Economic concerns affect spending: Consumer spending patterns show more caution toward everyday spending

By Savanah Ramsey, posted Aug 12, 2022 on BizFayetteville.com

In recent months, areas across the country have witnessed spikes and drops in the economy. For some this works in their favor, however, the biggest trend across the board is people being more cautious with their money.

“Slowly people are becoming more cautious,” stated Joseph Jackson, financial planner with Cape Fear Securities in Fayetteville. “They are
afraid of losing principle, which has not been a major concern for most people since 2008.”

Looking back, it doesn’t appear that 2008 was that long ago, but in fact it was 14 years ago, the equivalent to two business cycles.

During this period interest rates were lowered artificially, and not just in the United States but globally.

“In 2008, those interest rates were lowered down to the point where people were paying for almost nothing on the fixed side,” said Jackson. “With that being the case, assets that involved a bit of risk, were not as risky as people did not have the alternative to be able to go to the fixed markets and get a 6 or 7 percent return.”

With these factors in place, the appeal of taking risks was higher as most people were willing to be more receptive to taking additional risks. However, many factors have impacted not only how the economy looks but also how it works.

In 2020, the world was taken by storm with the fast-growing advances of COVID-19. Many people were forced to work from home or lost their jobs and some businesses closed their doors. Even to this day some of these businesses have yet to reopen, with some never being able to again.

Due to these factors forced by COVID-19 the inflation of the economy is rising to a new high.

“After COVID-19 and the stimulus money that’s been passed, we’re all experiencing this just inflation, which none of us can ever remember seeing before,” Jackson emphasized. “Not only are gas prices rising, but everyday purchases are increasing in costs by sometimes 50 percent. People are
hoarding their cash a little more now and trying to find things to do that have a little less risk relative to the stock market.”

With these times, it makes it hard for the younger generations, especially the young adults finally getting a foothold into the workforce, to navigate the system.

“First and foremost, I would say for the younger generation to really get a good plan for their college loans,” Jackson advised. “I think people typically go to one extreme and pay it all off or pay the bare minimum and not make any extra payments when they can.”

Jackson went on to explain that there are even some young adults who put every dollar into their loans, which makes living life tedious. “It’s a balance. The old rule of thumb was to save 10 percent of what you make; now I would say it would be wiser to save 15 percent but still allow you to enjoy your income and live life post school.”

On the flip side, the elder generation is facing even more hardships than those younger than them.

“This generation, in my opinion, have been unfairly penalized over the last few years due to this inflation,” Jackson stated. “So the ones [people] that are already retired are not benefiting from increases in wages that we’re seeing and are suffering from the prices of everything they are consuming skyrocketing.”

With these circumstances, this generation is nowhere close to putting themselves in the same situation that they were a year and a half or two
years ago.

When looking at the trajectory for the rest of the year, Jackson foresees a continuing presence of volatility. However, there is no real idea of
what could happen to the economy and industry until after the mid-year elections come to a close.

Until then, Jackson did give ways on how people can be prepared for a worst-case scenario.

“Where most people are saying to raise a little bit more cash in investment portfolios, which I agree with. I’ve always been in the camp
of paying down any and all debt,” he said. “If it's for a positive, long-term type benefit, such as borrowing to go to school or a home, then it’s a better
standpoint to have when investing in the market.”

When discussing generalized debt that is not deductible, such as credit card debt and potential automobile loans, consumers need to focus on getting those paid off and take a breather when it comes to investing in the market.

Not only is the market making investing a strain straining on consumers, but it also plays a part in the roles of financial planners and others that work closely in the industry.

“We’ve been blessed with a lot of people that are client-focused, but the industry does have the inherent conflict of interest that if you’re telling
people to take a breather and not to invest and to pay down debt, then it’s counterintuitive to increasing your income,” said Jackson.

If this does happen to those in the industry, then it presents a decrease in banks and investment firms trying to drive their revenue for that year.

With the future of the market in the unknown, it’s important to not let the negative connotation affect how one makes financial decisions.

“We can’t let the constant negativity that we experience in the financial news drive all of our decisions,” Jackson added. “We need to ignore those
comments and realize if we stick to a long-term plan, you can still enjoy everything else happening in life.”

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