Economic confidence is often associated with the general outlook or perception of the population on the future performance of the economy. Our economy is 70% driven by consumer spending and confidence in the economy will be a major factor on how it rises or falls. Consumer spending is leading our economy at the moment so the confidence level of consumers should be taken into serious account.
With consumer spending as the main driver, the bridge between confidence and actual action is a crucial link that can propel or stagnate the economy. Purchases and spending are affected by the general outlook of people on how things will turn out. It is an important link to measure and guard against to ensure a stable economy.
Study shows that 55% of Americans are low on economic confidence
From a study conducted by Gallup.com, 55% of US citizens are not too keen on the future performance of the economy. In fact, they see that it is getting worse. Only 39% of the respondents believe that it is picking up. With 100 as the highest score, the ratio of pessimists and optimists brings the weekly outlook to negative 16 which is lower than the previous week.
The survey can lead to a conclusion that as confidence is low, consumers might hold on to their money. Spending might go down since consumers would generally want to hold on to their resources until everything gets better. They want to create a bubble protection just in case something happens to the economy. They want the assurance that whatever happens, they have money saved up to tide them through tough times.
This is actually revealed in another Gallup.com survey showing that American consumers are spending less and less. The survey showed that roughly 37% of Americans said they are spending less than they used to. And from these respondents, 27% believe that this will be their new purchasing behaviour. Only 10% believed that this is a temporary predicament and that they should be spending more in the future.
One negative effect of low economic confidence is a slower recovery because of lack of spending. Frugality does have an impact on the economy but the momentum is deeply dependent on US consumer spending. Downturn on this key element can hamper the economy’s growth. This is because momentum is largely based on the spending habits of the consumers.
Possible effects of a shaky economy
We can actually assume that consumers will go two separate paths if the economy is shaky.
Consumers might hesitate to invest their money.
If consumers think that the economy is not promising, they will hesitate to invest their money. If you think that the housing market will collapse, why would you buy a home? If you know that the value of the home that you will buy will not grow, you will naturally keep yourself from investing in it. This is especially true if a home loan is required to get the investment going. The same is true for those who wish to grow their portfolio. You will not invest your money in stocks or bonds if you know that the value of shares will not give you any profit. This is the negative path that consumers can follow. You do not want this to happen.
Consumers will be forced to make smarter spending choices.
On the other side is the path is a more proactive way of reacting when the economic confidence is down. This path is the one that will teach you smart spending. Now this does not mean you will not spend at all. You will just be cautious about where you will put your money. This indicates the need for a spending plan. You will learn how to choose the places where you know that your money will benefit you the most. After the money is spent on what is necessary, you will make sure that you also have funds to put in baskets that will help it grow. Things like your retirement plan or diversifying your investment portfolio – these are the reactions that will help you improve your personal wealth despite the seemingly unhealthy economy.
Of the two options, it is apparent that the former is the better option. After all, despite the negative circumstances, being proactive is always the better way to handle things. It helps you move forward from the situation so you are not trapped along with the economy that seems to be spiraling down.
What can you do to protect your own personal wealth
As an individual, there is nothing that you can directly do to keep the economy from falling if that is where it is headed. But instead of feeling resigned to the low economic confidence, it is more important for you to shrug it off and concentrate on your own personal wealth.
You see, even when things around you are falling apart, if your own personal finances are doing great, you will not be as affected as you should be. And if individual households stay strong financially, the whole economy will not fall too far.
To make this happen, here are a couple of suggestions that you can look into.
- Keep your emergency fund intact. First and foremost, make sure that your emergency fund is intact and sufficient. You want to have the finances to support yourself and your family in case you lose your job – just like what happened the last time.
- Stick to your budget. You also want to stick to your budget because it will help you keep tabs on where your money is going. Through your budget, you will see your income and judge the expenses that needs to be financed first.
- Boost your savings. Another thing that you can do is to prefer saving over spending. This means opting to skip spending on new clothes and putting it in your savings instead. That way, you can grow your emergency fund or you can save it up for future expenses. By doing so, you are actually getting out of the cycle that keeps you in debt. Most people work hard now to pay for things that they spent in the past. What you want to happen is to work hard for your future. That is the better financial position.
- Create a frugal budget plan just in case. If the economy really seems bleak, you may want to draft a frugal budget, just in case. This is the budget that you will adapt to stretch your emergency fund a lot longer. This means spending your money only on the bare basic necessities.
- Setup more than one source of income. If you are only relying on your day job for your source of income, you may want to change this. You need to look at other sources of income that will help you diversify your income. That way, you are not reliant one source. If that income is compromised, your income will not be gone completely. The total income will be lesser, but the important thing is you still have some money coming in.
In truth, a lower economic confidence is just an opinionated way of gauging how our country is faring financially. But despite that, you need to realize that it is our opinions that will define our financial behavior. So if your confidence level is up, it can translate to your finances.