April 15, 2024

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Americans spend more on YOLO but savings bottom in Great Recession

Ariel Vinson wasn't traveling much before the pandemic. Now she can't stop.

The 28-year-old writer leaves her Dallas apartment every chance she gets: to see Beyoncé in Atlanta, Asher in Chicago, and for girls' trips to Jamaica and Mexico. When a favorite artist announces new tour dates, Vinson begins recruiting friends and obtaining tickets, flights and hotel rooms for their next initiative.

“My mentality has completely changed after Covid: When I see something I want to do, I make it happen,” she said, adding that her new priorities require some financial realignment. “For a while I was going to dinner all the time. I was delivering stuff, but now I’m like, ‘I don’t want to waste money on that.’ I want to travel and go to shows.”

Whatever you call it — fizzle spending, soft saving, or “you only live once” — the coronavirus pandemic has changed the way Americans spend their money. They save less but vacation more, splurge on concerts and sporting events, and book lavish trips years in advance. Spending on International travel And Live entertainment events Spending rose last year by about 30 percent, five times the growth rate of overall spending. On the other hand, the personal savings rate is at an all-time low since the Great Recession.

The spending spree continued into 2024. Consumers spent $145.5 billion more in February than they did the previous month — mostly on services — leading to the largest monthly increase in more than a year, according to data from the Bureau of Economic Analysis. Friday. Meanwhile, the personal savings rate fell to 3.6% after 4.1% in the previous month.

Just as the Great Depression led to decades of thrift and austerity — with an entire generation reusing plastic bags, jam jars and aluminum foil — there are signs that the coronavirus crisis has had the opposite effect: pushing Americans toward spending more, especially on experiences.

“When you experience a crisis, it gets ingrained in your brain,” said Ulrike Malmendinger, a behavioral finance professor at the University of California, Berkeley. “Official economic reports may say that everything is returning to normal, but we are different people than we were before the pandemic.”

Malmendier said financial shocks have repeatedly reshaped the way people think about money. The “Children of the Depression,” those who came of age after the stock market crash of 1929, were known for their distrust of banks and financial markets. Unemployed people are often cautious about spending long after finding another job. After the 2008 financial crisis, Americans began saving more of their paychecks to protect against another massive economic downturn.

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But unlike those financial crises, which prompted people to withdraw, the coronavirus pandemic has left a very different legacy.

“The negative impacts of the coronavirus were not necessarily financial; “People got jobs quickly and the government stepped in with support,” Malmandir said. “Instead, it's about all the things we were starving for: human interaction, socializing, travel. People are spending their money on the things they miss the most.”

Carolyn McClanahan, a financial advisor in Jacksonville, Florida, sees this firsthand. She said her clients are generally saving less than they were before the pandemic. Instead of planning solely for retirement, they focus on “maximizing life now” to make room for more travel, concerts, and fun.

“People already had this attitude that you only live once, and they were doped,” she said. “Covid was a big wake-up call that life is precious, so you have to enjoy it now.”

It helps that many Americans still have more money in the bank than they did before the pandemic. They received big raises or better-paying jobs, which made it possible to continue spending, despite inflation. Stock portfolios and home prices soared, giving middle- and upper-class families an extra boost. As of last fall, Americans were still sitting on An additional $430 billion in pandemic savings, according to estimates from the Federal Reserve Bank of San Francisco. However, consumers have been consistently saving less since the pandemic, with a particular decline last summer coinciding with a strong surge in spending.

However, in a worrying development, families continued to spend even if they had no money. Credit card debt has risen 22 percent since the pandemic, and more shoppers are turning to “buy now, pay later” installment plans for routine purchases. For example, Bank 0f America cardholders spent 7 percent more on travel and entertainment last year than they did in 2022. European summer vacations were particularly popular, with a 26 percent increase over the previous year.

This momentum continued into the new year. More Americans are traveling than they were a year ago, TSA Passenger Data Offers. Nearly 22% of Americans say they plan to vacation in a foreign country within the next six months, nearly double pre-pandemic levels, according to Conference Board poll data released this week.

Meanwhile, Live Nation — the parent company of Ticketmaster and the world's largest entertainment company — posted record sales of $23 billion last year, and expects this year to be even bigger.

“Offers are going from the top down,” CEO Michael Rapinoe said on a February earnings call. “We don't see any slowdown for the consumer.”

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In interviews with more than a dozen Americans, many of them admitted that they are in a better financial situation than they were a few years ago. But just as importantly, they said they were spending differently — for example, cutting back on their mid-week restaurant visits, or buying less clothes, in favor of more expensive items and memorable experiences.

All that spending on services helped push economic growth higher in late 2023, to 3.4 percent — making the last half of 2023 the strongest since 2014, outside of the pandemic years, according to data released Thursday by the Bureau of Labor Statistics. . .

In Seattle, Mike Lee's free time is a whirlwind of comedy shows, concerts, hockey games and weekend trips. The software developer, who divorced early in the pandemic, has been arranging his experiences well in advance: Hawaii in April, a Foo Fighters show in August.

“It changed the way I move through life,” the 40-year-old said. “I used to save obsessively, almost to a fault, but I'm learning to get out and enjoy life a little more.”

But he doesn't brag in all areas. Lee still drives a 20-year-old Toyota Corolla, and has cut his restaurant spending by half. Instead, he filled his refrigerator with soup dumplings, chicken wings and other prepared foods to keep him going in the evenings when he didn't feel like cooking.

Economists say these types of trade-offs are likely to continue as households adapt to new habits. Families are cancelled HBO Max And Disney Plus Subscriptions, for example or Get rid of grocery delivery getting a Ditch the Peloton They stocked it again in 2020.

“People are trying to find the right balance between how they lived during the pandemic and how they want to live now,” said Nadia Vanderhall, a financial planner in Charlotte. “They're spending more on life experiences, but they're also trying to figure out what that means for their money.

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Although economists expect a decline in spending this year, some are revising their forecasts: For example, Fitch Ratings now expects consumer spending to grow by 1.3% in 2024, even after inflation, more than double what it initially expected. . Consumers are poised to continue benefiting from savings, which is expected to “support spending well into 2024,” the company said.

Susan Blum, a travel agent in Garden City, New York, is booking river cruises along the Danube for 2026. International travel has exploded in the last few years, she said, and this year is on track to top them all.

“Everyone has been so restricted during the pandemic that they never want to go through that experience again,” she said.

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But the biggest surprise: the rush of travelers are in their mid-20s, much younger than Bloom's usual clientele.

“Generation Z has a completely different attitude, they won’t go bankrupt buying Gucci products or ready-made meals,” she said. “Instead, they're getting away to travel. They're already planning a big trip next year: all of Italy, island hopping in Greece, or four stops in France.

It's unclear exactly how long this era of experimental living will last, though economists say it will likely take a major shock, such as widespread job losses or a recession, to make Americans rethink their spending.

“There would have to be a real collapse in employment to derail this consumer,” said Diane Swonk, chief economist at KPMG. “This spending is not just a mirage, it is a fundamental change.”

This continued consumption has revitalized the post-pandemic economy and supported millions of jobs in the service sector. But it also contributed to higher prices: inflation in services was 3.8 percent, compared with a decline of 0.2 percent for goods last year. This creates an ongoing challenge for the Federal Reserve, which has specifically cited the need to see services inflation subside.

“There's definitely a big question mark there: Can the Fed bring down hotel inflation, airline inflation, concert inflation without slowing demand for those things?” “But so far people are still spending,” said Torsten Slok, chief economist at Apollo Global Management.

Michael Sheridan, who lives in Clearwater, Florida, has taken 13 cruises in 17 months. He was last booked on Friday afternoon and departed for the Bahamas the next morning.

The 58-year-old, who once owned two Outback Steakhouses, has a steady income. He receives $2,400 a month in Social Security disability payments due to a rare genetic disorder that forced him to stop working a decade ago. Sheridan relies on a wheelchair to get around, but says he's been fortunate financially: His mother, who died in 2020, left him enough money to buy a $109,000 apartment.

Now his monthly checks go toward homeowners association fees ($350), phone bills ($40), groceries ($250) — and travel. He is in Japan now and I headed to Seattle in April, the Caribbean in June and Switzerland in July.

“The pandemic has definitely fueled the travel addiction,” he said, adding that he was quick to take advantage of cheap airfares and hotel rates during the early lockdowns. “I just realized, if something suddenly happened, I would regret not traveling while I could have.”