People are struggling to pay their monthly bills, according to research from TransUnion. For the majority of households across the U.S., personal finances are being unexpectedly strained as a result of the coronavirus health crisis. From reductions in working hours and hourly wages to lost jobs and closed businesses, the impact on U.S. household’s income has been swift and severe.
To gain a deeper understanding of these dynamics, TransUnion is conducting a Consumer Financial Hardship Study, a multi-wave study tracking changes over time. TransUnion has conducted ten waves of the study, analyzing responses from over 24,000 consumers from March 16, 2020 (Wave 1) up until June 30, 2020 (Wave 10).
TransUnion said its study sheds light on how households are being impacted financially by the COVID-19 pandemic and offers utility companies a focused understanding of the potential impact on their business.
Utility Analysis Highlights:
- 16% of utility consumers indicate they will not be able to pay their utility bill. Relative to other categories of obligations, utilities are in a more favorable payment position.
- The percent of consumer that have enrolled in a financial accommodation for their utilities is the lowest of any of the financial obligations analyzed at just 6%.
- When financial accommodations come to an end, 40% of consumers would prefer a repayment plan that will allow them to gradually catch up on the outstanding debt, while at the same time being able to make their regular monthly payments.
- Younger generations have been hit harder by the pandemic – with only 29% of millennials indicating they will be able to pay their utility bill.
For utilities, determining an accurate projection for monthly revenue while reviewing customers’ ability to make payments in a timely fashion is critical.
More than half of US consumers have had their income negatively impacted by the coronavirus pandemic. In the latest wave survey (June 30, 2020) 55% of U.S. households indicated that their income has been negatively impacted.
As a result of this negative financial impact, a significant number of households are concerned with their ability to pay their current bills and loans.
After being relatively stable at approximately 66% for several weeks, the percent of consumers indicating that they are concerned with being able to pay their current obligations has increased in back-to-back waves and now stands at 72%. Government stimulus checks and enhanced unemployment benefits have been primary sources of funds to keep many distressed consumers solvent. However, at the time of this posting, the majority of consumers have run out of their first government stimulus money and there is uncertainty around the timing of a second round of stimulus checks, if any are to come at all.
In addition, it is unknown whether enhanced unemployment benefits will be reinstated after expiring at the end of July. In absence of further government stimulus, TransUnion expects the percent of consumers concerned with their ability to pay their bills will continue to rise.
How Utility Bill Obligations Stack Up Next to Other Bills
As part of its analysis, TransUnion looked at holders of different financial and non-financial obligations and the percent that hold each type of obligation that indicated they will not be able to pay.
Relative to other categories of obligations, the risk of nonpayment for utility bills is much lower. 16% of those with a utility bill indicate they will not be able to pay their utility bill, which is significantly lower than the percent unable to pay rent or for credit obligations like personal loans or student loans. Only Mobile/Cell and Internet bills have a lower percent of consumers saying they will not be able to pay.
The loans or bills that consumers are unable to pay differ based on a number of factors including the importance of that specific bill in their daily life, the absolute dollar value of the bill, and whether they have received some type of financial accommodation for a given bill. Given the importance of household utilities and the size of the payment compared to other obligations, utility payments appear to be in a relatively good payment position when compared to other obligations. These findings provide insight into the payment hierarchy that consumers have relative to their various payment obligations.
Since March 2020 when Transunion began the Consumer Financial Hardship study, there have been an increasing number of negatively impacted consumers who have reached out to lenders and service providers to discuss payment options. This started at 40% of consumers in March and has risen to 60% in the most recent wave. However, a much smaller percentage, only 23%, have actually enrolled in a financial accommodation such as a deferral, forbearance or payment holiday.
The types of debt/bills they have received assistance with differs. At 33%, student loans have the largest percent of consumers who have received some sort of assistance. This isn’t surprising since, in many cases, student loan lenders automatically enrolled borrowers into a program and didn’t require that consumers opt-in.
At only 6%, the percent of consumer that have enrolled in a financial accommodation for their utilities is the lowest (tied with telecom) of any of the financial obligations analyzed. This speaks to the importance of utilities to consumers and that they are prioritizing their budgets towards these bills.
How Consumers want to repay their deferred bills
Consumers and lenders alike are concerned about what will happen once the financial accommodations come to an end. How will consumers deal with the mounting debt and obligations that have been building through forbearance and deferments? Consumers were asked how they would prefer to repay any deferred bill payments once the financial accommodations come to an end and their responses point to potential insights into their financial situation. The top 3 preferences are:
- 40% would prefer a repayment plan that will allow them to gradually catch up on the outstanding debt, while at the same time being able to make their regular monthly payments. This group appears to have good intentions of paying all of their obligations but given the hit their finances have taken as a result of COVID 19 will need some additional help in the way of time to get their accounts back to current.
- 25% would prefer to extend the accommodations for another few months. This group appears to be concerned with being able to pay their bills in absence of accommodations and therefore prefer an extension.
- 21% would prefer to pay the amount due in a lump sum. This group of consumers have possibly had smaller dollar amounts deferred and/or may have taken advantage of the financial accommodations made available to them as a precaution and not necessarily due to hardship.
Demographic Profile of those unable to pay their utility bill:
Geographic Region: The South has the highest percent of households that indicate they will not be able to pay their utility bills at 19%. The West and Northeast region are second at 15% followed by the Midwest with the lowest percentage of non-payers at 11%.
Generation: Millennials are the most likely to miss a utility payment, with 29% saying they will not be able to pay their bill. 17% of Boomers with a utility indicate they are not going to be able to pay their bill, followed by Gen-X at 14%.
Environment: Urban households are at the greatest risk of non-payment of their utility bill, with 25% saying they will not be able to pay. The percentage of suburban and rural households that indicate they will be unable to pay their utility bill is about half that of the urban environment, at 13% and 12%, respectively.
Income: Income is the most discriminatory demographic in determining the risk of nonpayment of a household’s utility bill. 24% of households with an income less than $50k indicate they would be unable to pay their utility bill. The income range between $50k – $100k decreases to 13%, and for those with an income greater than $100k, 10% are unable to pay their utility bill.