Twenty-Eight Percent Living Paycheck to Paycheck
By George Anderson
No surprise, but many Americans are just making ends meet. According to a recent Online Consumer Confidence Study by ACNielsen (a sponsor of RetailWire), 28 percent of Americans have no spare cash leftover from their paychecks after they’ve paid for their essential living expenses.
Many of those who do have extra cash after paying for the basics are putting it towards paying down existing debt. Thirty-seven percent say they are using leftover money to pay for various debts including credit cards and loans.
Paying for everyday necessities and debt has left those consumers with extra money less of it to spend on home entertainment, clothing and new technology. The one area where consumers are putting extra dollars is into home improvements and decorating.
Tom Markert, ACNielsen’s chief marketing and client service officer, said, “On a daily basis, Americans are exposed to two competing messages: ‘A strong economy is dependent upon strong consumer spending;’ and ‘Your consumer debt levels are too high.’ Historically, the first message has driven consumer behavior more so than the second one. Lately, it seems, the second message is starting to get some traction.”
Of greatest concern to consumers at the moment is the economic outlook followed by job security and health issues. These three issues were listed by 60 percent of respondents as their biggest concern over the next six months.
| What is your biggest concern over the next six months? |
United States
|
| The economy |
30%
|
| Job security |
15%
|
| Health |
15%
|
| Other concern |
14%
|
| Terrorism |
9%
|
| War |
7%
|
| Crime |
4%
|
| None |
4%
|
| Political stability |
3%
|
Source: ACNielsen Online Consumer Confidence Study
Moderator’s Comment: What is your analysis of the findings by ACNielsen in its Online Consumer Confidence Study? What does it mean for consumer product
marketers and retailers?
ACNielsen’s Markert said of the Online Consumer Confidence Study’s findings, “Overall, this research paints a cautionary picture for the U.S. economy. While
Americans may never be world leaders when it comes to savings, there appears to be a growing interest in reducing debt which brings with it a reduction in spending on some of
the more discretionary areas such as entertainment and clothing.” –
George Anderson – Moderator
The most interesting figure in the chart is that 4% of the respondents said they have no major concerns for next six months. Who are these people, college students? No, even college students worry about the war. Retirees? Maybe. But they worry about their health, don’t they. Perhaps they are politicians who aren’t up for re-election until 2006.
As for what it means for the CPG retail channels, if in fact the American consumer is going to devote more of their resources to debt reduction, then they will be spending same (if, say, he or she applies a pay raise to the debt) or slightly more at the store as the economy grows. There would only be a serious problem if the economy contracts, i.e. if a consumer pays down the debt without having a pay raise to maintain his or her spending at retail.
This really isn’t too much of a surprise. Want a little shock? Go look up the median income for an American family of four. There’s a reason Wal-Mart is as successful as it is.
While reduced spending might present short term problems for CPG manufacturers and retailers, I think it’s likely to stimulate longer term growth. With more people paying off debt, there are fewer likely to end up in the bankruptcy court. Once the debt is paid off, sure, they may be reluctant to build it up again to the same levels but there will also be a degree of relief that they can safely start spending again. I don’t think this is a bad thing at all.
I agree with no surprises. It’s an economic fact that for every winner there is an equal loser. We all compete with one another for a finite amount of real dollars. Some just compete better than others. Still I’m amazed at all the money making opportunities we have in the USA. It seems like the list is endless. Yet some people refuse to step up, take risk, and go for the gold. In this country, with all the opportunities to make money, we really choose our income and decide how much we want to make. Some people choose not to earn more. I have a feeling though that a lot of the 28% who say they have no money at the end of the week are the same people machine gunning quarters into slot machines at the local casino.
An active economy in which most of the population are gainfully engaged should actually expand wealth, due to the creation and exchange of value-added services and the reinvestment of profits in more savings, goods and services.
Not everyone burns with entrepreneurial zeal, however. Some folks would just like to believe that they can perform a job faithfully, get paid fairly, and accumulate a modicum of security for their old age.
With the cost of some key aspirations rising much faster than wages (real estate, energy and college education), it is no wonder that mainstream Americans struggle with debt. Add to that the consumerist pressures of our “here and now” society, and a fair share of folks wind up over their heads.
Against that context, the ACNielsen results are no surprise. Our cultural expectations differ from those in some other, thriftier, countries. Product marketers leverage these expectations to sell goods. It’s an amoral business at times, but it’s our business.
When respondents name “the economy” as an area of major concern, it’s such an amorphous response as to be inactionable, meaning something slightly different to everyone. Interviewers and research designers need to create clearer subcategories that help us understand respondents’ answers better. Looking at all of the remaining categories in the report, anyone can see that all of them could easily be seen as economic factors.
Yet, I’m very interested in the 28% of respondents who named “no spare cash leftover” (i.e., left over) as a concern. Growing up in post-Dustbowl, post-Depression Oklahoma and Kansas, I thought this figure was much closer to 100% in those days. Is 28% a positive or negative trend? It would be nice to know before drawing conclusions or making sweeping observations.
Perhaps 28% is a good thing. Citing some popular wisdom that I’ve recently questioned in this space, when home sales go up, discretionary income goes down historically. With home starts and sales burgeoning, it’s logical that more families choose to eat economically at home rather than “out,” because more income is being spent on housing. Kitchen equipment sales are up, restaurant sales are down. Is this necessarily a bad thing?
In response to David’s comment, while there are some zero sum markets, such as the CBOE, broadly speaking, our economic exchanges aren’t zero sum but positive sum. Otherwise, we’d still be living in caves. Also, the supply of dollars is not finite, it changes from day to day–usually in the direction of an expanding money supply.
Between some Fed rate hikes and increasing demand for long term debt, the yield curve is flattening, suggesting that the growth rate will slow down. The growth in the money supply is also slowing down, leading to the same conclusion. The yield curve and slow down could be accelerated in the event that the proposed pension reforms lead to a restructuring of portfolios in the direction of more certain returns: more high quality long bonds in the mix.
While I doubt that the Fed is going to make a big mistake in the near term, its tools are too blunt to effectively regulate asset prices (and perhaps they shouldn’t try). Therefore, I am less sanguine about bank lending in the retail estate sector, the outlook for quasi-governmental corporations such as Fannie Mae, and the regulatory oversight of same. On the market side, I am becoming more squeamish about mortgage backed derivatives. When do we take away the punch bowl?
Perhaps it is a hopeful indicator that the housing cycle is showing some maturity as consumers move consumption in the direction of home improvements rather than houses. Still I am suspicious that too much of this nest-building is a form of leveraged speculation on the continuation of high rates of appreciation in home values.
According to the U.S. Census Bureau ( Median Income for 4-Person Families, by State), the median income for a 4 person family in the US in 2003 was $65,093, and $14,747 in 1974. This works out to an annual increase of over 5%.
Inflation, on the other hand, has been rising enough that $14,747 had the purchasing power of $55,013 in 2003 according to the U.S. Department of Labor (CPI Statistics).
This means that the average family is better off by 18% back in 1974 than they were in 2003.
The good old days? I’ll take ’em.