Pimp Your Finances

Some people think that that consumers are finally changing the way they spend money.  Last October, CNN reported that the savings rate increased to 3% after four consecutive years below 1%.  In December, CNN also reported that household debt dropped for the first time ever.

Lee Scott, CEO of Wal-Mart – one of the few retailers with strong sales – thinks that consumers may have changed for good.

I’m not necessarily convinced that just when all this liquidity and things hit, you’re going to have the same immediate desire to go back to consumption and debt.  There are a lot of young  people who have learned what it’s like when you are living on the edge and the bad times come.

So has a paradigm shift taken place?  I doubt it.

What we’re seeing is a lot like what happened to driving habbits after gas shot up to $4 a gallon.  For a short time, people drove significantly less.  The media covered the need for energy independence  and fuel efficient vehicles.  Then gas prices dropped again.  People drove more, and the media found other topics.

Why do I feel that financial responsibility is just a fad?  People are doing the same things they did before – they’re just trying to do them a little more cheaply.  Here are a few examples.

First, consumers are still buying big screen TVs.  They’re just buying them at different places.  The NY Times reported that while Best Buy had an unprecedented drop in big screen TV sales, Wal-Mart actually had an increase in the same area.

Second, people are still going out to bars to drink.  They’re just going during happy hour.  According to Kip Snyder, beverage director for the Yard House chain of restaurants:

We don’t see a change in what people are drinking as much as seeing a change in the time they are drinking.

People are still doing the same things.  Just at different times and places.  It’s a good way to save some money, but definitely not an indication that people have adopted financial responsibility as a way of life.

People will change their patterns as long as the economy is down.  But after it improves, most will just go back to their old ways.

If you’re unhappy with your financial situation, you need to remember that.  People who learn to fail from history are doomed to repeat their mistakes.  Your goal should be to make lasting changes.

Try writing down your financial goals, and revisit them regularly – even after the economy recovers.