As the days become shorter and record-high summer temperatures finally begin to cool down, young students and their families naturally begin thinking about the return to school and college. Fortunately, the future looks bright as economic conditions continue to improve.
Inflation is gradually easing, as consumer prices fell to 3% in June, a sharp decline from last summer’s peak of 9%. Meanwhile, a resilient job market has kept unemployment near historic lows, despite well-publicized layoffs in certain high-profile sectors like tech and banking.
The Federal Reserve is not quite done raising rates, but it has indicated that as long as the economy doesn’t get too hot, it will slow the pace of increases, with an eye toward capping rates sometime in 2024.
These positive indicators are helping boost consumer confidence. The University of Michigan’s US Index of Consumer Sentiment is at 72.60 as of July, up from 64.40 in June and 51.50 a year ago, an improvement of over 40%.
To help your credit union plan ahead for a busy back-to-school shopping season, here are 5 payment predictions from Co-op’s SmartGrowth experts:
Early start to back-to-school will extend into fall: According to an early-summer survey conducted by the National Retail Federation, over half (55%) of consumers started their back-to-class shopping by early July this year. Yet a strong majority (85%) said they still had at least half of their shopping left to do.
The early start is driven largely by a search for deals, as budget-minded consumers continue to shift to discount stores as a way to counteract rising inflation, which has driven up the cost of school supplies by nearly 25% in just the past two years.
Shoppers are also spending more this year: Back-to-school is one of the highlights of the annual retail shopping calendar, and nearly two-thirds of the population intends to shop this time of year. With economic conditions and consumer sentiment slowly improving, 81% of shoppers plan to spend the same or more as last year. A recent study indicates that consumers are particularly focused on price and quality this season.
The National Retail Federation (NRF) predicts back-to-school spending will reach a record $41.5 billion this year, up from $36.9 billion in 2022. Average cart sizes are poised to increase, as well, with households with school-age children planning to spend a record average of $890.07 this year, versus last year’s high of $864.35.
Post-pandemic, as more students head to campus, back-to-college spending is anticipated to explode as well, with predicted total spend to reach $94 billion, $20 billion over 2022’s record.
Back-to-college spend is predicted to rise to a record average of $1,366.95 per person, up from $1,199.43 in 2022. Since 2019, back-to-college spending has nearly doubled.
Demand for electronics and digital goods is on the rise: One key to this expansion of back-to-school and back-to-college spending is a growing demand for electronics and digital goods. According to the NRF, 69% of back-to-school shoppers expect to buy electronics or other computer-related accessories this year, up from 65% last year and the highest in the history of the Federation’s survey. Total spending on electronics—including essential educational tools like laptops, tablets and calculators—is expected to reach a record $15.2 billion this year.
“Consumer demand for digital goods and electronics will continue to soar, particularly within the educational sector,” says Beth Phillips, Director, Co-op Solutions. “This is a growing market and one for credit unions to keep an eye on, particularly in terms of ensuring you are fully digitizing your payments, online and mobile banking offerings.”
Travel to enjoy late summer surge: It’s been a hot summer for travel, as eager consumers itching for a getaway have embraced longer, and more expensive vacations than in recent years. With the school year right around the corner, many families are planning for one last summer fling before going back to work, school or college.
Our SmartGrowth experts also expect business travel to pick up this fall, just in time for conference season. Many companies are once again hosting in-person conferences at popular destinations like Las Vegas, Orlando and New Orleans, and corporate travel budgets are growing, as well.
“The summer’s strong travel season is going to extend right through the fall, buoyed by business expense accounts and the return of in-person events,” says John Patton, Co-op Senior Payments Advisor. “Consumers are less concerned with health issues, and fuel prices have dropped off significantly from last summer’s record high prices. We also expect to see a rise in pre-purchases this fall for leisure travel over the holidays and into the first quarter of 2024.”
Medical spending to spike: One side effect of the back-to-school surge is an anticipated increase in medical and health spending. School-aged and college students will scramble in August and September to schedule required well checkups, physicals, screenings and vaccinations in order to meet their schools’ mandatory deadlines.
Given the rising costs of healthcare overall, with PwC’s Health Research Institute projecting a 7% year over year increase in medical costs in 2024, our experts expect to see spending in this category to grow at above-average rates for the foreseeable future.
What CUs should do to prepare:
As the fall shopping season ramps up, it’s a great time to dust off your credit card rewards program, and ensure it is meeting your members’ needs today. Consider offering your cardholders special incentives for back-to-school shopping, purchases of electronics and digital goods, and spending in discount stores.
Also, don’t forget about those members who are struggling with the growing burden of credit card debt. Scour your member data to identify those who are carrying balances on high-interest rate cards and present them with a low introductory rate balance transfer offer. This will both assist your members in reducing their overall cost of credit, and encourage them to maintain your credit union as their financial relationship of choice!
One final note: As more states across the U.S. pass education bills designed to increase the availability of charter and private schools through use of school vouchers and other means, we anticipate a long-term shift toward the (at least partial) privatization of the nation’s educational system. What this means for household educational spending on education only time will tell, but it will be interesting to see whether there will be a gradual migration away from using public funding for our children’s schooling.
Capitalize on Hidden Payment Opportunities with Co-op SmartGrowth:
The summer peak has passed, and your members are getting ready to go back to school. Prepare now for the increase in spending by optimizing your debit and credit portfolios. Discover how Co-op’s SmartGrowth Consultants can help you see beyond basic transaction data to unearth hidden insights and new opportunities for growth. Contact us to learn more.