This viewpoint offers our firm's point of view on the implications of changes in structure of the US market resulting in increased savings and reduced lending and a framework for driving a successful implementation approach to support business models designed to operate and succeed in a world of higher savings and lower consumption.
As the world economy begins to emerge from the financial crisis, it is undergoing fundamental shifts in the levels and global distribution of savings and consumption. A nationwide survey on the financial state of US households, conducted by PricewaterhouseCoopers, found the beginnings of a seismic shift in mindset as growing uncertainty about retirement income pushes Americans to increase savings, decrease spending, and further reduce debt.
Increases in US household savings rates are being driven short term by a need to deleverage from the surge in spending and indebtedness leading up to the recession. We believe that long-term structural changes in savings rates will occur as a result of increasing uncertainty surrounding retirement income. US Social Security benefit payments are expected to exceed tax receipts this year, an important threshold the system was not expected to cross until 2016. The increasing fragility of the US pension system is also evident in state and municipal pension funds, and in broader defined benefit plans in place for private employers. According to the survey, while only 13 percent of households are currently saving 7 percent or more of their disposable income, fully 36 percent of households expect to save at this level in 5 to 10 years.
The new world of increased savings and reduced lending represents a major change from the structure of the US market, and financial institutions will need to consider significant changes to their strategy to address this seismic shift. In our view, financial institutions operating in the United States will need to be less reliant on consumer and business lending, trade, and consumer-based transaction revenue as a percentage of net income for the foreseeable future.