Following a record-breaking pattern of paying off credit card debt in 2020 due to the pandemic, household debt is rising again, and holiday shoppers are predicted to spend 25% more this year than last. Our issue is not that consumers feel comfortable buying again, but that they are overextending themselves due to stagnating incomes, high unemployment, a sluggish economy, and rising inflation.
Readers are aware that we do not really like Wall Street or Washington, D.C. We’ve advocated that firms should quit holding mounds of cash, $2.1 trillion of it offshore to escape taxes, despite Trump’s hugely successful promise to make them repatriate their money.
Neither Wall Street nor Washington appear to be concerned about consumers. Both are waiting for consumers, who reportedly account for 70% of the economy, to spend like if it were 2007 or 2019. If either has accomplished anything, it is to encourage people to spend more.
What upsets us is that customers are doing it!
Consumers either do not realize or care that when they deliberately purchase items and services at inflated prices, particularly when they pay more than they can afford, they add to the inflationary pressure on those products and services.
Here are four key concerns.
1. Consumers are overextended with vehicles.
The average American worker spends $9,282 per year on automobile expenditures, which include routine maintenance, petrol, tires, insurance, financing charges, depreciation, and licensing and registration fees.
From the mid-1970s to the present, real earnings adjusted to inflation have climbed by only approximately 10%.
However, there is no need to be afraid. Corporate America and the government can rely on consumers to drive the economy. Consumers are taking up 60- to 84-month auto loans to buy automobiles they can’t afford for a variety of reasons, including pent-up aspirations and demands.
This just convinces automakers and lenders that they may continue to raise prices and lengthen maturities. Consumers are unconcerned about a lifetime of indentured slavery.
2. Consumers are overextended with college.
According to EducationData.org, the average college cost in 1963 was $243 per year, or $2,078 adjusted for inflation. Since then, annual tuition has risen by $7,502, or 361%. Between 2010 and 2020, tuition rose by 41.2%.
Have your salaries grown by that much? Have pay for part-time work climbed that much? Asking pupils to earn their way through school is no longer reasonable.
According to The Atlantic, it is impossible for a college student today to earn their way through school in the way that Norman Rockwell did. A Reddit user calculated the growing cost of tuition at Michigan State University (MSU) using the cost per credit hour. According to the Reddit user, “A credit hour at MSU in 1979 was $24.50, adjusted for inflation, which is $79.23 in today’s dollars.” One credit hour now costs $428.75.”
According to the article, with the 1979 minimum wage of $2.90, a student would have needed 8.44 hours, or roughly one working day, to earn enough for one credit hour. A student who took 15 credit hours every semester might have paid for all of them with three weeks of full-time employment or six weeks of part-time work.
With today’s minimum salaries of $7.25 to $14, it would take at least 59 hours to pay off a single credit hour worth $428.75. That is comparable to 22 weeks (five months) of full-time work or 44 weeks (11 months) of part-time employment.
Because customers are so willing to spend their money on education regardless of the cost or access to a job with a comparable wage, student loan debt climbed by 10.5% from ,600 to ,400 between 2011 and 2012.
We’ve overstated the importance of a college degree and generated an artificial need for more and more knowledge. Colleges understand this.
3. Consumers are overextended with house loans.
If one solely looked at the housing market to assess the fiscal health of the United States economy or American people, they would believe everything was perfect. Mortgage debt in the United States hit new highs in 2020, continuing a trend that began in 2013.
Before the epidemic, in 2019, over 37 million families were “cost-burdened,” meaning they spent more than 30% of their income on housing. This is projected to grow when the 2020 reports are released.
Consumers aren’t done with their overpriced and enormous homes, and the housing sector understands this. While investors play an important role in rising housing values, growing demand only drives up prices. Consumers are not helping themselves.
4. Consumers are overextended with credit cards
After a few years of being as cheap as Jack Benny, the epidemic prompted customers to pay down credit card debt in historic numbers. Consumers established another record in the first quarter of 2021 by accumulating a record amount of credit card debt, erasing any progress made in 2020.
Consumers are not slowing down however, with Christmas spending set to grow by 25% over last year.
With an average credit card amount of $7,854 and an average credit card interest rate of 16%, being debt-free would need seven years of minimum payments – $7,854 in principle and $5,180 in interest.
That’s $5,180 that won’t be used for investing, college tuition, or retirement. That won’t even cover a trip, a down payment on a car, or a down payment on a house.
What can customers do? Hold a revolution in your wallet.
Here are six methods to better manage your money.
Consumers’ desire to incur more debt and overextend themselves just allows firms to raise the pricing of their products and services, even if consumers cannot pay them. individuals will take out larger and longer-term loans, making firms and banks more profitable while driving individuals further into debt.
We, as consumers, have the ability to push prices to fall, which is the inverse of what we are doing with salaries and The Great Resignation.
Our weapon is our pocketbook. If we don’t open our wallets to buy things and services that have skyrocketed in price, we may encourage businesses and sellers, including school officials, to lower their pricing. It is all about supply and demand.
If we continue to overextend ourselves, we allow firms to raise prices even when our wages, jobs, and economy do not justify it.
1. To better manage your money, leave the Spending and Leveraging courses.
Simply put, we must seal our wallets to prevent thoughtless purchasing. We can no longer purchase automobiles or homes that we cannot afford. We must recognize that not everyone needs to attend college, and that certain trade vocations pay better now. Making every high school graduate attend college puts many people in debt and diminishes the value of a college education.
We must transition from an unfettered to a justified consuming society. That implies we need to purchase less, use less, and throw away less. This is why some people believe we don’t appreciate food.
America wastes roughly half of its food due to too strict food preparation and preservation rules. This amounts to $165 billion in food waste each year, or $1,437 per household. Food waste has increased by 50 percent since the 1970s. This amount of waste is preventable.
Food is simply one manifestation of our consuming addiction. A automobile may and should survive longer than three or five years. With good maintenance, we can keep our automobiles for 10 years or more. There is no incentive to trade in automobiles until they have been paid off.
2. Improve your money management by taking Savings and Investing classes.
Spending intelligently will help you manage your money more effectively. Consumption is vital, but it must be done consciously.
This includes appreciating the worth of items and recognizing that cheaper is not always better. Teaser rates are simply that—teasers. Read the fine print. Close your wallets to companies who take advantage of customers through tax breaks, supply manipulation, and unethical labor practices.
Maintain an emergency savings account with three to six months’ worth of living costs. This makes you less vulnerable to employers and firms we dislike. An emergency savings account reduces the need to accept the first job offer after being laid off, leaving, or being forced to work for a bad employer.
Invest more. You cannot spend your way into fortune.
Living only on credit cards will never lead to financial freedom.
Investing in the stock market, real estate, and your own enterprises will make your money work harder for you than it does for us. Make sure your investment income exceeds your living expenditures.
3. Recognize that you are wealthy and handle your finances properly.
If what we focus on grows, think that you are wealthy and that money will flow to you.
Many people enter adulthood with limited attitudes about what they can earn, how much they’re worth, and if they deserve abundance. If this describes you, boost your frequency and attempt to shift these beliefs. They do not serve you and, in fact, limit your potential.
Whether by the forces of the cosmos, the god of choice, or just a paradigm shift, changing our attitude will transform our financial circumstances.
4. Manage your money more effectively by banking smarter.
According to Prudential’s Financial Wellness Census, 50% of respondents do not have any banking products. You simply cannot increase your financial well-being until you use the basic instruments that assist individuals with their financial well-being.
Begin your financial adventure by opening a regular checking and savings account that has no minimum initial deposit or monthly balance restriction.
5. Improve your money management by voting for superior candidates.
We must participate in politics even when there is no presidential election. The majority of what impacts you on a daily basis is local, rather than federal or national politics. Don’t forget that the struggle for equality often moves to the local level when those who seek to hurt us lose influence at the national level.
Engage and vote properly.
6. Avoid debt to substantially improve your money management.
Stop overextending yourself (and your family) with debt, including credit cards, school loans, vehicle loans, personal loans, home debt, and much more.
Stop subsidizing your life and lifestyle with low-cost monthly memberships. Once you’ve cut the cable cord, cancel everything but one streaming provider. When you’ve finished watching everything available on one service, cancel it and sign up for another.
Cancel your subscription to news and newsletters. Most of what you need is available for free.
Cancel paid music streaming networks. Yes, the advertising are terrible, but all of these little payments add up.
Analyze your existing expenditure to determine the most efficient strategies to cut costs and save more money. Prepare a budget. Pay off your high-interest credit card debt.
Personal and national economic reforms can begin with us. By shaking off our indifference and concentrating on improved money management, we may harness the power of positive thought and action to combat the new economy.
