Do you think that Americans are smart spenders? After everything that we went through, it should be a must for everyone to start developing the right habits when it comes to where we spend our money. After all, it is our irresponsible financial behavior that got us into trouble – at least, this is true for most of us. Obviously, we need to start breaking bad spending habits but before we can do that, you might want to take a look at how we make purchases in the first place. That way, you can understand why you have certain habits and whether it should or should not be revised.
Study shows consumers spend using plastic more than cash
The Federal Reserve Bank of Boston conducted the 2010 Survey of Consumer Payment Choice and it revealed some interesting statistics about the preferences of the average American consumer. They interviewed over 2,100 respondents that represented various ages from 18 years and above. Some of these respondents have been taking this survey since 2008.
So what does this survey published on the BostonFed.org say about Americans? Are they smart spenders yet? Well there are various factors that will determine that and we should probably go through some of the results from this survey.
Payment choice
According to the survey, Americans prefer using plastic over paper. When we say plastic, we means cards and by paper, we are referring to cash. But instead of credit cards, the biggest percentage of the respondents use debit cards (31%). Only 18% use credit cards and 1% use prepaid cards. For the paper, 29% use cash, 11% use checks and 1% use money order. 9% use electronic devices as a payment method and 1% goes to other means.
Apparently, the use of credit cards are not as prominent as we thought they would be. Considering the fact that this survey was done back in 2010, we can safely assume that people reined in their spending in light of high credit card debt that they owe back then. This is probably why more people opted to use debit cards – which in essence is like paying in cash. Their preference for cash over credit cards also say a lot about how they are trying to curb bad spending habits.
Payment attributes
Another revelation from this survey shows that people value security as well. In fact, 47% of them choose their payment method for security. Convenience only comes in second at 27%. This is the reason why they prefer cards over cash. When cash is stolen, it is as good as gone. Using a card has a higher chance of getting your money’s worth back.
Other payment attributes include cost (24%), payment acceptance (22%), payment records (16%) and acquisition or set up (8%).
Spending categories
To determine if Americans are smart spenders, it is also important to look at where their money goes to. 65% goes to goods and services, 29% goes to bills and 6% goes to other people. People usually have their bill payments set up in three ways: automatic (6.3), online (6.1) and through mail/phone/in person (9.7). For non bill payments, these are divided into the online (3.9), goods (25.9), services and other (18.7), and person to person (4.8).
Based on the data, debit and credit cards are mostly used on all the payment obligations. Cash, obviously cannot be used electronically so it is not applicable to automatic or online payments. Cash has the highest percentage when it comes to paying for goods, services and people – at least when you consider credit and debit separately. But when combined, the cards has the biggest percentage.
All of these information tell us that in a way, Americans are making smarter choices when it comes to paying for their dues. Somehow, it should be safe to assume that they are smarter spenders. The fact that they prefer debit over credit means they are making an effort to reduce their debt accumulation. But as financial managers in general, this is beyond the scope of this survey.
How American spending have changed over the years
There are various factors that will indicate if consumers are great financial managers. Being better spenders will positively affect their management skills but that is only one part of the equation. You also have to consider savings and the overall increase of net worth per household.
An article published on LATimes.com in 2013 reveal that the average American famiily actually spend less percentage of their income today as they did 40 years ago. The research was conducted by ConvergEx Group. They said that consumers are only spending 81.2% of their income after taxes. Most of the expenses are on food and housing costs. This is smaller than the 85% that Americans used to spend back in 1973. Although we spend more on housing and gadgets like phones, we have lowered our food costs significantly. This is what makes our spending percentage lower compared to the percentage a few decades ago.
It is tough to say where the other portion of the income are going but the survey reveals that it is not entirely on savings. With the lower spending, only 4.6% of the average American’s income is being put away for the future. In 1973, the savings was 13%.
The lower spending is another evidence that we have become smart spenders in the way we are trying to spend below our means. But if you put into consideration the lack of savings, this makes us far from being better financial managers. The extra money is not in investments either.
What is this trying to tell us? It is actually very simple. Being smart spender is not enough. If you really want to improve your finances so you can live a better life, it is important that you start tracking your spending and you increase your savings.
Important habits that will make you a better spender
In the end, it is not really important how you choose to pay your purchases or if you will put yourself in debt or not. We need to stop obsessing about whether to buy with cash or credit. If we learn how to manage our money, will will become smart spenders as a result.
You have to look at the bigger picture when it comes to your money. Do not focus on the little details and instead, concentrate on the improvements that will have a ripple effect on your personal finances. Here are the important habits that we think will really benefit you more than the others.
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Have a goal. When you have goals, your life gets to have direction and purpose. Every decision will be geared towards this goal and it makes it easier to harmonize the different aspects of your life.
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Make a plan. It can be a budget plan, a spending plan or a debt payment plan. When you plan something, it is easier for you to reach your goal.
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Prepare for emergencies. Always remember that the future is uncertain. You need to prepare for emergencies because they can happen anytime. This frame of mind may be pessimistic to a certain level but it is also quite practical.
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Think before you act. In any financial transaction, you have to think first before making a commitment. Do not think that a purchase is too small to merit consideration. Sometimes, it is the small things that add up that leads to our destruction.
- Educate yourself. Lastly, you have to increase your education so that you can understand the ins and out of personal finance. Sometimes, ignorance can ruin you so it is best learn about what you cannot understand.