NEW YORK (MainStreet) — Forecasting financial trends for the new year serves to help consumers line their pockets with cash.
One thing experts agree on is that credit isn’t going anywhere anytime soon. Below are five predictions designed to help the average American set solid and prosperous financial resolutions to continue throughout the year.
Interest rates are expected to rise but remain near record lows
They've been at depressed levels for quite some time, and the Federal Reserve Bank recently relaxed interest rate policy by curtailing its bond buying program. A variety of factors will continue to suppress interest rates in the near future.
“Interest rates could rise, because they haven’t gone up since 2006,” said Gerald Celente, director of the Trends Research Institute, a Kingston, N.Y. based company that consults with governments and businesses. “Currently, the Fed rate is at 0.25% so raising it by a quarter basis point would slow down the equity markets a little bit.”
That’s because the rise in the equity markets is partly due to M&A activity and Fortune 500 companies buying back their stock since they can borrow money cheaply.
“Big banks like Chase, Citi and Wells Fargo can borrow at the fed rate and loan it back to the people at any interest rate they want,” Celente told MainStreet.
The overall market will remain inexpensive to borrow.
“Inflation has yet to become a problem, which means regulators have no reason to actively push rates up either,” said CardHub’s John Kiernan. “Neither of these trends seems likely to dissipate in the near future so while some natural rate increase may occur, the financing environment will still environment will still be very attractive for the millions of expected home and car buyers in 2015.”
Credit Will Be Increasingly Available
Contributing to increasingly available credit is improved bank credit quality and capital adequacy levels, a growing U.S. economy, an unemployment rate decline and rising commercial bank appetites for risk-taking.
The primary benefit to this access for consumers is a better lifestyle.
“The more people borrow, the busier others tend to be,” said John Ulzheimer, a financial expert with CreditSesame.com. “We're able to live in houses and drive cars and carry around substantial buying power in the form of a plastic card because of credit. The alternative is paying cash or writing checks for everything, which is unsafe and unrealistic.”
The downside is that increased available credit lends itself to living beyond our means.
“We’re lucky that the economy is doing well, default rates are so low and people are staying current on their bills,” Kiernan told MainStreet. “We just need to get our spending under control and use our access to credit responsibly or else we could be in big trouble if there is another downturn.”
Consumers Will Rack Up $60 Billion in Credit Card Debt
Americans will take on a bit more debt as they see wages rise, but there’s a catch.
“Credit card debt only benefits the economy when people have jobs to pay it back,” said Celente.
Apple Pay Will Gain Market Share, and Chip and Pin Cards Are Coming Soon
Apple pay will gain market share as more stores come online and equipped devices flood the market; however Apple Pay, users are not any safer from liability than those who still use physical magnetic-stripe cards due to the Fair Credit Billing Act restricting liability to no more than $50 of an individual’s credit card for fraudulent use.
“Consumers did not bear fraud risk prior to Apple Pay,” said Ben Katz, CEO with Card.com. “Apple Pay protects merchants and Visa/MasterCard credit card companies.”
At the end of the day, women still prefer purses.
“Wallets will continue to exist as long as bars and lounges require identification because digital IDs are decades away,” Katz told MainStreet.
On the upside, with Apple Pay consumers don't have to carry around their credit cards, which reduces the likelihood of theft.
“That makes it much more difficult to steal the card's information because there's nothing physical to skim like a magnetic stripe,” Ulzheimer told MainStreet. “It will be interesting to see how Apple Pay works with the new Chip and Pin cards, which are coming soon.”
The more chip-based cards and chip card readers on the market, the harder it will be for fraudsters to steal credit card information.
Checking Account Overdrafts Will Be Regulated as Credit
The end of 2014 saw the Consumer Financial Protection Bureau (CFPB) introduce a set of rules for the prepaid card market. Among them are a number of provisions that classify overdraft protection as an extension of credit and extend credit-related underwriting rules to prepaid cards.
“If you overdraft on your checking account then you might as well have used a credit card for the transaction, because the budgetary controls of a debit card simply aren't working for you,” said Ulzheimer. “While some might see the move away from debit to credit as a negative, it’s hardly true given the aggressive caps on liability on credit card fraud.”
The regulation will reduce the number of people who accrue fees and penalties from their bank as a result of not being able to pay for overdrafts.
“This will reduce the losses that banks are forced to eat and thereby lead to a healthy system,” Kiernan said. “A lot of people might consider overdraft credit checks to be a nuisance, but they’re ultimately saving us from ourselves and teaching us to avoid overdrawing our accounts to begin with."
-Written for MainStreet by Juliette Fairley