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Some Americans are crying poverty with a $1,500 iPhone in one hand and an $8 Starbucks latte in the other. They say groceries are unaffordable, but somehow the restaurants are packed, airports are crowded and the neighbor just pulled into his driveway with a brand-new $90,000 SUV.
Apparently, we’re one bad economic report away from bankruptcy and one Instagram post away from booking another trip to Cabo.
Consumer confidence is in the basement. Consumer spending apparently didn’t get the memo.
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In September, the Conference Board’s Consumer Confidence Index fell to 81.9. Yet it has been reported that consumer credit and debit card spending per household increased 6.2% from a year earlier.
Consumer confidence is down, but consumer spending is up. (iStock)
So, what’s going on?
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As a financial advisor, I think the answer involves something more powerful than inflation or interest rates. Human psychology.
And there are five reasons our spending habits aren’t matching our economic anxiety.
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1. Keeping up with the Joneses has gone digital
Thirty years ago, you compared your lifestyle with the neighbor who bought a new Cadillac.
Today, you’re comparing yourself with 5,000 people on Instagram. There are even college degrees on how to become a social media influencer. None of them get lots of likes by telling you to eat ramen noodles and skip third-row seats for the latest rock concert.
Someone’s vacationing in Italy. Someone remodeled their kitchen. Someone bought a new Porsche. Face it. Someone is always doing better than you are. Or, it seems that way.
You’re comparing your everyday financial reality with everybody else’s highlight reel. Social media has turned keeping up with the Joneses into keeping up with the Kardashians.
Except the Kardashians can actually afford it.
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2. We’ve become a nation of monthly payments
Remember when people saved money before buying something? It’s called layaway. Today, almost anything can be financed.
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That $1,200 purchase? Just four easy payments of $300. The vacation? Monthly installments. The furniture? Zero down.
Apparently, we’re one bad economic report away from bankruptcy and one Instagram post away from booking another trip to Cabo.
We’ve become experts at making expensive things look cheap by dividing them into smaller payments.
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The problem isn’t necessarily buy now, pay later. It’s forgetting how many things you’ve already agreed to pay for later. And eventually, later shows up.
3. There are two different American consumers
Not everybody spending money is financially struggling.
Higher-income Americans with substantial investment portfolios have benefited from rising asset prices. Many can comfortably afford expensive vacations and new cars.
Meanwhile, other households are stretching their paychecks just to maintain their lifestyles. Some spending growth also reflects higher prices for necessities.
The economy isn’t treating every consumer equally. When you see your neighbor’s new Mercedes, you don’t know whether he paid cash or financed it for 84 months.
You see the car. Not the car payment.
4. If tomorrow looks bad, why not enjoy today?
When people worry about the future, they don’t always save more. Sometimes they spend more.
Had a terrible week? Amazon makes it your birthday every day. Stressed about work? Book a vacation. Worried about the economy? Just get a good meal out at a local restaurant.
Retail therapy is a lot more fun than retirement planning. Unfortunately, the happiness from that purchase may disappear long before the credit card bill does.
5. We’ve confused looking wealthy with being wealthy
Americans have become obsessed with displaying wealth rather than accumulating it. The luxury car. The designer handbag. The vacation pictures.
But here’s something I’ve learned after decades advising families. Net worth doesn’t have an Instagram account.
I’ve met millionaires who drive 10-year-old cars and people earning $250,000 who couldn’t cover a $10,000 emergency. Income isn’t wealth. And spending certainly isn’t wealth.
You’re comparing your everyday financial reality with everybody else’s highlight reel. Social media has turned keeping up with the Joneses into keeping up with the Kardashians.
Start a 21-day budget cleanse
Why? Because I wrote the book. So, before you swear off Starbucks forever, try three simple changes.
First, put every nonessential purchase over $100 on a 48-hour waiting list or online cart. If you still want it two days later and can afford it, buy it.
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Second take, buy now, pay later off the menu for 30 days. If you can’t pay cash for a discretionary purchase, you probably shouldn’t be buying it.
Third, automatically move 5% of every paycheck into savings before you spend a dime. Start smaller if your budget can’t handle 5%. The point is to pay yourself before you pay everybody else. Not the other way around.
This isn’t about living like a monk. It’s about remembering who’s in charge of your money.
The real consumer confidence problem
I’m not suggesting Americans should stop enjoying their money. Life is meant to be lived. But there’s a difference between enjoying your money and spending it to impress people who aren’t paying your bills.
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Your neighbor’s new car isn’t proof he’s winning financially. It might just mean he’s winning the monthly-payment contest.
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