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Insights: Consumers feel the economic sting and instability, but splurge to get what they desire
Personal finance pundits shout about cutting back on spending during inflationary times, but consumers are pushing back by spending on the things they enjoy.
Shoppers are pushing their spending thresholds to the max with\\$700 Taylor Swift tickets,pricey designer goods, and the latest technology releases. Simultaneously, Americans arefeeling less confident in the economy,have wiped out their pandemic savings, and struggle to build an emergency fund. This is also happening as credit card debt and delinquencies areticking upward, suggesting that Americans are spending beyond their means.
But despite the financial friction, consumers continue to purchase experiences and items they desire. And the latest item that appears to be at the top of cultural fascination and shopping lists isa new line of cowboy boots from Crocs, lovingly dubbed “Croots.”
Picture your standard Crocs, but shaped like a cowboy boot and textured with crocodile scales. Complete with rodeo-friendly metallic embroidery and spurs to match, plus your choice of gold-star sheriff’s badge charms that you can plug into the ventilation holes. For when you’re chasing down bandits in the Wild West, we assume.
These Croots may not be exactlyeasy on the eyes, and the \\$120 price tag may make you chuckle, but there appears to be demand and excitement for them.
But these shoes are another great example that even if consumers may be feeling the sting of inflation and the rising cost of living, they will continue to find a way to make those splurge purchases — even if it may be through credit card debt or other financially risky methods. With savings drying up, rising credit card debt and increasing delinquencies, consumers could be left without the spare change necessary to keep the ride going.
Live and spend for now, worry later
Economic circumstances right now spell a fairly grim picture for many. Interest rates haveshot up significantly, making loans largely unaffordable; despite slowing, inflationcontinues to trend upwardandpersonal savings accrued from the pandemic is running dry. Pair this with food, shelter and gas prices on the rise and it paints a bleak picture for consumers' wallets. In theNew York Federal Reserve Bank’s September Survey of Consumer Expectations, households expect their spending to increase 5.3% over the next year.
Not surprisingly, those who are more likely to indulge are Gen Z and millennials, with 55% and 54% of them, respectively, expressing a high intent to “splurge” according toMcKinsey.
But where this becomes problematic is repaying the debts. The same New York Federal Reserve Bank survey indicates an increased probability of missing a minimum debt payment over the next three months increased to 12.5%, the highest reading since May 2020. Moreover, credit card delinquencies have been on the rise since 2021 and are now starting to reach past pre-pandemic levels, according to theSt. Louis Federal Reserve. The rise in delinquencies is now causingconsumer credit to tighten.
Spending predictions for the upcoming holiday season and 2024
As we approach the holidays, consumers could potentially continue the same trend of spending. According toPwC, consumers will increase spending by 7% this holiday season, allocating an average of \\$1,530. Additionally, people won't be holding back travel-related spending, as the firm estimates a 12% increase over last year.
Again, the holidays are expensive, but consumers collectively seem to be ready to enjoy the festivities by any means necessary. Unfortunately, it’s likely those expenses will materialize in debt. In 2022,a surveyindicated 35% of people took on debt for holiday related purchases.
As for 2024, spending trends are estimated to remain the same. TheCongressional Budget Officeestimates that consumer spending could rise if interest rates are eased by the Fed. Thechief economist for Goldman Sachshas also stated that while lower-income consumers will continue to feel the pain, a healthy level of employment could prop up spending habits — even if it may include a pair of ostentatious Croots.
Spending wisely, enjoying your life and reaching your financial goals can happen simultaneously
In my own drive to build long-term wealth, I’ve realized how imperative it is to enjoy the journey along the way. I discovered a great financial mindset from the book “I Will Teach You To Be Rich” by Ramit Sethi, where he emphasizes a black-and-white purchasing mindset. He argues you should spend without fear on the things that you truly value and make your life a “rich life.” However, to compensate, cut back mercilessly on the things you don’t value.
For myself, I truly enjoy dining out and traveling. However, although I would love to have aTeslaone day, I couldn’t care less about the car I drive or having the newest technology in my hand. That’s my definition of a rich life; analyzing your wants could help you design your own version.
So if you’re experiencing some financial pressures and aren’t seeing the “return” on your spending, this mindset could help you audit your spending habits. Because you could gocompletely FIRE and live on rice and beansif you desired, but that’s likely an extreme you may not align with.
-Brett Holzhauer, Content Marketing Manager at M1 |
| Q&A: How do I start a wire transfer?
A:Wire transfers are common to move money either in or out of M1.
If you’re moving money onto the M1 platform, navigate to the home screen and find the section called “move money.”. From there, you will find a prompt to put the information from your external bank.
If you’re moving money off of the platform, you will need to submit a request. Additionally, there is a \\$25 fee for each wire transfer off the platform.
You can find the step-by-step process for wiring money off and on the platformhere. |
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| This new startup aims to get lower interest rates for home buyers
Mortgages have become increasingly expensive as the Federal Reserve has raised interest rates to fight inflation.
Roam, a recently launched Colorado-based startup, aims to help potential homebuyers go through a unique mortgage process called loan assumption.
This process essentially helps buyers assume the remainder of the mortgage from the current borrower, with the expectation that a mortgage from several years ago could have a lower interest rate than a new one. However, only about one in five active mortgages can be assumed by a new owner. |
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