For many households, paying down debt was among the top priorities last year and that trend is expected to continue well into 2011.
Historically, when there is an economic downturn and employment uncertainty is on the rise, employed households' first reaction is to build precautionary savings, according to Dave Colby, chief economist of CUNA Mutual Group. This occurred in 2001 to 2002 and again in 2008 to 2009.
"But, households are rational and saw the best course of action for their overall financial health was to pay off debt. This is evidenced by the loan versus savings rate differentials," Colby said.
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The net effect was a sharp decline in savings growth, which was 4.4% in November, and loan portfolio contraction of 1.7%, CUNA Mutual's January Credit Union Trends Report showed.
"From a net worth ratio perspective this household strategy helps credit unions as asset growth also falls. While the short-term results appear positive, this is not a sustainable business model," Colby said.
Total credit union assets declined in November and now stand at $930 billion, up just 3.0% over the past year. Colby said this is significantly below the 10-year average growth rate of 7.9%.
"Expect members to continue to pay down debt in 2011 and credit unions to keep deposit rates and asset growth low," he forecast.
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