This year there were a number of improvements in the personal finance arena, from longer zero-percent interest periods for credit cards to hints that checking account sign-up bonuses are starting to return.
While 2013 was a good year for consumers, 2014 promises to be better still. Read on for NerdWallet’s 10 personal finance predictions for the New Year.
1. Credit cards will test new perks. Last year, a handful of credit cards began offering perks beyond the traditional points, miles, or cash rewards and signup bonuses. These cards offered free FICO (credit) score monitoring, subscriptions to travel apps, or a year’s membership to Amazon Prime. Next year will see even more cards trying out new partnerships, possibly switching promotions rapidly as they try to find a suitable offering.
2. Banks will court a broader audience. In the years after the 2008 financial crisis, banks focused their efforts on prime customers – big spenders with little debt and few, if any, missed payments. Next year, they’ll increase their efforts to appeal to a broader crowd.
Banks will attempt to draw in smaller spenders by making formerly elite perks more accessible. It’s a trend that began in 2013, as some card issuers extended top benefits to credit cards with no annual fee. For example, the no-fee version of the Barclaycard Arrival carries the perks of a World MasterCard, including trip insurance and warranty protection, while the revamped Capital One GM Credit Card comes with World Elite MasterCard benefits like free upgrades on some international flights and steep rental car discounts.
3. Zero percent APR promotional periods will extend and proliferate. After 2008, banks were less willing to lend to people with heavy debt loads. As their purse strings have loosened, banks have started to warm up to people carrying a balance. The average length of a zero percent promotional APR period rose to 11 months in 2013, up from 8 in 2010, a sign that banks are more excited about the opportunity to earn interest than the risk of a default.
4. Credit scoring will become a better measure of creditworthiness. Credit scores can be used for everything from job interviews to car insurance, but they don’t necessarily reflect a person’s ability to repay a loan. The traditional scoring method hurts people who are financially responsible and have never taken out a loan by penalizing those without a history of on-time loan payments. Recognizing this, some credit rating agencies are taking stabs at better measures. Last year, TransUnion followed Experian in factoring on-time rent payments into their formula, rather than the established method of only including late rent payments.
5. Bigger banks will increase financial education efforts. In an attempt to strengthen their brand and help customers make better financial decisions, large banks will step up their financial literacy initiatives. Though many credit unions and community banks offer lessons and toolkits, big banks have been slow to catch up, although Bank of America entered the fray this year through its partnership with the Khan Academy.
6. Life insurance companies will woo millennials. In 2014, life insurance companies will reach out to younger adults by making their offerings web- and mobile-friendly and selling in new places. (You can now buy an Aetna policy at Costco, while MetLife is for sale in Walmart.) Look for life insurance companies to step up their efforts as the cohort that grew up with tech begins to marry and start families.
7. Black Friday will begin on November 1. This past Thanksgiving, retailers began their sales earlier as part of an arms race with competitors. Despite the detractors, the strategy did draw in some shoppers. What’s more, online shopping allows merchants to set prices nearly instantly, eliminating the need to schedule a single day of low prices. Better pricing ability and the creeping start date of sales will extend Black Friday into a month of discounts.
8. Investing will get more social. Nearly every industry is trying to figure out how to earn money off users’ social activity, from advertisers telling you that a friend likes a product to broadcasters encouraging you to tweet at them. Investing is no exception. Some innovative online brokers leverage social media to make their clients feel more comfortable about trading. For example, Ditto Trade lets you follow other users, view their activity and buy the stocks they choose, and Motif allows you to share your portfolio ideas with friends. In 2014, stockbrokers will experiment with other ways to make investing social.
9. Pay-as-you-go car insurance will grow more popular. As the average American’s commute declines, drivers will seek out car insurance policies that more accurately reflect their driving habits. The traditional calculation of car insurance looks at traits like age and credit score, but not when and how you drive. Use-based insurance, or pay-as-you-go insurance, factors in your speed and how much you drive, making this type of insurance more appealing for light drivers. Technological advances have also made tracking this data even easier.
10. Alternative business lending will become more mainstream. Small businesses often run into trouble getting access to credit, and did even before the recession. Because banks can ask for years’ worth of financial statements and detailed accounting, newer businesses have had trouble getting approved. However, a number of startups have begun filling the gap, using big data to gain a clearer picture of a small company. For example, On Deck looks at suppliers’ records, while Kabbage looks at social media and transaction volume. Even peer-to-peer lender LendingClub is venturing into small business loans. These startups will proliferate in 2014 – allowing more businesses to bypass traditional lenders.
Anisha Sekar is the chief consumer advocate at NerdWallet, a website dedicated to helping consumers make and save more money.
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