Unemployment is at record highs. Consumer bankruptcy filings are at historic lows. And consumer confidence is high.

What is going on? A recent episode of The Indicator from Planet Money and NPR sheds some light on the situation – check out Why Consumer Confidence is So High.

People thought the pandemic was going to be as bad as the Great Depression but there are record high spends at grocery stores and big box stores, and companies that were dying on the vine (think: Barnes and Noble) are being revived.

Retail Therapy

As consumers, our emotions play a large role in economics. Prevailing wisdom tells us that when we feel good about our financial situation, we are apt to spend.   And yet, the truth is that when we feel bad about our financial situation, we tend to spend even more.  Why?  Spending makes us feel good.  Retail therapy is no myth.  It is very real.  And, in fact, it is encouraged by the Federal Government and the Federal Reserve (aka, the “Fed”). The Fed is shorthand for the whole banking system in the US.  Being honest here, all that stimulus money, PPP, PPE, additional unemployment, any form of COVID relief, were not provided by the Fed and the Federal Government to make us feel better. Stimulus money is to make sure we keep spending, no matter how we feel.

Knowing that consumer spending is an essential part of our social contract, I often ask myself the following question. Why is it that, when we know we are living under an unrecoverable mountain of debt, we still don’t want to file for bankruptcy????   Because it “feels” icky.

Millions of people have fallen on hard times, but not enough to make the consumer confidence dip to 2008-2009 levels. While some of us are in a desperate situation, others are earning the same salary, or more, and they don’t have vacations or other activities to spend their money on, so they are spending their money on added creature comforts for their new life at home.  Everything from the softest toilet paper and actual books (because we are not in the car or on the train listening to our audiobooks anymore, so we are actually reading real books again), to home renovations and hot tubs.  Do we feel good?  Or are we trying to make ourselves feel good?  Does it really matter???

Don’t Ignore Debt

My fear, as a bankruptcy attorney, is that people feel encouraged to spend to support small businesses, or to redirect what would’ve gone toward a vacation and dinners out on home renovations and other projects, and people are not focusing on their debt. If you are carrying any amount of debt, you need to stop and think about what your family really needs for the long term.

Should all “extra” money be directed to paying off your debt?  Should you incur new debt?  If you are uncomfortable with the amount of debt you have, you should halt spending and create a budget.  Then think about your social contract – honestly, and without judging yourself.  Who comes first?  Who’s getting hurt if you continue to carry bad debt?  Who are you helping and… why?  Do you feel good right now?  Will another run to the liquor store or a few random acts of kindness shipped to distant friends and relatives by Amazon’s little elves make you feel better?  Or would you really feel better if you did not have to struggle with making those minimum payments every month while the interest and fees keep building up?

Fresh Start

It is time to think about what will really make you feel better…So make that budget.  Figure out what you really have available at the end of each paycheck for the little extras.  And figure out how to budget towards a fresh start. We can help you. Call us to schedule an appointment.

 

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