Pandemic Splurging vs. Saving and When Even a Good Deal on a House Isn’t Worth It
Beyond the Headlines: Personal finance news and research you may have missed
You’ve probably heard some of the big economic news of late: More predictions of an economic boom fueled by consumer spending and stimulus, stubbornly high initial unemployment claims despite that positive outlook, and some hints—like consumers running up debt balances again and mortgage rates inching higher—that things are looking a bit more familiar again after quite the pandemic year.
Then there are the signs of the dichotomy in people’s financial situations: As the government continues to try to stave off a wave of home foreclosures and new efforts are made to reduce the racial wealth gap, benchmark stock market indexes continue to break record highs, underscoring the appeal for all those new retail investors.
But here’s what you may not have heard: Did you know that all that pent-up consumer demand we’re expecting to unleash on the economy might be overblown? Or that some homebuyers are deciding where not to live based on extreme climate-related weather?
To reach beyond the biggest headlines, we scoured the latest research, surveys, studies, and commentary to bring you the most interesting and relevant personal finance news you may have missed.
What We Found
Is the Savings Boom Actually a Bust for Spending?
As a country, we’ve saved a lot of extra money in the last year—$1.6 trillion by many accounts—not only because the federal government has pumped funds into our bank accounts, but because we’ve been more frugal and had fewer chances to spend it during the pandemic, economists say.
Not so fast, says a group of economists who published a report on the Federal Reserve Bank of New York’s Liberty Street Economics blog.
While not ruling out a strong economic recovery, the four economists—from the NY Fed and universities including Brown and Northwestern—say the “excess savings” everyone is talking about are actually not all that excessive, and in fact, estimates of pent-up demand are overstated. The average household spent about the same portion of their stimulus checks last year as they did when stimulus checks were distributed in 2008, indicating pandemic-related limitations haven’t really been limiting spending.
Plus, people who needed the federal aid to pay for necessities likely have already spent it, while savers—those who have cushion in their budgets and are less affected by the state of the economy—aren’t likely to change their stripes once the pandemic is over, the authors said.
"On the one hand, there is little doubt that many consumers will enjoy a few extra restaurant meals and perhaps splurge on a nicer vacation after such a long period without them. On the other hand, there is a limit to how many extra restaurant meals and vacations people will be able to enjoy," the economists wrote. “Our conclusion is that the resulting boost to expenditures will be limited.”
Homebuyers Haunted by Climate Change
No matter how expensive homes have become in the pandemic real estate boom, there are certain compromises people are unwilling to make in the name of affordability. For around a quarter of homebuyers, the list of dealbreakers now includes exposure to climate change-related disaster, a survey from real estate firm Redfin found.
Specifically, 24% of the 2,000 U.S. residents Redfin polled recently said they wouldn’t consider moving somewhere with extreme temperatures even if it was more affordable, while 28% said the same of increasingly frequent and intense natural disasters, and 30% of rising sea levels.
With natural disasters such as wildfires posing such a severe ongoing threat to property in places like California, it’s no wonder climate change is now playing a major role in decisions about where to live.
These concerns are even causing some people to pull up stakes: Among the 628 poll respondents who said they planned to move in the next 12 months, 49% cited the risk of increasing frequency/intensity of natural disasters as having played a role in their decision to move, while 48% said the same of extreme temperatures and 36% of sea-level rise. Prospective movers ages 35-44 were the most affected, while those 55-64, the least.
Pandemic Made Us Save Pennies but Splurge on Fruit and Booze
There’s no doubt that there’s been an overall trend towards saving over the last year. But looking at spending patterns in more detail, it’s not so simple: The pandemic has made us frugal in some cases and extravagant in others, according to a new report examining consumer behavior by The Conference Board. And those trends may be here to stay even after the pandemic ends.
For example, one way that people saved money was by buying less expensive private label brands. Almost a fifth of grocery shoppers bought more of these private labels than they did before the pandemic, the report said, citing a McKinsey & Co. survey from September.
And yet consumers also showed a willingness to splurge on certain items. That included things that improved their health as well as vices. Sales of fresh produce, sports equipment, and digital mental health coaching have all been booming, but so has the consumption of comfort food, alcohol, and drugs. And customers demanded more “digital convenience” than ever before, as evidenced by surging e-commerce sales, the report said.
Even the overall trajectory for cutting back has been a bit topsy-turvy. Just before the pandemic hit, 50% of consumers polled by the nonprofit research group said they were paring back on spending compared to the year before. That figure jumped to 64% as the pandemic took hold, dipped back down for a while, but had risen to 62% by the first quarter of this year.
"For American consumers, COVID-19 has accelerated pre-existing trends and crystallized new preferences and priorities," the report’s author, Denise Dahlhoff, senior researcher of consumer research at The Conference Board, said in a statement. "The three trends promoted by the pandemic—digitally enabled convenience, frugality, and health and wellness—will continue to drive consumers' behavior as the pandemic subsides.”
Recurring Payments Siphon $50 a Month
Recurring automatic payments, while convenient, can be a double-edged sword, given how easy it can be to pay them no mind once they get started. And forgotten payments can really add up, according to a new survey commissioned by Chase.
Among the 2,000 Americans polled in Chase’s survey, 60% said they had forgotten about at least one recurring payment and 71% estimated they waste more than $50 each month on them. (Chase didn’t provide a definition of what “waste” meant and didn’t respond to requests to clarify.)
Of course, we should point out that Chase has self-serving reasons for highlighting such statistics: The company is promoting new online tools to help customers track their automatic payments.