The economic recession, the rise of unemployment, and the fall of the property markets have hit the country quite hard. For the average American, the reality has been rising loan rates, the risk of losing homes, and the threat of unemployment. As a result, every American has had to rethink the way they spend their earnings.
Today, Americans around the country are moving away from their old, consumer-driven spending habits. The order of the day for most Americans is now spending smart. It seems that frivolous spending, a common practice just a few years ago, is now on the way out.
Paco Underhill, an expert in consumer psychology, has stated that the consumer mindset is undergoing a major change due to the recession. He was recently quoted saying, “Our retail culture is in a major transition. Conspicuous consumption is now bad manners. Too many of us have spread ourselves far beyond our means. We can't do this anymore.”
“Our closets are full, our houses are too big, we have too many cars. It's time to make some very wrenching changes,” he further elaborated.
It seems that American spenders are doing just that. A report released by the Federal Reserve last Thursday shows that consumer borrowing dropped to $11.1 billion this March. Reuters had earlier polled industry analysts who had expected consumer borrowing to drop to $3.5 billion for March. The annual rate of consumer credit fell to 5.2% this March. This totals $2.55 trillion. Not since December 1990 has consumer credit percentage dropped so low.
The drop in non-revolving credit was to the tune of $5.7 billion, which is equivalent to a 4.2% rate, to $1.6 trillion. Non-revolving credit encompasses closed-end loans, such as those taken out for holidays, cars, boats, and college educations. On the other hand, the drop in revolving credit in March was at $5.4 billion, which is at a rate of 6.8%, to $946 billion. Revolving credit is composed of borrowings from credit cards and charge cards.
The sales figures of major retailers for April are also quite telling. Discount stores and supermarkets are winning out against their more high-end competitors. From food to clothing purchases, most Americans are moving towards where the best value is. Consumers are beginning to recognize the importance of holding on to their dollars and are being very careful in their spending. As a result, previously scoffed at buying practices such as buying pre-owned items and “private label” store products are becoming more and more the norm.
The appeal of high priced, luxury branded goods is also beginning to wane.
The changes in buying behavior have its positive and negative effects. Some retailers, for example, are being hit by the change in consumer practices. Clearly, they will have to adapt to this new consumer behavior trend or risk losing everything.