Could consumer confidence affect lenders?

October 27, 2008 by Marcel

Consumer confidence is important to the economy. It is the driving force behind the public’s willingness to spend money, and as such, businesses rely on confident consumers to keep them afloat.

Consumer confidence is a difficult thing to measure, but the latest Consumer Confidence Index (CCI) from Nationwide Building Society, which is based on a survey of consumer opinion, rates consumer confidence at its lowest in at least four years (the index did not exist before 2004).

The evidence is there: budget supermarkets are boasting their highest profits in years, sales of new cars have fallen 21% in a year, and more established High Street chains such as John Lewis and BHS have announced significant falls in profits. It would seem that consumers are becoming increasingly eager to save money where possible.

Consumer confidence and loan availabity

Traditionally, consumer confidence has primarily been a concern for providers of consumer goods and services. Banks and building societies, meanwhile, can sometimes benefit from reduced consumer confidence: when customers do not spend their money, it stays in their bank accounts, which provides funds for financial institutions to do business with. It also encourages taking out loans to finance more expensive purchases, which earns the lender interest.

However, with the uncertainty surrounding the financial sector at the moment, this situation could change. With a number of banks merging and others reporting large falls in profits, the old cliché of keeping savings under a mattress might not be such an exaggeration.

However, a spokesperson for Think Money said that savings are still very important - not only for financial security, but for the good of their lenders too. “Consumer confidence is important to lenders, because they too rely on continuous business,” she said. “If lots of customers withdraw their savings in a short period of time, the banks could be left with very little money to do anything with, meaning they would have little money left to fund loans and other forms of credit. In a worst-case scenario, they could even fail.

“Our advice to consumers is not to panic and to try to carry on as normal. Take confidence from the fact that lenders are still offering loans to customers, which they simply wouldn’t do if the money wasn’t there.

“The Government’s £50bn rescue plan, combined with the recent half-point base rate drop, will only serve to improve lenders’ ability to offer loans - it may just take a little longer to find the right deal.”

Free Guest post by loan and mortgage specialists www.ThinkMoney.com

10 Comments so far »

Roger Hamilton said

am October 31 2008 @ 8:41 am

Consumer confidence definitely affects lenders. Just hope it gets better.
Accounting Outsourcing said

am October 31 2008 @ 10:06 am

The post is quite informative but I have serious observations on the economic stats quoted in the post. Can any one tell what is the source of these facts.
Consumer said

am October 31 2008 @ 10:12 am

@Accounting Outsourcing

Maybe if you were not so busy adding your keywords “Accounting Outsourcing”, you would have noticed that it’s a Free Guest post by ThinkMoney.com.
Martin @ Babies R Us Coupons said

am November 4 2008 @ 5:27 am

@ Accounting Outsourcing

By the way there are thousands of internet sites and official data source from where one can find economic data. At present time of inforation development there’s very little chance to lie on facts. So I am sure all the facts and figuer are quite informative.

And Thanks for sharing your views via this post, it’s really full of knowledge.
H said

am November 5 2008 @ 9:34 am

There’s no doubt on it…

Definitely consumer confidence affect Lenders too. Nice post thanks for sharing.
John Hunter @ Curious Cat Investing Blog said

am November 13 2008 @ 6:23 pm

People should not panic but they should be taking the smart financial steps they always should have been taking (but many have not been). Personal finance is largely a long term matter, it is very difficult to make dramatic changes quickly. If you have not saved up an emergency fund over several years, it is not something you can fix in one or two paychecks. But today the dangers of taking dangerous personal financial risks are more obvious than any time in recent memory.
Betty Truitt said

am November 21 2008 @ 8:37 pm

Well it’s November 21 now and the economy has had some serious hits since this post. With the big Detroit 3 tittering and all of the economic sign posts are showing the way for consumer confidence and bank confidence to wain.
Søkemotoroptimalisering said

am November 22 2008 @ 12:29 pm

confidence affects lenders: true. but it has its benefits too, as mentioned in the article “when customers do not spend their money, it stays in their bank accounts, which provides funds for financial institutions to do business with”.

a very informative article!
Lloyd said

am December 6 2008 @ 7:46 am

Traditionally, consumer confidence has primarily been a concern for providers of consumer goods and services. Banks and building societies, meanwhile, can sometimes benefit from reduced consumer confidence: when customers do not spend their money, it stays in their bank accounts, which provides funds for financial institutions to do business with. It also encourages taking out loans to finance more expensive purchases, which earns the lender interest.
Betty said

am December 7 2008 @ 11:20 pm

Yes, there are ups and downs to economic fluctuations no matter the climate. There is always going to be winners and losers.

You just have to hope that whatever your income source is - it’s on the lucky side of the dice.