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Consumer confidence is up … but spending intentions remain flat, says the latest Discover U.S. Spending Monitor. The Monitor is a poll of 8,200 consumers which tracks confidence and spending intentions on a daily basis, with results released monthly.
The poll shows the highest level of consumer confidence (rated at 93.1) since November 2007. Yet, that’s not as optimistic as it looks at first glance. Only 10 % of consumers rate the economy as “good” or “excellent,” and more than half (51%) still rate it as “poor.” Thirty-seven percent of consumers polled say the economy is “fair,” a 3-point increase from last month.
It’s the middle class, says the report, who are driving the optimistic statistics. Thirty-two percent of middle-income consumers (making between $40K and $75K annually) feel the economy is getting better; this number is up 7 points from December.
Meanwhile, 38% of middle income consumers says their finances are good or excellent. This number is up 6 points from December, which makes sense as people recover from their holiday spending. For individuals in sales or reliant on performance bonuses (as well as for small business owners and solo-preneurs) business is beginning to pick up again after the holiday / fourth quarter lull where very few companies made buying decisions or spent much money.
People may be feeling better about the economic situation, but that doesn’t mean they’re going out and partying like it’s 1985 or anything. The Great Recession has hit consumers not only in their wallets, but in their spending psychology, similar to the way survivors of the Great Depression grew more fiscally conservative.
The Spending Monitor reports that very few consumers expect to spend more on than the previous month on specific discretionary treats. Only 7 percent expect to spend more on eating out or going to the movies (down 1 point from December.) Only 12 % expect to spend more on home improvements — flat from December. And 10 % expect to spend more on travel or a health club membership, again down 1 point from December. That last figure makes a lot of sense, and not all of it economic. Who even wants to try to leave home with the weather a large portion of the U.S. has been experiencing?
So if consumers aren’t spending more, what are they doing with their expendable income? Saving and investing for the proverbial rainy (rather than snowy?) day. Sixty-two percent of consumers say they plan on putting away the same or more money in the month ahead, the highest number reported since October 2007. If this recession has taught us anything, it’s how to save money and do more with less.
Don’t have a savings account yet? Or having trouble tucking money away in it? The rule of thumb financial experts offer is to pay yourself first: 10 % of any money you receive, whether that’s a paycheck or an unexpected windfall. You should have, ideally, 3 months worth of living expenses in an emergency fund in the event of job loss or unforeseen expenses.
If you’re not in the habit of saving, start smaller. Begin with 5% if that’s all you can do. Or, at the very least, turn your credit card rewards into savings. When you garner enough rewards with a card like Chase Freedom or Discover More request a cash back direct deposit right into a savings account, where you won’t think about it.
Other small ways to save everyday? Each time you resist temptation to make a purchase, whether it’s a Starbucks coffee or a new pair of shoes, reward yourself by putting that money you didn’t spend into a savings account. Or go the other way. Each time you make a “luxury” purchase, put an equal amount into savings.
No, you won’t get rich off these small techniques (especially not at today’s interest rates) but it will put you in the mindset of saving. Work your way up to 10% or more of every pay check. And when you get a windfall (like upcoming tax refunds), consider stashing the whole thing into an emergency savings account.
What about you, CreditShout readers? Are you saving more this year?