Will Consumer Buying Habits Ever Be the Same? March 1st, 2010
Consumer spending has changed a lot over the last few decades, and even more in the last few years. It is interesting to see the effect that this recession has had on the spending of every different demographic of consumers. By taking a look at the economic slumps that have occurred in the past, we can see the trend of consumers to cut back their spending, but for the most part, their spending habits are quick to rebound as things begin to return to normal. This time around, consumers definitely have a different perspective on the way that they spend their money. Many people have had such a difficult time dealing with the struggles of losing their jobs and still trying to make ends meet, that the adaptations they have made during this period of time will most likely linger into the future.
In the past it has been very common for individuals to make changes to their spending habits during times of difficulty but they usually return to old habits after a brief period of time. A perfect example of this was the gas crunch that took place in the 1970s. Gas prices spiked so high that it forced many people to cut back on gas consumption tremendously. As time moved on people began to sink back into their old ways, and consumption of oil products got even more profound as many people started purchasing “gas guzzling” sport utility vehicles. Although this is the norm, the Great Recession has seemed to have a different effect on the population.
As money became tight for many individuals, they began cutting back on the brand name products that they were purchasing. Some luxury items were totally given up, while others were just substituted with more generic products. The real question now, will this be a lasting effect? Experts believe that the adjustments that were forced on people as a result of the economic conditions will have a lasting effect on how they choose to spend their money. Not to mention the fact that many people who made the switch from brand name products to the more generic brands, realized that they liked the generic brands just as much, if not more than the luxurious brands. The sheer magnitude of an event like this has taught people to worry more about living well and enjoying quality products instead of obsessing over the brand name on the products that they purchase.
Experts believe that this recession will have a lingering effect when it comes to the full recovery of consumer spending because of its severity. For many people the Great Recession caused a lot of very visible hardships that are still very fresh in the memories of the average American. With such vivid and recent memories of difficult times, from a psychological perspective, many people can’t help but think that there is a very real possibility that an event of this nature could occur again. This is a very common psychological mistake that is made by many people. Even though mentally it seems as though the possibility that an event like this will happen again within the very near future, the facts show that this is not the case. Despite what the facts state, it is very obvious that the psychological effects of the Great Recession will cause consumers to act conservatively while handling their money.
As a direct result of the above statements, Americans are actually saving more now than they have at any time in the past. According to figures from the United States Commerce Department, for the last ten years the average American saved around 2.7 percent of their disposable income per year and at times this figure was as low as less than one percent. As of October 2009, this figure has almost doubled to around 4.4 percent of disposable income. Much of this additional savings can be attributed to the will of consumers to be savings savvy. Doing little things, such as switching from luxury products to generic products as well as using coupons while shopping at the grocery store, has only helped to increase savings. So next time you take a visit to the grocery store, you will know why it takes twice as long to ring up each customer.
Although coupons and other methods of saving are helping to reduce consumer spending, the level of available credit is even more to blame for the lack of spending. Before the “credit crunch” consumers were spending like crazy, and a lot of the spending was done with credit. There was an article that was written in the Contra Costa Times the other day that described the fact that the average price of housing has been going up but the average number of houses being purchased has been going down. It seems pretty obvious that the number of houses being purchased should be going up as the housing market begins to go on the up-swing. The real culprit behind the lack of houses being purchased, amongst other reasons, is the fact that consumers are having a hard time financing the purchase of these homes because of their lack of available credit.
Between the credit crunch, the increase in savings, and the psychological effects of the recent economic downturn, consumer spending is going to stay at a very conservative level for the next few years. People will either not have the funds to go out and purchase everything they want, or will not have the desire to do so because of the uncertainty of the future. This will in turn affect industries that sell directly to consumers as they continue to feel the squeeze from the lack of consumer spending, especially companies that create luxury items. Even as a few years pass by, and consumers begin to start spending at a more generous rate, they will still be saving more than they ever have in the past. The psychological effects of the recent downturn will force consumers and businesses to make a lot of adjustments in the ways that they go about making decisions. Although this seems like negative news for businesses looking for a big boom after two years of walking the tight rope, on the bright side, things are still consistently picking up. Also, tighter restraints on credit and consumer spending will only add to the stability of the economy in the future.
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