Tax return anxiety adding to banking customer jitters, says survey

Banking customers already jittery about high inflation and fears of a recession have added their tax returns to their anxiety list as filing deadlines approach.

According to a survey by J.D. Power, about three-fourths (76%) of bank customers in the U.S. hold some sort of worry about their taxes, while 21% said they have more fears about the 2023 tax season than normal. The most frequent concern involves sticker shock, J.D. Power found, in which 20% of those surveyed said they fear they’ll end up owing more than planned, and 16% feared they might not get any refund.

The Banking and Payments Intelligence report found that tax anxiety has increased even while there’s been no significant change in financial health, and the overall level of inflation recognition remains pretty much unchanged.

At the same time, however, just 33% of respondents said they were financially healthy, compared to 47% in 2020, and many customers plan on using tax rebates to inject some capital into their finances.

2020 financial health 'artificially inflated'

“I think the financial health figure in 2020 was artificially inflated because stimulus checks were going out, people were staying home and not spending as much money, and we saw some of the largest base deposit amounts in years,” said Jennifer White, senior director of J.D. Power’s Bank and Payments Intelligence Group. “Now, inflation has hit and we’ve had an erosion of savings and it means two out of every three customers are in some form of financial unhealthiness.”

And so goes the anxiety meter.

Compounding the issues, White said, is a troubling sign that nearly 21% of those surveyed said they would likely have to get a loan to pay their tax obligation this year.

“It’s a sobering fact for the future when you have that many saying they’re going to borrow in order to make their tax payments,” she said.

Tax planning assistance wanted by consumers

Inherent in J.D. Power’s survey is the fact that banks are not keeping up with customers’ desires for tax planning or filing assistance and there is burgeoning opportunities for fintechs and other firms to close the gap in tax filing help.

Just a small percentage (12%) of bank customers indicated having received three or more types of messaging on tax assistance. Nearly half (46%) of the vulnerable population and 61% of the stressed population didn’t know if they received tax advice from their banks. This clearly showed that banks need to find a way to be more proactive and clear in their messaging, particularly to the customers that need it the most, J.D. Power said.

“There remains a wide-open space for both more fintech firms and traditional incumbents to offer services that could bring advantages to customers and their financial institutions,” the report said.

Those findings were validated by a few independent sources.

”People are now dealing with more anxiety brought on by changes to tax laws and financial instability,” said Tracy Cauley, CFA at VEM Medical, a California medical equipment company. “Regrettably, there is a gap in the market since many people are not getting the help they require to reduce their anxiety. Conventional financial institutions and fintech startups can fill this hole by expanding their portfolio of services to include tax planning and preparation.”

Fintechs offering tax planning solutions

Fintech companies, in particular Cauley said, have the advantage of being able to offer innovative solutions and technologies to make tax planning and preparation more accessible and convenient for customers.

“Fintech businesses and conventional financial institutions have a huge chance to grow their clientele and support people stressed about taxes,” said Cauley. “By filling this hole in the market, they can attract new clients and establish themselves as leaders in the sector.”

Jenna Lofton, a Certified Financial Planner, stock trader, and small business owner in New York City, said agreed with J.D. Power’s findings that this tax year is particularly stressful in terms of tax anxiety as as people grapple with complex regulations and the fear of making mistakes.

“This year, that anxiety seems to be even more pronounced,” she said. “I believe there's a significant opportunity for both traditional financial institutions and fintech companies to step in and address this gap in tax guidance.”

Some are rising to the challenge

Some challenger brands are already rising to meet this challenge,” the report found, noting companies like Take CashApp, offers both federal and state tax preparation services at no charge.

“Data consistently show that as customers use more bank services successfully, they become further engaged and, therefore, less likely to leave the branch and less likely to move deposits elsewhere,” J.D. Power said. “If banks can bolster their services with tax solutions that can have a meaningful effect for their customers, they’ll likely see a significant return on their investment.”

Powers’ White said 82% of bank customers have an expectation that their bank will help them improve their financial lives.

”’Improve’ is a very key verb there,” she said. “Not manage, not monitor, not track, but actually improve. That's more than having efficient branch services, or nice to use digital services that allow you to track your transactions or maybe deposit a check. This is about banks having digital tools available that help customers in that safe, spend, borrow, place space.”

White said her research tells her that personal services such as financial wellness reviews, spending plans, savings analysis tools, and budget assessments are becoming popular with bank customers.

“Usage may be low right now, but the customers who use them are wildly satisfied with the relationship,” she said. “And they're loyal, and they're ready to open up their next new account with that same bank.”

 

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

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