This article started out as a “Pricing” article and was going to be about how do funeral businesses raise their prices for the new year in a world where inflation on consumer’s everyday purchases has continued to stay elevated?

I was wondering because economic indicators from last Friday showed a gain in American jobs but also a rise in the unemployment rate to 4.2%. . . and, anecdotally, major employers headquartered in my area, Cargill and Toro, announced thousands of job layoffs around the world.  I looked at those data points and wondered if I could see a trend developing.

So,  I went searching for information that would confirm to me that the consumer was in a tighter position than, let’s say, a year ago.  What I found was interesting, and probably acknowledges that the consumer, at least on the average, may be in a better position.

Here’s what the Federal Reserve Bank of  New York says as to the American consumer’s position at the end of the 3rd Quarter of 2024 per this article:

“Total household debt increased by $147 billion to reach $17.94 trillion, according to the latest Quarterly Report on Household Debt and Credit. Aggregate delinquency rates edged up from the previous quarter, with 3.5 percent of outstanding debt in some stage of delinquency. Mortgage balances rose by $75 billion from the previous quarter to reach $12.59 trillion at the end of September. . . . . Credit card balances increased by $24 billion to hit $1.17 trillion, and auto loan balances saw an $18 billion increase and stood at $1.64 trillion. HELOC (Home Equity Loans) balances increased by $7 billion to reach $387 billion, representing the tenth consecutive quarterly increase since Q1 2022.”

So, that paints a not-so-pretty picture of family or consumer debt in America.  However, in a related article from the Federal Reserve Bank of New York that you can read here, they point out a positive attribute of where the American consumer is also:

“The aggregate debt balance has continued to climb since the pandemic, reaching $17.94 trillion in the third quarter of 2024. However, during this same time, Americans’ disposable personal income has grown as well, reaching a value of $21.80 trillion. Now, the ratio of total debt balance to income is 82 percent, just below the pre-pandemic level of 86 percent in 2019. Relative to income, balances are actually lower than they were before the pandemic.” (Emphasis by Funeral Director Daily)

Here’s a chart of Consumer Debt to Income from 2000 through today:

As you can see, debt has risen dramatically, but not as a percentage of personal income.  I’m pretty certain that your consumer clientele will range away from these average statistics to a range of consumers who, on one end of the spectrum, have no problem paying for funerals all the way to a group of less fortunate clientele that have no ready cash or credit available to them at the time of a death in the family on the other end of the spectrum.

Tom Anderson
Funeral Director Daily

Doing this exercise and finding these credit statistics also pointed out to me that like politics, the funeral business is truly a “local business”.  Your clientele, and probably their ability to pay, probably has some correlation to where your funeral home is located.

For instance, an inner city funeral home may find lots of issues with credit and finance in contrast to a wealthy suburb funeral home where you would expect little problem with that issue.  And, if you are in a rural or regional center city like I am, you always have to be prepared for client families on both extreme ends of the spectrum. . . . . And my guess, is that if you have lived in your community for any length of time, then you know who your clients are and the situations that you will probably face with service payments.

To that point on contrasting situations, here is a quote from the 2nd linked article above on some of those differences and trends:

“(the) divergence of debt-to-income measures based on the type of household debt and the heterogeneous characteristics of borrowers might shed light on the economic situations faced by different groups of people in the U.S., particularly when paired with differential movements in delinquency rates. The recent downward movement in the ratio of debt to income has been followed by an apparent moderating of delinquency rates for auto loans and credit cards during the third quarter, and if that trend continues, it would suggest that rising debt burdens remain manageable.”

I guess we will talk about pricing of services another day. . . . .I somewhat got carried away with the statistics I found while investigating the position of the American consumer in today’s world. . . . But, as I’ve always found out, you learn something from the investigation.

Related Article — US economy adds 227,000 jobs in November, unemployment rate rises to 4.2% as labor market rebounds.  Yahoo Finance

Related Article — Inflation remains sticky, with (November 2024) CPI rising 2.7% from a year ago.  Yahoo Finance  (Editor’s Note:  Here’s a quote from this article which was published yesterday:  “Since May 2023, wages have been rising faster than inflation, which is the main reason why persistently higher inflation has not slowed overall consumer spending.”

Related Note —  According to this graph below, wage growth remains higher than inflation.  That is something to think about when looking at your next round of employee compensation decisions.  It’s also interesting to note that it appears wage growth may  continue to remain higher than inflation growth for the immediate future.   If that is true (continued wage growth) in the funeral home business world then funeral homes may find it difficult to maintain current staffing in a Death Care world where it is a challenge to maintain revenue per case levels as the growth of cremation and direct cremation continues.

Year-over Year growth by month (2020 to October 2024). Wage Growth = Blue Line. Inflation Growh = Black Line.

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The American economy keeps spending, yet we hear that families are getting squeezed by the combination of high prices and high interest rates.  We also hear that high interest rates don’t seem to be stopping the consumer which in turn would put a turn-down on the economy making a reason for lowering interest rates.

In some ways that juxtaposition just doesn’t make sense.  How can America keep spending in record numbers and dollars, yet we hear the stories that families are hurting.  If the families are hurting financially, wouldn’t the spending stop?

Oddly enough, that’s a discussion my family had at the Easter table on Sunday.

Then on Monday, I found some proof from what I have long expected. . . . .There is much more than one America and there is a pretty easy explanation for all of this when you look at what is happening in credit scores.  I came across this article titled, “Delinquencies rise in February as diverging consumer credit trends emerge”.

The article gives some reason and rationale to the fact that America is diverging in a lot of areas. . . one of which is the ability to secure credit.  The article deals with what is called the “VantageScore” of credit.  It lists three tiers where most people fit into the credit rating categories. . . .

• A credit rating of between 781-850 is called “SuperPrime” and is the top category
• A credit rating of between 600-780 is called “Prime” and is the next best category
• A credit rating of between 300-600 is called “SubPrime” and is the lowest category.

According to the article the “Prime”, or middle, category is contracting in number of consumers and as it does those people that move out of it move either up into the “SuperPrime” category or down into the “SubPrime” category.  In essence America’s borrowers are either “Better Off” or “Worse Off” than before but less and less are in the middle-class category which has been where the essence of America has been for decades.

According to the article, here’s why that movement is important, “The divergent trends of healthy Superprime consumers, compared with struggling Subprime consumers, “could complicate the Federal Reserve’s efforts to effectively engineer a smooth landing because VantageScore Superprime consumers are still spending and borrowing while VantageScore Subprime consumers are finding it increasingly difficult to stay current on credit payments”.

So, that is interesting, but does it, or will it effect your funeral business?  I think it does simply by creating more of an inexact knowledge of who your customer is.  Is there no problem extending some type of credit?. . . . Or does this client family have no apparent means to pay the funeral services bill?  That’s a difficult problem to have and think about when sitting around the arrangement table.

Where does this situation go when you have settled on a services plan that costs $10,000 and the client family can only come up with $2,000 on a credit card.  Think of that with the knowledge of this recent CNBC article which states that 44% of American’s can not come up with $1,000 for an unexpected expense.

On Easter Sunday I also took time to catch up with some of my reading from NFDA’s The Director magazine which is delivered to my Minnesota home while I”m in Florida for the winter.  In the February edition I came across an article by Johnson Consulting Group’s Kristen Szymborski about managing cash-flow.  In it she makes this sensible comment, “Collecting fees at the time of arrangement and time of services rendered is a crucial practice that ensures a steady influx of cash“.

Great advice and it probably should be followed. . . . . but what do you do in my example when that family has got to the point of choosing services and then realized the total amount is not within the reach of their current financial abilities?

Tom Anderson
Funeral Director Daily

Funeral Director Daily take:  In this situation I’m probably the worst guy to ask.  By any banker or credit manager’s standard I was way too lenient on lending credit to all kinds of clientele.  Call me naive, but I simply had faith in the goodness of people. . . .Yep, I got taken a few times, but at the end of the day, I think we came out okay.

I don’t think there was anybody who simply did not want to pay for their mom or dad’s funeral.  Whenever I didn’t get paid there was a pretty good probability that they had no resources to pay me.

I also always kept President Lincoln’s quote close knowing that the only way we would be able to extend credit to those with an apparent lack of resources was that the funeral home had to be financially strong first of all.  Lincoln once said, “You cannot strengthen the weak by weakening the strong”.  

We didn’t accept credit cards.  You either had a preneed account or paid us by check within a week.  I’m guessing that over all we probably lost about 2% of our sales to credit loss.  But, by not taking credit cards all of the other accounts had no fee taken from us for credit card processing (this was before the advent of SeeNoFees credit card processing). . . and that 2% loss was worked back into our basic service overhead pricing.  So, in essence, maybe it is not fair, but those that paid on time and in full helped me extend credit to those with difficult situations.

Finally, I used to rationalize that “Nobody ever asks for a death in a family”.  Maybe it came at the worst possible time and there were other pressing needs that the family had to tend to.  I used to think “If I don’t give them a break, who will”?

Funny thing that happened with those families that we gave a break to via the extension of credit when they should not have qualified.  They weren’t down and out forever.  They became some of our most loyal clientele and best advocates in the community.

Credit and how it is extended is an inexact science.  Know your limits, know your situation, be judicious, and most of all, know your customers if you can.

Finally, build your funeral home’s financial base with wise financial moves so that you can have the option of extending credit if you need to. . .If you are not strong in the first place, you have no ability to help others when they may need it.

Related Article — What is the average credit score in the U.S.?  Experian

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