Now that fall is here, it seems Americans have turned over a new leaf when it comes to their spending habits. According to this story from the Associated Press, the country is embracing a budget-conscious outlook, and that collective frugality is likely to stay with us.
It seems like a bygone era rather than just a few years ago that if you wanted a gas-guzzling SUV, new living room furniture (plus a 52-inch TV) or a week-long vacation, you could just refinance your home and suddenly have the money to do whatever you wanted. That came to a screeching halt once the real estate market plummeted, and all signs point toward the resurgence of a trend not seen since the Great Depression: Hanging onto your money.
A Gallup poll found that 70% of us are cutting our run-of-the-mill weekly expenses, while a study quoted in the AP article conducted by research company AlixPartners estimates that we're only going to spend 86% of what we did during the boom years. By contrast, per capita spending ballooned by 25% between 2003 and 2005, according to Euromonitor International research cited by the AP.
This new tight-fistedness is both good and bad. While we certainly do need to save money and pay down some of the whopping $1 trillion in credit-card and other consumer loans we owe as a country, economists worry that a reluctance to spend will hurt the economy. Consumer spending counts for 70% of our entire economy; reduce that and we're cutting into the very force that provides many of us with the jobs and incomes that let us spend in the first place.
The solution obviously isn't to go out and try to spend our way out of this mess; it simply won't work. The easy credit that fueled our national buying binge has vanished, and economists say it's going to take years for us to winnow down our debt level. This will be harder to do if jobs are scarcer and paychecks are smaller, but it's something that must be done.
Many consumers spent a good chunk of this decade treating their finances like one big party. This is the morning after, and we have to clean up after ourselves in spite of the hangover. Only after we've all gotten a handle on the "new normal" of our finances will we start feeling confident to spend again and boost the consumer demand the broader economy needs to run at full steam again.
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