By the end of the year, American consumers are expected to have charged upwards of $44 million to their credit cards. Despite the slower economy, it seems Americans are still willing to spend, so long as they can pay for it later.
Ask almost anyone their opinion on the monstrous amounts of money that professionally athletes make or how much CEOs magically seem to earn in a single year or how irresponsible it is for the government to overextend the national budget and you will probably find an angry consumer. Unfortunately, most people do not recognize that this anger comes from a place of commonality that is united by a cultural ignorance of the actual value of our money. Indeed, as a community, we casually toss around million and billion-dollar amounts like they are fast food transactions without really thinking about the importance of savings.
Most people, actually, do not recognize the relationship between trillion-dollar national budgets and a $5 drive-thru meal, but they are more alike than you think. For example, most people are just as quick to overlook how influential one simple meal will make on their overall budget as they are to overlook the fact that American consumers will have, collectively, charged $43.5 billion to their credit cards by the end of this calendar year. What’s more, this is the second consecutive year they will have achieved such a number.
The significance of this number has nothing to do with specifics. This is simply a recognition that the average American consumer seems to rely on credit cards regardless of the state of the economy. What is more dangerous than this, though, is that the number suggests that people might rely on credit cards to get them by when money is tight, despite a grim outlook.
The problem with this, of course, is that the country cannot simply hope to continue upholding pre-recession spending habits late into an already-present recession. Obviously, most people probably felt the urge to cut back when the recession first came to light – and many people probably made a concerted effort – but the sad and most unfortunate truth is that you simply can’t go back to what you did before and hope the financial climate will follow suit.
Indeed, the recession began to establish a new normal for the average consumer in America. With credit card reform continually under great scrutiny and the jobs report remaining grim it is, perhaps, more important than ever before to scrutinize our own budgets and pinch more pennies than we did once the recession began.
The study that concluded this $42 billion number also found several other trends that might explain the generalized ignorance over the importance of thrift. For example, it has been determined that 42 percent of people, when asked, will honestly say that their personal finance knowledge – their “financial literacy” – is a “C” grade at best. In fact, many give themselves a lower grade. The 2012 Financial Literacy study was conducted by the National Foundation for Credit Counseling, a study which also determined that almost every consumer (80 percent) feels they could use professional assistance in dealing with even the most basic, everyday finance concerns.
Obviously, the solution is to take better control of money. Actually it is not necessarily about abstaining from overspending but simply on how to spend (and charge) smartly. Many financial planners, for example, advise to establish a budget that incorporates bills, incidentals, emergencies, and savings. If you have debt, of course, you will also need to incorporate a plan for efficiently and effectively reducing and eventually removing that responsibility from your life.
There are many strategies you can employ so it is best to speak with a financial planner or even your personal banker about your particular situation to better determine which strategy will work for you.
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