Monday, November 24, 2014

Black Friday Choices

This Friday is Black Friday, so let’s talk turkey about holiday spending.  The New York Times tells us that falling gas prices will spur holiday spending.  Low- and middle-income families, “the most economically fragile part of the population (are) already feeling some relief, which is likely to lead to extra spending on a variety of other goods and services.”  The Wall Street Journal reinforces this notion by pointing out that October results show that “U.S. consumers are spending more at restaurants as gas prices fall.”  They are not alone in their predictions; we hear the same from other sources.

That’s probably good news for the fat-cat investors as retailers may surpass expectations and the stock market will continue to rise, but ultimately bad news for those low- and middle-income families who immediately spend the windfall.  According to these news agencies and the statistics they gather, Americans don’t have the discipline or willpower to put away the extra cash for emergencies.

Just last summer, a survey, based on telephone interviews with more than 1,000 adults, a reasonably large sample size, told us that only 23% of Americans had the recommended emergency savings to cover six months of expenses, and over one quarter, 26%, had no emergency savings at all. 

One in four, of these most economically fragile are living paycheck to paycheck.  Management theory tells us that people make changes only when the effort of changing is less than the pain of not changing.  Is the pain, fear, or insecurity of living paycheck to paycheck not great enough to motivate people, who find a little extra in their wallet after filling the car, to put some aside for a rainy day? – Apparently not. 

I remember back in earlier times when the gas prices spiked and there were more incidents of drivers out of gas on the side of the road explaining how they could only afford to fill the tank half way.  If all the extra money goes to gift buying and restaurant meals, how will they manage during another rebound in gas prices?  Furthermore, how will they be able to afford even higher deductibles on health insurance in case of a medical emergency?  (Last year the average individual deductible for ACA’s silver plan was $2907 and expected to increase.)   These are the things an emergency fund is used for.

Unspent gas money is insignificant compared to possible unexpected expenses.  Put it in the bank; stuff it in the mattress!  Those who just decide to spend it are making an unconscious decision to remain in that category referred to as "the most economically fragile."  But I guess the pain is not yet bad enough.

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