Meredith Whitney Warns: The One Money Move Middle-Income Americans Are Making to Survive Each Month

Middle-income consumers have become more fragile as the consumer environment changes from the last credit cycle. Banks have not been exposed to as broad a set of consumers as before, and banks have pulled back from consumer lending. That restrictive lending environment has driven many consumers out of the banking system. Some households now rely on private, off-balance-sheet credit mechanisms such as on-demand pay that provides daily wages instead of biweekly checks. Other consumers use pawn loans, where average APR can exceed 200% and monthly pawn loans can be extremely costly. Corporate leadership also points to end-of-month money shortages. Macro indicators show lower savings and higher spending relative to disposable income alongside continued retail sales.

"“The state of the consumer has changed dramatically from the last credit cycle. And a lot of people continue to look at banks, ceos for guidance, and bank ceos continue to use the word. The consumer's resilient. But the reality is the banks have not been exposed to as wide a swath of consumers as they were during the last credit cycle.”"

"“Banks have pulled dramatically back from consumer lending and from many consumers. And that restrictive lending environment has driven so many consumers out of the banking system.”"

"“More consumers, more households aren't living paycheck to paycheck, but payday to payday. So in the private, you know, shadow banking system, there's on demand pay where employees can access daily pay wages as opposed to biweekly checks. And that has been exploding in terms of growth.”"

"“The average apr on a pawn loan, as an example, a monthly pawn loan can be in excess of 200%. And these are the unintended consequences.”"

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