The Envy Economy: How Reckless American Consumerism Sustains the Economy.
Some of the parents reading, with the APs soon to be over, may now be worried about their kid’s transition to college. For instance, how will students manage their finances? With a lot of us reliant on deliveries for food, what happens if your kid runs out of money? Thankfully, the ingenious minds at DoorDash have found another way to make our lives ever more so convenient: debt! With their newfound partnership with Klarna, your kids in college, along with everyone else in the US, can split their $40 dollar burrito into 4 easy installments of $10. Buy now, pay later. BNPL. Fun!
With consumerism and costly trends the first stereotype of Americans that comes to mind, it's no surprise that some might be inclined to spend just a little bit more. With US credit card debt totaling to $1.21 trillion by the end of 2024, many Americans often find themselves over extending their means. Consider vacations: 36% of Americans use debt to fund them entirely, while 62 percent of vacationers mention funding them partially with debt (CNBC). Or look at the 42% percent of Gen Z and millennials using these BNPL services (J.D Power). What’s particularly baffling is how more and more people are borrowing in face of spiking interest rates. From the post-COVID low-point of 14.51% at the end of 2021, it has since spiked up to 21.4% this February (FRED). Yet people still seem to be borrowing.
Why do Americans spend beyond their limits? A large aspect of this is simply due to a culture of needing to appear well off. With people constantly bombarded with images of celebrities drowning in luxury, and with wealth itself seen as a massive sign of how smart and respectable a person is, there have been countless stories of people taking on massive amounts of debt to project an image. One can quickly waste their day away on Youtube watching Tiktok compilations of people buying $4000 on an “infrared sauna”. Go and Ebay and find people selling Gucci gift boxes for $50, to be used as fake props for instagram photo shoots. The habit of faking wealth can be seen beyond sensationalist stories though. Starting from 2020 and Covid, sales of cars over $100K has quadrupled from 71,000 to 337,000 in 2024 (Market Watch). 27% of luxury goods sales are from those making less than $50K a year, with the majority of clients being merely middle class (Vox). There may be something to be said about this ironic pattern of people taking on debt to escape being judged as lazy, only to end up worse off. Regardless, in America, everybody buys luxuries.
Social media also plays into bad spending habits. We often hear Amazon listening to us, when in reality, prediction algorithms have become just that robust. Data collectors do not go through the trouble of counting every click you make, or timing every second you hover over an image to simply get you to click on a pop-up ad. They use that information to direct you to influencers who live your exact dream life, twiddle their thumbs as you spend six hours of your day of your foreseeable getting more and more acquainted with the different products your new online buddy uses, before cooly approaching you on a new deal. From Forbes: “82 percent of consumers were highly likely to follow the recommendation of a micro-influencer they followed”. The result of this is $71 billion dollars of social media impulse spending from almost half of Americans, averaging to $754 per impulse spender in the year of 2023 alone (Bankrate, NewsNation).
So, essentially, we have the same old story. People are going broke for pretty sad reasons. Not really any groundbreaking journalism happening
Here is where things get interesting. While we can froth and foam at splurge-er and scream about how they are destroying our environment, it's also worth mentioning that the United States’ economy relies on them to survive. Underneath all the stupid and complicated web of stock markets and financial banks, what we call the “economy” is really just a balancing act between producers and consumers. In order for a manufacturer to make money, there needs to be a consumer to pay for the goods. If a restaurant runs out of customers, it fires all its workers and closes. If that happens on a large enough scale, it snowballs. The fired workers would start running out of money to spend. They buy less stuff, leading to less consumers in the system, leading to less producers in the system. With consumer spending supporting 68% of the entirety of the US’s production (aka the GDP), it paints a picture of the amount of workers reliant on all those people who go into credit card debt. Which then begs the question: what happens if these people stopped going into debt?
This is what I am afraid of, looking at the current trade war that is happening right now. Not the 6 trillion dollars wiped out in the stock market in just two days. Not the people rushing to trade off their dollars into other currencies. But Consumer confidence. The Consumer Confidence Index is currently at an alarming 70 year low, with 61% of Americans thinking that they are heading into a recession within the next year (CNN). And what happens when people think that they are heading into a recession? They cut excess spending. They start saving for a rainy day. After 2008, the household savings rate rose from 2.2% to 5% in two years (FRED). COVID saw an even sharper spike in savings, jumping from 6.7% at the end of 2019 to a high of 24.5% during the summer 2020 (FRED). But if people save and buy less goods, then less wages are paid, leading to a self perpetuating cycle.
Nor are the current patterns of borrowing that sustainable in the first place. While not reaching the peak of 6.7% credit card delinquency rate in 2008, we have since risen from 1.57% at the end of 2021, to 3.01% at the end of 2024 (FRED). 10.75% of credit card holders are also only making the minimum payments on their credit cards too, the highest number since 2012 (CNBC). There will be a moment when each consumer realizes that they won't be able to afford to buy new toys, and that moment is coming fast.