In the past year, Americans have gone on a seemingly endless spending spree while the Federal Reserve has raised interest rates to higher levels than seen in years. These actions initially baffled users on a prominent Internet forum, but the conversation revealed some reasons for this trend.
What is going on is much different from the usually more cautious mood of the American public, mainly during economic trouble or after a turbulent time in history. They are spending more and saving less, and that’s not good if a recession is looming.
1. Don’t Spend On Big Purchases
An interesting theory is that since the country’s interest rates are so high, no one wants to make big purchases, but they feel safe enough to spend much money on smaller items. These items add up over time and appall those watching.
2. Inflation Is Stealing Your Money
When inflation rises, there is a perception that the value of your money is lost. Because the prices of goods are rising, the money you have, particularly in savings, loses its purchasing power. Therefore that money that you have grows more worthless as inflation increases. When this happens, in the short term, sometimes people spend their money. They figured that since my savings may be worth less in the future, I should spend my money now rather than continue to let it lose value.
3. The Pandemic Changed Everything
Simply stated, people don’t care anymore. After three years of the pandemic, they must do whatever they want and gratify their immediate desires. They are still determining if there will be a tomorrow, so why save when that’s not guaranteed? One commenter said, “People believe there is no future anymore. I have friends that act like every meal could be their last.”
4. Emotional Spending
A commenter created this idea: people aren’t thinking with their heads. They aren’t reasoning or thinking at all. They are acting emotionally in buying all this stuff. They want to feel good, and purchasing things makes them happy. They believe the world frightens them, and they need to feel good. They aren’t used to dealing with adversity, so they attempt to buy the comfort they don’t have.
5. YOLO
Specifically, a commenter questioned what the statistics were regarding the people who were spending the most money. They guessed that Gen Z and Millennials would be the top spenders. They thought it would be the 20 and 30-year-olds who felt cheated out of two years of their lives during the pandemic and might think that things like home ownership were not for them. It could cause them to declare you only live once, so let’s spend that cash.
6. Pause
During the worst part of the pandemic’s economic crunch, our government paused student loan payments, and many people might have forgotten about that. However, this may have given some of the more unwise former students a way to spend more money. Instead of having to make payments on their student loans or saving up for the eventual return of the loan payments, even they might have forgotten that they will have to start repaying those loans at some point. A forum user remembered this fact, and it does make sense.
7. Buy It On Credit
Where do people get all this money to spend wildly every weekend despite the high inflation, a bad jobs market, and an unstable economy? Multiple people responded with the same answer. They think that people are maxing out their credit cards at every opportunity, and they may be correct. A Federal Reserve Bank of San Francisco study found that credit cards were used for 28% of all purchases, the highest level ever. Statistics about credit card use in 2023 show an increase of $617.00 per person and a total debt of $5,474 per borrower over the totals in 2022.
8. Wealth Transfer
This point starts with the Boomers. Many people from that generation have been retiring since the pandemic and have used the money in their retirement accounts for their expenses. One person referred to those accounts as being filled up during the most significant stock run-up in history.
The short version is that they have a lot of money to spend, and what they aren’t spending on themselves is likely going to their children, especially their grandchildren, which translates into more purchasing power.
9. Tax Season
It’s seasonal, but the yearly tax refund factors into this phenomenon. Some people wait for their yearly refund to make a large purchase or feel more comfortable spending money when that refund check rolls in.
10. Things Have Changed
One user had a brainstorm about this countrywide spending binge, and what they said was that perhaps the entire paradigm had shifted. We might assume that everyone sees the wisdom in saving money, but what if the younger generations don’t think that saving money is worthwhile? What if they have come to the YOLO conclusion in a more permanent way? This commenter stated that he witnessed his friends do the same thing repeatedly.
They would spend all their money and then are mystified when the consequences of that action come at the end of the month. They don’t comprehend or have an understanding of how you could fix things. They didn’t know and had never considered saving money as a solution.Â
11. A Recession May Be Looming
Many observe that as interest rates rise and banks have failed in recent months, credit is tightening, which may result in a recession caused by higher unemployment than the previous years. Red flags are now everywhere and signal a slower economy is coming, requiring us to be careful about spending too much money.
This thread inspired this post. Â
This article originally appeared on The Cents of Money.
