Is it possible? Can this country’s insatiable appetite for consumer goods be slowing down? No! Surely not! US News & World Report’s Alpha Consumer, Kimberly Palmer took a look at consumer demand and its relationship to cheap credit.
Only twice since 1965, despite half a dozen recessions, have Americans spent less in a year than the previous one. Indeed, it often seems that we have defined ourselves by our ability to buy supersized everything, from McMansions to tricked-out SUVs to 60-inch flat-screen televisions—all enabled by decades of cheap credit.
Now that the credit party is over, how are consumers reacting?
“The process of bringing our wants and our needs into realignment,” says Merrill Lynch economist David Rosenberg, “is going to involve years of savings and frugality.” Or, to put more it more simply, “there is an anti-bling thing going on,” says Marian Salzman, chief marketing officer of Porter Novelli.
Of course, if you’re broke and have no access to credit you don’t have much choice but to be frugal, but is that all that’s going on here? Or are consumers tired of being pressured to take on massive debt in order to “super size” and “bling” everything? What do you think? Is credit card consumerism over?
Is Starbucks’ “free refills” offer the new “super size it”?
(Full disclosure: I’m quoted in the article, and yes… yes my first car was a Geo Metro. It’s true. Despite what “FreeCreditReport.com” would have you believe, some people do choose to drive them. And they also get their credit reports from www.annualcreditreport.com.)
The End of Credit Card Consumerism [US News & World Report]
(Photo: tokyohanna )
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I think that people have just been reacting rationally and intelligently over the last 40 years. Here’s why :
Our government (“R” or “D”,it doesn’t make any difference),has been inflating and depreciating our currency so persistently that you would be a fool to save money instead of spend it on goods and services. Everybody has their panties in a twist about our “negative savings rate”. Well, you could have put $100 in a savings account in 1965,guarded it like a hawk , never spending it, and …And it would be destroyed by inflation and taxes.
A point to illustrate this. In 1971,my uncle bought a house with a FIVE HUNDRED NINETY SEVEN DOLLAR monthly payment for $76,000 . My dad told him that he was crazy,reckless and irresponsible for having such a ridiculous payment every month and such a whopping loan. Well. That house is now worth a lot more money (in todays dollars-lite) and he still lives there.THAT is how you beat inflation. The consumers that are spending every last dollar they have and borrowing more to buy more stuff are simply doing it because they know that their money is not worth anything and becomes less valuable every day. (This is not tinfoil hat,anti Federal Reserve stuff I’m talking about here,this is mathematics) yeah, some people want to impress the neighbors with their “stuff pile”.Thats been going on since Fred and Wilma got a nicer cave than Barney and Betty.But when you consider how little our money is becoming worth,does it surprise you that consumers are spending it and not saving it ?
You know, (in mentioning vaccuums grandmother had a kirby for 30 years) I know this sounds stupid, but in the age of “everything’s plastic” I honestly couldn’t tell you how to choose a quality product anymore. I mean, I research (probably more than others), I read reviews online, I do what I can to make good decisions, but in the end I usually feel like I’ve made a mistake. There’s so much out there and no really good way of condensing the information. I want to buy a new couch but I’m terrified to. They are expensive and I’d want to by the best quality one possible within my price range (I could give two shits about style so I’m not the type who will care if it goes out of style) but have no clue where to start. I searched for decently priced wooden (not pressed wood!)bookcases for ever and couldn’t find anything affordable. Luckily someone gave me some left overs from a school and they are wonderful. I think the consumerist should take a stab at educating people how to make wise purchases. Some of us have lost or have not been taught the skill.
@InfiniTrent: “half of americans carry high interest credit card debt” Do you have a source on that, I couldn’t find one. It seems like there are a lot of factors affecting our economy, but the price of oil is a huge drain on our economy and the economy is still expanding.
Boy. Cries. Wolf
@michaelangelo1969 Cambridge Consumer Credit Index? Can’t find much on them right now. I’ve heard it many times since the housing debacle began. The one that stuck me as significant was that almost 50% pay the minimum on their credit card balances.
But you’re right about crying wolf. To date, many of the complaints here have been about relatively mild problems. “…ain’t seen nothing yet.”
@JamieSueAustin: Great idea! I’d love to see the Consumerist start writing guides on how to pick out quality items.
“Credit Card”? What is this “Credit Card” you people speak of?
It seems to be this mythical thing, that in this country can be issued to 2 year old infants, and the family dog, but a twenty-something young person with a few years of bills behind them cannot seem to get.
It continues to confound and confuse me. Oh well, it keeps me out of CC debt, at any rate.
*edit: 2 year old should’ve been 2 week old :0
Sounds like we are actually coming to our senses.
So many try to live like the rich and famous on credit, all the while destroying their financial lives forever.
It’s easy, use credit for emergencies or pay off whatever you spent that month, or dont spend at all unless it is cash.
If you are already in the hole, dont pay the minimums either! you are just paying off the interest alone, you will never, ever, pay it off. That is how the banks make their money. Think of APR as a monthly fee for using their money that you get to pay every month you have debt.
@kylo4: well box office sales are only high because tickets are more expensive, sure the companies are bringing in more money but they’re selling less tickets. Titanic sold a lot more 5-6 dollar tickets than the Dark Knight sold 10-13 dollar tickets.
I hope enough people don’t go back into bling mode to make a real difference.
I have found myself doing more sourcing at junk stores, thrift stores and habitat restore than regular “new” stores. It is less about saving money and more about trying to find something that isn’t crap.
The mention about vacuums has me actually thinking about looking for one of those old electrolux canister vacs at garage sales. I know a vac repair guy who is great at what he does so I could potentially keep one of those going forever.
I had a similar fight over toasters with my hubby. He wants one of those spiffy new stainless steel ones with 4 slices big enough for bagels. I can’t bring myself to buy one. I looked online and just about every brand had tons of reviews where they quit working or didn’t work right. I have a 1940′s Toastmaster that was a wedding present to my parents. I put it on the back shelf in the 90′s and bought a brand new toaster. It lasted less than a year. So I pulled the old Toastmaster back out and have been using it since.
Maybe there is a market for refurbed vintage appliances since everything now is made to crap out in a few years.
@HooFoot: it’s called Consumer Reports
@MD4Prez2032: The taxes are based on revenue, not net, so a change in the merchant’s profits wouldn’t result in any more money from taxes. However, there’d likely be reduced custom if credit cards were restricted, and the tax income would thereby actually go down.
@johnva:
I’ve got no argument with you there, Johnva. Reread my statement – “…rampant misuse (read: overuse) of credit has put us in a near-recession…”
I have no problem with credit, when used appropriately. I personally prefer to have no debt though, so it’s my goal to pay off my current debt – house and two student loans – and never go into debt again.
The back side of only accepting cash is less business for the vendor and more cash laying around. Unfortunately this can increase a business being a target for more robberies and inside stealing.
@MD4Prez2032: actually, i think you mean 4 cents/70 cents, or 4¢/70¢, or $0.04/$0.70. but i highly doubt that any company could stay in business if they’re making less than a mil on their product.
btw, you wouldn’t happen to work for verizon, do you?
@michaelangelo1969:
I need to slightly revise – “68% of Americans who have credit cards carry high interest credit card debt.”
According to this MSN article, which gets its facts elsewhere, only 31.2% of cardholders pay their bill in full each month, meaning over 68% of cardholders carry a balance.
[moneycentral.msn.com]
When you consider that something around 25% of households don’t have a credit card, the overall number is actually less than half of total American households carry a balance each month. My apologies, I “misremembered” that statistic. I hope I didn’t come off as trying to intentionally mislead.
The way I learned it, it’s okay to use credit for assets, like a house, and items that have a long useful life, like a car. Finance a house, finance a car or boat, but don’t finance dinner or clothes or vacations. Those are things you *save* for and have the money in hand before you spend on them.
@Snarkysnake:
Oh, like federal budget spending and the deficit. I get it! (I guess you can’t blame the kids when the parents started it.)
Lets face it, the issue ultimately is that people are greedy and short-sighted. Even if we nuke credit cards we’ll still have all manner of other scams. Fiscal and personal irresponsibility on all levels is the root cause, not the tools in use. We should start by educating kids on how to be responsible and self-aware adults, instead of treating schools like public daycare. Garbage in, garbage out. Of course, that means the existing faculty will have to deal with (gasp) smart(er) kids who are better than they are. Will that ever happen?
@mitten: I learned it as avoid using credit for depreciating assets, which rules out most cars, etc. But try to sell that philosophy on 90% of the population.
I pay everything by credit card. And I pay it off every month.
Aint no big deal.
After my hubby of 30 years dumped me for the bimbo, the first thing I did was open a new bank account and get a credit card. I use the credit card, but pay it off each month. I love my debit card and on-line banking.
The reality is that I blew a lot of money over the past 30 years. The soon (please!) ex and I owe $36K to the IRS. I’m on a super tight budget. Now, I use coupons, watch sales and spend less. I keep the air at 78. I buy clothes on sale. I never buy retail. I save money and I work at a big box store. You do what you do to survive.
@Logical Extremes: I agree – I’m trying to save up for my next car, to buy in cash. A car is a terrible thing to finance – almost everybody does it, but it’s still not a great financial move (unless you can get an interest rate that’s in the 0%-3% range).
@friendlynerd: Yep, the difference about today is that we have Chinese-made goods. The Chinese-made good life cycle: Buy, use, it breaks, replace, use, it breaks, replace…etc.
Also, many people, on purchasing items that will serve them for the long-term, are cheap. While there’s nothing wrong about being cheap, those kind of practices might not save them any money because they’ll end up replacing the cheap product for a bigger combined price than it takes to buy the high-quality product (that won’t break) all together. Take a Kirby Vacuum cleaner, for example. I shelled out a pretty good fortune for mine, but it has been serving me very well for years, much better than my cheap-o vacuum cleaner I bought before.
I want to say yes we are heading towards the end of CC consumerism. I have 2 credit cards, one with a balance of about 5500 and another with a balance of 1400*. I am feverishly paying off the 5500 I incurred while in college and I am 2 years removed from having it at almost above 7000. The other card is an HSBC card from BB which I used to purchase my TV intrest free for 36 months which I averaged out to about 48month to pay off before the term was up. I plan on not opening another credit card in my name since the credit bureau’s have a really tough time discerning me from my father (same first and last name but different middle name and ssn) in order to get a house.
With the credit crunch in full force I don’t believe anyone should trust any money lending institution outside of immediate family. Banks are run by humans and they have made grave mistakes the last 5-7 years.
@Imakeholesinu: You can live in distrust, but I am fairly certain I can trust mine. While USAA is fairly user-friendly, they have pretty stringent credit qualifications in my experience. I can use their Deposit @ Home feature, however my sister cannot due to her low credit rating.
@mitten: Exactly. Why in the world would anyone want to pay interest on new underwear and snickers bars??
@madanthony: 40 cents? Blue Cash gives back 5% so that would mean you spend $8.00 per gallon before the discount. Sounds like you’re getting ripped off.
Our tax system is set up to discourage people to save. If you get a raise, you’re taxed more. You earn interest on your savings, you’re taxed. You put money away into an IRA, you’re taxed.
It’s no wonder we’re so credit hungry! We don’t get taxed when we borrow money. Of course, it’s outweighed by the interest we pay on the loan.
Does anyone else see this as a government problem and not a consumer problem?
@linus: You are right on! Of course any time I’ve ever mentioned that one of the largest problems with our economy is our own tax structure, I’m always branded as a shill of the wealthy here. When in fact, our tax code has its most devastating effect on people that are trying to do the responsible thing.
My wife and I just paid off our car and paid off the last credit card a couple of months ago. We are going to do our damnedest to make sure we never go back to the debt lifestyle again. If we need to replace a car, we’ll just save for a year and buy a used one. We’ve got emergency money put away already and everything else we could possibly buy outside of the necessities of life and routine maintenance on the house and car are lifestyle purchases.
People have got to get away from the mindset that they “need” debt to support everyday living. I’m absolutely convinced that the ONLY debt that may be absolutely necessary in today’s society is a mortgage on a REASONABLE home. Even then, someone shouldn’t be buying one without putting a sizable down payment on one and steering well clear of any of the funny mortgage products that have gotten us to where we are today.
@ironchef: You’re one disaster or emergency away from that not being possible, then you’ll have that dreaded balance. Obviously you have the cash, so why not just pay everything with cash? Use a debit card instead if you don’t like hauling around alot of paper money.
You’ll probably find a few more bucks in the bank at the end of the month too. People just tend to spend more money when using credit cards.
Pfft… Credit cards are not evil. If you use it irresponsibly (been there, done that) , then you are going to get yourself in trouble.
Maybe we should teach personal responsibility in school. And personal finance.
“Is credit card consumerism over?”
not sure about the rest of you idiots, but ours ended years ago, and on our own terms.
@barty: It’s relative. I control better my spending by credit cards, than cash. Cash seems just to disappear, while knowing that you’ll have to budget and pay your credit card in full every month, is a good influence against over-spending. So it’s very personal.
@Victo:
“Maybe we should teach personal responsibility in school. And personal finance.”
That’s a great idea. You can start with Congress.
@anatak: They already have rich parents
So they think the money just grows on trees, anyway.
@barty: You have no idea how much our tax system upsets me. There was a report yesterday that 50% or more companies legally avoid paying taxes.
Right now, if you own a reasonable home, are responsible, save money, and do all the right things people should do, you end up being penalized to pay for people who got into more debt then they could handle, pay more in taxes to give money to those who didn’t want to get insurance, and you’re expected to feel good about it.
I’m at a loss why politicians don’t understand basic economics let alone basic mathematics.
@linus: The thing is, lots of those “evil corporations” that avoid taxes are tiny, little companies. Most corporations aren’t giant companies. But just because the corporation doesn’t pay taxes doesn’t mean that taxes aren’t paid. For example, if you had your own corporation (and you can, it’s easy, and not too expensive), you’d be irresponsible if you didn’t pay out all of your profit in salaries/bonuses and dividends every year. As a result, your corporation wouldn’t pay any taxes, but get this: the people that receive salaries and bonuses and dividends all pay taxes on that profit. In fact, stockholders (like you and me) would be upset to see this money being wasted on the corporate income tax rather than coming to us, even if we have to pay a tax on it.
Now of course we’re talking about income taxes. Depending on where the corporation has property and real property, there are property taxes (at higher, non-homestead rates), use taxes, inventory taxes, and all sorts of taxes. There are lots of laws that can reduce these liabilities, but the fact is, in the end, someone is paying all of these taxes.
Just because a company doesn’t pay income taxes doesn’t mean that a company isn’t paying lots of other taxes, or making it so that other people pay those taxes.
I’ve had this theory for a while, but I feel that those with credit card debt are the same people who can’t balance a check book. I’m 22, just out of college and in the real world for the first time. I have had CCs for about 5 years now (since I started driving). I’ve always paid them off and never had an issue with not being able to pay a month off completely. I think it’s because I come from a family where my dad stressed not buying anything with a CC that you couldn’t pay off that month (that and he’s a strict utilitarian, the true enemy to today’s economy); he also showed me the importance of balancing a check book and using that same idea with credit cards to keep one in check financially.
I don’t think credit is evil and we still have credit cards that we use for travel or purchases that we want extra protection on. But, for the last two years we have changed our habits and only use debit for day to day purchases, we have a spending plan that guides how we spend money (kind of like a budget but not as hard core), we paid off $55,500 in debt (half student loans/half credit card debt) and we only have mortgage debt now, we have $20,000 in our emergency fund. When we want to buy something expensive (i.e. a car, furniture, vacation, etc.) we save up for it. We don’t live like hermits or anything like that we just live more like our grandparents in that we use debt as a tool to finance appreciating assets and we use cash to pay for depreciating assets. Any purchases over $300 have to be discussed and agreed. Our new system is wonderful, we have so much more money and less stress.
@johnva: I can’t tell you how many times I’ve heard people say that “real estate is the best investment”, “houses don’t go down in value because they’re something tangible”, and similar stupidity.
I just fire back with “Houses are forced savings accounts and, when taken care of, are never worthless. Sometimes they may be hard to get rid of
It’s kind of like people who invested in silver in the late 70s and early 80s. People made fortunes and then lost everything. It happens.
I’m a bit of a frugal guy by nature. In college I worked two jobs and had to get by on $200 a week net. Since then my income has increased quite a bit but my needs really haven’t. Outside of paying off student loans and a car loan I probably shouldn’t have gotten but I’m not upside down in my costs to live haven’t really gone up. I just have resisted the call to spend more.
What I am hoping to see is that people will someday return to the days of being frugal and buying high quality furniture, appliances and the like. When you can’t buy a good toaster (even at the higher price ranges) why even bother anymore?
@linus:
I read that report too, but it said that 50% of corp. avoid paying corporate tax. Many corps. are set up as S corps or LLP so that the profits pass through to the individual and they are taxed at that level (like a salary).
But I agree that the tax system is set up to discourage saving.
@linus:“You have no idea how much our tax system upsets me. There was a report yesterday that 50% or more companies legally avoid paying taxes.”
That doesn’t bug me at all. If the companies had to pay taxes they would either A) go out of business or B) pass the taxes on to their consumer and/or lower operating costs by slashing jobs/salaries etc.
The problem is that poor people vote. Politicians have learned if they can steal money from one group and give it to a group of irresponsible collective known as life’s losers. It’s such a shame that success is punished in this country.
My answer: eliminate income, capital gains and corporate taxes and institute a national sales tax.
Like another poster said, I pay EVERYTHING with a credit card and pay it off at the end of the month. In doing so I reap free gift cards (from Citi’s Thank You Network).
By the looks of things, however, it seems like that will change soon. Even as early as 2006, if I remember correctly, credit card companies began to cut back on rewards programs.
@SadSam: They missed the key point in that report, the profits pass through to the individual because it is an individual running the company through a corporate shell, usually for liability reasons. My neighbor, who runs a small business, is a perfect example of this. By the numbers, there are far more small businesses in this country than large mega-corporations. So it really shouldn’t come as a surprise that most “corporations” are not paying corporate income tax. Of course that didn’t stop a couple of liberal Senators from complaining to the media that these “evil corporations” were getting out of paying their “fair share” of taxes. A statement like that would send a chill up my spine as a small business owner.
@battra92: Couldn’t have said it better myself. http://www.fairtax.org
What’s this about Starbucks free re-fills? Oh yeah, I remember now: free refills on coffe, not any of their other drinks. Doesn’t impact me, too bad.
Money != happiness.
@Logical Extremes: Even if it did Credit != Money.
On the other hand, you can’t do chargebacks with cash.
@CreoleSugar:
Perhaps you don’t understand, a car is not a bike.
@battra92: Don’t get me wrong. I don’t think the government should be taxing companies either.
I fully support a national sales tax. It would generate more money and it would be OPTIONAL!
I dont own a credit card! Yay!
(patting self on back)
@kaptainkk: I almost never have cash in my wallet, more out of laziness than any particular “principle” or some garbage like that. That shouldn’t earn me any special disdain from others, though, as long as I don’t act like a douche if I show up someplace that doesn’t take credit cards. There’s a quick work-around for this problem. It’s called: Asking a question. If I go somewhere I’ve never used a credit card before, and it’s not clearly posted that they do/don’t take them, I ask upfront. That way, the only person’s time I’ve wasted is mine, and I avoid the “awkward” times when credit cards aren’t taken.
@rorschachex: I think even they will send you a bill if you’re short. They may even have their own “house” credit card. Either way, I’m pretty sure you can have your PL steak and no cash in pocket.
@ideagirl: Purchase within your means, charge it, and pay it off every month. Carry no balance, and you’ll accrue no interest. It’s a novel concept for some.