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See how the ‘economy’ can harm your finances
“Spaving“, or spending more to save more, has become a dangerous habit for cash-strapped Americans amid high inflation and rising debt.
Although inflation facilitated in April, the consumer price index was still rose 3.4% from a previous year.
Despite higher prices, Americans continue to spend.
Up to this point, credit card debt has reached US$1.12 trillion in the first quarter, second a report of the Federal Reserve Bank of New York.
Retailers are increasing promotions for combat your thinner margins. Between March 2023 and March 2024, temporary price reductions increased by 72% and overall promotions increased by 15%, according to data analytics firm Numerator. Free shipping offers, “buy one, get one free” offers, and minimum orders are all successful ways for companies to get consumers to “save.”
“If you’re spending more money because you’re now focused on the business and not what you’re getting in, that’s when it becomes very, very dangerous,” says Charles Chaffin, co-founder of the Institute for Financial Psychology.
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O personal savings rate – or how much people save as a percentage of their income – has been in decline as families spent pandemic savings and stimulus checks. In April it was 3.6%, compared to an all-time high of 32% in April 2020, according to to the US Bureau of Economic Analysis.
“Consumers are hyper-reactive to deals because they feel like they have less money than they ever did,” said Melissa Minkow, director of retail strategy at consulting firm CI&T. “It’s just a strange mix of variables that is creating this unique retail environment.”
While the economy isn’t always negative, continuing to make unplanned and impulse purchases can have devastating effects on consumers’ long-term financial goals.
“On a basic level, if we incur debt that we can’t pay, it will affect our credit score, which will have a huge impact on our ability to buy a home, finance large purchases and everything else,” Chaffin said.