My Two Cents - "The Complacent Consumer"

5/18/2007

For a long time now as I've watched consumers collectively dig themselves into debt-oblivion, I have wracked my brain trying to figure out why they are doing it. Recently, what I will call consumerism seems to be escalating as we have watched demand for gasoline defy the laws of economics. Instead of focusing on the product, I think it is appropriate to spend some time reflecting on the mentality behind recent behavior. No doubt, consumerism has already been responsible for a number of coming financial debacles, most notably the housing collapse, the negative savings rate in this country, record levels of debt, and rising bankruptcies. This week I am teaming up with a popular My Two Cents contributor CJH from Maryland to take a look at American consumerism....

Andy,

During a recent broadcast of your Blog Talk Radio show you left the audience with a closing thought on consumerism. I wondered to myself how there can really be such a high value placed on material items. If there is a sense of accomplishment from gaining possessions through hard work, then the value as the commercial for the credit card says, “It’s Priceless.” But if an individual has to rely on credit to “acquire” then there is something amiss today. Where this transition began to take shape I’m not sure. Could it be based on impulse? Do consumers base some form of emotional gratification on having the “newest or best”? Are people at a time in their life when they are just starting out, looking towards retirement, or somewhere in between, acting as they have always done? Well the answers are probably quite mixed on these questions. If I was asked the same three questions, I might answer...”yes, sometimes I buy things on impulse, but not to extremes, and I plan major purchases. Yeah, I can think of things I’ve bought that make me feel happy.” Lastly, “I just handle my money the way that I’ve always done.”
The forces that drive consumerism from my point of view can be quite benign or down right aggressive. I believe a lot of this has to do with something widely overlooked or understated. It’s not some government policy that has run a skew, or an excess of societal wealth, it comes down to a lack of good beginnings when taught about money and spending. But one of the biggest and most aggressive driving forces is marketing and advertising, the main reason this industry exists is to “sell, sell, and sell.” We are saturated on a daily basis from every angle with advertising, and it seems to be effective or companies wouldn’t be using it as medium to grab our attention. So now you need the audience for the sales pitch. How will they react? For some it is buying till it hurts, while others just walk away, and say “I just don’t have the means to buy it, maybe I’ll wait.”

In the early 80’s although commercial advertising and catalog sales still worked, a new market emerged. TV infomercials and shopping from home on TV became a popular medium for products to get sold. It was a wide open area for entrepreneurs and inventors to get the products seen. Most of the programming was shown late night, so development of this format stayed relatively modest. Then there was the creation of the 24 hour shopping networks. Now anyone with a credit card could shop right from the comfort of their living room whenever the felt the impulse to buy.

I think fondly back to the days of when I was a child and lived without having too much to worry about. The foundations I use as an adult for handling finances came from lessons I learned from my family. They seemed to always exercise self restraint and sound judgments when it came to handling money. It had true value just a short time ago. I remember that luxuries came along sometimes, like new toys, or family vacations, the new family car, etc. But they came when they were affordable and worked or planned for. Granted there was still advertising for all the newest products on the market, sales circulars in the Sunday paper, and the like. But for me the ultimate lure as a child was the time leading up to the holiday when the “wish book” catalog would find its way to family mailbox. I would spend hours looking at all the new cool stuff and making careful selections for my wish list of new things, while being mindful that they may all not be under the tree when we opened gifts.

These are the times that begin to formulate our feelings for our adult lives. Parents will indulge their children to a certain degree, but when the children always just get things given to them, then that’s where the dangerous equation of “money equals stuff” starts to form. Through a child’s eyes the important factors seem to get overlooked, such as “working equals money, and with money comes responsibility.” These lessons begin coming into light as we move into our teens and begin maybe opening savings accounts with money earned from chores, or when the first job is landed. So now is when the lines start to divide. Many start feeling that since they're earning money they should be spending it. Some look at this as being productive members of society, which is all well in good. But as the line splits the other path leads to just spending without reprise.

Being adults we can all think back to our childhoods and remember someone in the neighborhood who always had the newest bike, video game, or whatever cool buzz item there was out at the time. Some of us wished we had them to, but it may not always have been the case. In fact my parents have shared similar stories to when they were growing up in the 50’s, and all the kids in the neighborhood would pack themselves into one living room down the street, since it was only house on the block to have color TV. Sure they probably had to deal with the same things, but not to the same degree as we do today. Have things changed in a big way, or what? Look at the vast majority of American households: we have multiple TV’s, stereos, computers, and lots of other flashy gadgets. Then we come to fantastic invention of the internet, and the availability of virtually everything at the click of a mouse and a few keystrokes.

As a collective group human beings yearn for objects beyond basic survival needs, the tradition goes back to when we formed societies. The amount of goods a person had played into the status that they held, or so it was thought. I guess this still plays a heavy part today as well. That type of feeling seems to blur the line between “needing and wanting”, and more often than not, people just feel the “need” to have things. I’ll be the first to admit that I like having nice things, and objects that support my interests, but I also exercise caution and live within my means. Most history tends to be cyclical, but this is one path that has stayed the course and run straight past any boundary.

CJH

There is no economic answer to this question. The answer lies not in the textbooks, but in the whims of the human mind. Certainly, economics is the study of human action, but not necessarily what drives those actions. To me, it would seem as though the value scales of society have been distorted and the concept of foregoing on consumption lost. This may be a function of our technological society as we have instant messages, email, cell phones, and can get pretty much anything at the drop of a hat. However, somewhere, somehow the fear of debt and and the servitude that goes with it have been lost. Perhaps it arises due to the chronological distance between today and the last set of hard times or is just a product of sophisticated marketing campaigns.

In any case, consumerism as it exists today equals complacency and we all know what happens when complacency enters the mindset. Americans as a group had better take a break from MasterCard and take a look at their balance sheets or they will soon find out that complacency is accompanied by a hefty bill.

Big Screen TV...$2,000
Ford Expedition...$35,000
Granite Countertops....$3,000

...the satisfaction of going to sleep debt-free...PRICELESS.

Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics. He currently provides financial planning services to a growing book of clients using a conservative approach aimed at accumulating high quality, income producing assets while providing protection against a falling dollar.

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