A survey featured in one of the articles on this website mentioned how consumers will focus on better credit management in 2014. This is something that Americans have to seriously work on because debt was the avoidable cause of the Great Recession. Although the collapse of the economy was so severe that everyone felt it, you have to admit that it was our consumer habits – specifically our credit behavior, that made things worse. Losing a job may be very devastating but it could not have been so bad if we did not have so much debt.
That is the main flaw of American consumers. We love to spend. In fact, not only do we love to spend, we do so excessively. We want everything big and expensive – from houses to cars to clothing and gadgets. If given the money, we will be spending them to our heart’s content. That is just how our culture shaped us.
Obviously, most of us had a lot to learn after the effects of the Great Recession happened. Consumer credit in June 2014, as reported by BusinessInsider.com, still grew at $17.2 billion ($16.3 billion non-revolving debt and $941 billion revolving debt). Old habits die hard but we have to do something to make sure that we will not repeat the mistakes of the past.
Summary of the 2013 consumer behavior of Americans
The Federal Reserve created a survey to analyze the economic well-being of American households in 2013. The data revealed how Americans dealt with 6 different financial areas in their household: housing, credit availability, college finances, savings, retirement and finally, medical expenses.
The results of the survey done in September 2013 as it was published on FederalReserve.gov show the consumer habits of Americans as it rides on the economic recovery of the country. In general, the survey revealed that most American families are economically okay. It is not great but they are surviving. They are not as desolate as they were before and that improvement is still good news.
The overall results of the survey gave the following statistics:
- 60% of respondents said they are living comfortably while 25% mentioned that they are living from paycheck to paycheck. 13% are struggling with their finances.
- The respondents of the survey admitted that they are still feeling the after-effects of the recession – with 34% actually saying that they are still in a bad shape compared to the pre-recession time. Only 30% said that they are in a better financial position than 5 years ago.
- 4 out of 10 Americans have delayed a big purchase because of the recession. 18% admitted to delaying a major milestone in their life because of the financial crisis a few years back.
- Almost half of the respondents are able to put away money into their savings. 2 out of 10 Americans are spending more than what they are earning.
- 61% expected that there will be no improvement in their income for the next year. 21% expected it to increase while 16% expected it to go down.
These findings are all dependent on the consumer habits that the average American family is implementing in their lives after the recession. While most of them are saying that they are “okay” they are still exhibiting some personal financial stress.
What financial habits did we do right in 2013
To explain every financial area thoroughly, we will be dividing this topic into two articles. In the first one, we will be concentrating on the consumer habits that improved. Sadly, of the 6 financial areas, only two of them can be considered as having acceptable results.
Housing
Buying homes are generally positive in 2013. A lot of homeowners are expecting that the value of their homes will increase in the next 12 months – which will increase their equity. In fact, 26% of them believe that the increase will be 5% or less. 14% said that they expect it to increase by more than 5%. While the general belief is that the current value of homes will increase, homeowners are also saying that their current equity was still lower than it was in 2008. At least, 45% of them believe this is so.
The positive outlook is not only benefitting the homeowner but also renters. The latter is getting more encouragement to buy a home. More of them are planning to become homeowners themselves – rather than continue renting. What is stopping them from pushing through is their inability to save up for the down payment and to qualify for a mortgage. While it is bad that they cannot afford both, it is comforting to know that they understand the importance of having a down payment and a higher mortgage qualification rate before buying a house. We are getting hints that these consumers are wising up when it comes to borrowing money for homeownership.
Savings
The other financial area that we think is good enough is the savings of the average American household. While the survey said that it is not really the best statistic, we believe that it is improving. It is apparent that consumers know that they should start saving now. A lot of Americans had to deplete their savings after the Great Recession – 57% of them. This is expected. But a lot of them are also showing that they are exhibiting better consumer habits when it comes to saving. 55% of respondents said that they are saving a portion of their income. The average savings rate is at 9% – a little short of the ideal 10% but it is good enough. The survey revealed that the median savings are lower than 2%. But if we only consider the consumers who did save, the average percentage of savings is at 16% while the median becomes 10%.
Although we want to classify this as a positive consumer behavior by Americans, it still needs to be improved. After all, there is still the 45% who failed to save their income. 39% of the survey respondents said that their rainy day fund is enough to cover three months worth of expenses. While the ideal is 6 months, this is better than having none. It is also revealed that 48% of respondents said that they can only cover an emergency cost of $400 in case it happens in the near future. This means we have a lot of improving to do when it comes to this habit. The bigger improvement, the more financial security will be felt by households.
There is more room for improvement in our financial behavior
Some of you may think that positive consumer habits from 2 out of 6 financial areas is not really something to brag about – that is true. But at least, studying statistics will help us understand specifically what financial behaviors will need improvement. If we cannot do them, then we may not see the light of day in case another financial crisis occurs.
While we want to be positive about the economy, we also need to be cautious and mindful of the mistakes that we made in the past. We have to ensure that it will not happen again so we can move forward already. Building wealth takes time. Not only that, it requires discipline and self-control. If we cannot improve our habits, there is no way for us to rise from the slump that we are obviously, still in.
In the next part of this article series, we will be discussing the 4 financial areas and the incorrect consumer habits that led to the decline of the statistics in our debt, college finances, retirement, and medical expenses.