Wednesday, October 15, 2008

$pending

I keep hearing on the radio about how consumer spending is down. One "statistic" is that we're projected for the worst holiday spending season in 20 years. It bothers me, and here's why:
People's previous spending levels were based not on how much they could afford, but on how "rich" they felt on paper.
When times were good, when people had flush 401k accounts and huge sums of equity in their houses, they "felt rich" regardless of their budget realities. The truth was, most of them weren't, since purchases were largely financed on credit and many spent more than they were earning, resulting in a negative savings rate for our country. But now the stock market is down, the housing market is down. People no longer "feel rich" and so they've adjusted their spending accordingly. But it bothers me that this is seen as such a horrible thing, because spending never should have run up like that in the first place! People are now spending like they should be spending, which is cautiously. Maybe we even save up for purchases instead of financing them, as crazy as it sounds (we're currently saving up for a new stove, and I'm also personally saving up for a spa trip on next year's vacation).

It just bothers me that we decry the behavior that gets us into situations like this, and then when people start to correct their habits, we call it a bad thing.

3 comments:

Matt Silverthorn said...

Whatever, crazy internet lady. No one wants to hear about your mythical "savings" or your "fiscal responsibility." Next you'll be telling us that CEOs don't deserve to be paid millions of dollars upon running companies into the ground, and that people who took out loans they couldn't afford should have to pay for their poor decisions.

Lunacy!

Eric said...

is it just me, or do the stock market prices largely only affect 401k values, which really only affects those who are very near retirement? i mean, maybe there are some stock brokers who are hurt too, but that can't be a big part of the population. i'm sure there's some intricacy to the financial world that i'm missing, which makes the fluctuating market more impactful. but for me in my personal life, it hardly seems to matter.

Courtney said...

For the most part, yes. But that's exactly my point. It doesn't matter what the value of your house is unless you want to sell/refinance. It doesn't matter what the value of your 401K is unless you're near or in retirement. But people spent more money when they had 6-figure retirement balances and had doubled the equity in their homes in less than three years. That "wealth" is only lost on paper, because they never actually had it in the first place. But it affects how people spend, when it really shouldn't.