Consumption

In society, consumption means a variety of things. Economically speaking, the term refers to the purchase of consumer goods. In ecology, consumption refers to the natural food chain. And finally, the antiquated definition of consumption refers to tuberculosis — the infectious disease of yore.

Today, we generally speak of consumption as a positive economic force. After years of high unemployment and low consumer confidence, people are finally building a financial foothold and beginning to spend money again. Of course, like the disease, consumption can become infectious to the point that it leads to over-spending and living beyond one’s means. Then, too, exuberant consumption can lead to a greater schism in wealth inequality, because some people can afford to spend more discretionary income while others would be wise to save it.

Recently, at least one retailer claimed that if we don’t spend beyond our needs, the overall economy will suffer. As voices call to limit consumer spending and over concerns for over-consumption of ecological resources, the head of the world’s second-largest fashion retailer said the poor will suffer most if we decrease consumption. Instead of limiting typical buyer behavior and possibly leading to higher prices and loss of jobs, he advocates that companies be more innovative in their raw materials and manufacturing.

[CLICK HERE to read the article, “CEO of H&M: reducing consumption will create a social catastrophe,” from The Guardian, Feb. 3, 2015.]

The reality is that consumer consumption is critical to our economy, representing approximately 70 percent of U.S. economic activity. In the final quarter of 2014, it was the driving force behind GDP growth, which increased by more than 4 percent. A big part of recent consumer demand has been for imported goods, which reached an all-time high in December as U.S. companies imported $48.8 billion worth of consumer goods.

[CLICK HERE to read the article, “The Good News Behind GDP’s Decline,” from Guggenheim Partners, Feb. 5, 2015.]

Increased consumer demand is attributed largely to progress in the job market. Employment improved with the biggest three-month gain in 17 years and the highest wage increase since 2008. One of the key indicators is that people who previously dropped out of the job market are now back in: In January, 1.05 million people entered the labor force and 759,000 found work.

[CLICK HERE to read the article, “Jobs Report Crushes It,” from Bloomberg, Feb. 6, 2015.]

Now that we have jobs and confidence, it’s a good time to consider the value of discipline in the face of prosperity. It’s easy to consider cutting back on spending when you have no choice; much tougher when you have more discretionary income. In fact, new research has found that this lesson is retained much better when first taught in high school. Currently, 22 states require students to take an economics course. A new study found that high school students required to take personal finance in high school had higher credit scores and fewer credit delinquencies than students in states without this mandate. In fact, three years after high school, the enlightened graduates had significantly higher credit scores — up 11 points in Georgia, 16 points in Idaho and 32 points in Texas.

[CLICK HERE to read the article, “New Findings About Kids and Money That Your School Can’t Ignore,” from Time, Feb. 6, 2015.]

While presently high consumption is positive news, we must monitor it carefully within our own lives to help ensure it does not adversely impact our total financial picture. As always, we’re here to help you create financial strategies with your future in mind.

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