The United States is enduring record-high inflation, ever-increasing costs for everything from food to gas and the threat of a looming recession. Surprisingly, despite these and other worrisome economic and geopolitical events, Americans continue spending money on travel, dining out, attending music concerts and sporting events, engaging in revenge travel and shopping binges. U.S. adults are prioritizing short-term expenses over their long-term savings.
Consumers spent 5.8% more in August than a year earlier, the Wall Street Journal reported this week. Some families evidently still have the resources to splurge on enjoying their lives with experiential pursuits and acquiring material things. They are happy to unleash their pent-up desire to spend, even if it could result in financially risky long-term repercussions, in light of future economic uncertainty.
The new YOLO (you only live once) attitude toward spending may make you feel good initially. However, if inflation continues unabated, costs spiral higher, and a white-collar job market “richsession” continues to play out, the ebullient mode won’t be sustainable and may end in a hard landing.
Why Americans Are On A Spending Spree
After two-plus years of pandemic restrictions, people are eager to travel, attend events and dine out again—even if it is expensive and the current labor shortage results in poor service. There is psychological motivation to compensate for the lost experiences over the last number of years.
Realizing this may not last for long, there’s a hunger to appreciate once-in-a-lifetime events, such as flying to Europe and other exciting and exotic destinations, before the economy worsens and inflation pushes costs up too high, making it unaffordable.
With trillions of stimulus dollars from the government to keep things afloat during the pandemic, many households accumulated a monetary nest egg. The new-found windfall provided the extra discretionary cash to ramp up their spending and have a little cushion for the near-term future.
The wealthy, upper and middle classes, who were able to work remotely for around three years, were in a position to collect their salaries and saw the value of their stock and investment portfolios rise. Their home prices were appreciating, especially in the suburbs, as people from expensive cities left for less-crowded locations during the pandemic and no longer needed to live in a costly area close to the office. This cohort was able to sock away money and feel the positive wealth effect of their buoyant stocks and the increasing value of their homes, which emboldened them to go out and spend on living the good life.
Caught In Credit Card Debt, Dipping Into Retirement Funds
Many Americans may be caught in the trap of earning a dollar and spending two dollars. They may live beyond their means and lack the discipline to defer immediate gratification. This alludes to the old adage “keeping up with the Joneses,” which means that if your neighbor buys a new vacation home or expensive car, you must also do it to maintain your station within the community.
If you spend more than you earn, it won’t end well. The key is to have a balance. You can enjoy eating at a nice restaurant and taking three-day weekend getaways, but you perpetually can’t do this. You must ensure that you put aside sufficient funds for your future, as parties always end at some point.
The data shows that people are relying upon maxing out their credit cards, tapping into their 401(k) and retirement plans, and using home equity loans and other forms of debt to finance their spending, ultimately leading to higher debt levels in the future.
Credit card debt has topped $1 trillion for the first time on record, the Federal Reserve Bank of New York said. The latest Quarterly Report on Household Debt and Credit showed a surge in credit card balances by $45 billion to $1.03 trillion, while total household debt reached $17.06 trillion.
According to a recent Bank of America Q2 2023 Participant Pulse Report, Americans are also increasingly withdrawing from their retirement savings.
Data analysis from the survey showed that 401(k) participants taking hardships distribution surged 36% year-over-year, following an uptick in Q1. Additionally, the rate of people borrowing from their workplace plans increased in Q2.
If you aren’t a trust-fund baby or in line to inherit a substantial financial windfall from your Baby Boomer parents, you’ll need to hold a job that provides the financial remuneration and wherewithal to live the extravagant lifestyle that you desire. If you have spendthrift inclinations, you’ll need to work in a profession that offers a hefty salary, bonus, stock options and benefits. Otherwise, you’ll soon find yourself deep in debt and constantly stressed over how to dig yourself out of the financial hole.
Tips To Balance Discretionary Spending And Being Financial Responsible
You must be intentional about discretionary spending and recognize it has benefits, but also be thoughtful about financial planning and budgeting. There’s a fine line between living your best life and falling into a financial disaster.
Create a realistic budget and adhere to it. Be realistic about what you can afford. There’s no shame in searching for deals and discounts. Be open-minded about the timing and location to get a better deal when traveling. Every dollar counts. While vacationing, think of staying at a place with a kitchen to save money by cooking for yourself and your family.
Take advantage of accumulated credit card rewards and split costs by taking joint vacations with other family members and friends. Enjoying yourself doesn’t always have to be elaborate and costly. Focus on quality time and look for experiential activities that are either free or low-cost—parks, free concerts and matinee movies and plays—but can provide for long-term fond memories.
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