think it means we have an opportunity to communicate with millennials in how to weather the storm with their deposits and payment cards,” Kinane said.

Like many issuers, TD Bank initially pulled back overall on extending credit to consumers during the pandemic, though the bank hasn’t seen widespread delinquencies, either.

“Delinquencies and losses continue to defy gravity, and though it hasn’t materialized yet I think there will eventually be a degradation in the card portfolio. We just don’t know when it will hit or how severe it will be,” he said.

TD Bank plans to slowly begin extending credit lines to customers again, keeping a close eye on the data, with a goal of helping millennials navigate their way through the financial crisis, Kinane said.

“This is looking like a very uneven recovery … but we think the economic downturn from the pandemic will have fairly large implications on millennials for years to come. So we’re working to understand this cohort and work with them so they’re set up to achieve their long-term goals,” he said.

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