2009Aug21 Doing Okay?

  

Are you ever surprised by your bank balance or credit card statement?

Roughly seventy three percent of respondents are not surprised by their bank account or credit card statements. Since the demographic mix of our listeners, and certainly our clients, is generally middle-aged and older this is expected.

 

Singles and families still raising children are more likely to find financial surprises disruptive. Younger individuals are less likely to have “set aside savings for a rainy day” making them more susceptible to surprises.

 

In 2005 with low interest rates and cheap Home Equity Lines of Credit, our country had a negative savings rate. That has been reversed by the recent troubles in the financial and real estate markets. Savings rates have increased to nearly 6%. That is good for the household but is negative news for retailers. As more Boomers have their adolescent children leave home, expect the saving rate to increase even more. It is likely to exceed the 10% savings rate that existed in the early 80s further depressing retail sales.

 

Do you have at least $500 in a savings account?

Again given the demographic mix of our audience, we are not surprised to find one hundred percent of respondents answering in the affirmative.

 

Do you carry a balance on your credit card?

There is roughly a one third/two thirds split between those who do carry a credit card balance and those who do not.

 

Credit card usage has been a fairly convenient way to minimize check writing and simplify record keeping. However, as of Thursday, August 20, 2009 the Credit Card Accountability, Responsibility and Disclosure(CARD) Act goes into effect. Interest charges will be changing and the interest free period between usage and payment due date may disappear for many users. That will likely change behavior and increase the incentive to pay off balances each month.

 

Do you have discretionary income?

The ratio remains unchanged for this question but flips over. It is approximately two thirds to one third that have discretionary income. That would be consistent with those do or don’t pay off their credit cards monthly.

 

Do you know what kind of mortgage you have or if the payment resets?

Ninety percent of respondents believe they understand their mortgage and whether or not there is an interest or payment reset provision. That is a sign of good financial management. We assume that most of our respondents did not need to use sub-prime or Option ARM loans where resets were standard, but often over-looked, loan provisions.

 

Is your business or rental property losing money?

Slightly more than a third of respondents indicated their business or rental property is losing money. Many homes that have been for sale have been removed from the market and converted to rentals. Naturally, there has been an increase in available rentals across the country which begins to depress rents.

 

Most businesses are facing adjustments to the new more stringent credit paradigm and a general increase in family financial uncertainty. Less money is being spent in virtually every industry. Managing expenses, especially payrolls, is critical to maintaining profitability as competition for market share increases.

 

Are you ignoring any large, ongoing money problem?

Consistent with our prior questions, respondents to this poll are generally responsible with their finances. It is no surprise that more than ninety percent of respondents are not ignoring a financial issue in their lives.

 

Are you headed for financial disaster?

There are some fears among the respondents as a little less than twenty percent feel they are headed for some type of financial disaster. The poll did not ask for details. This could be due to anticipated job loss or a large and unexpected expense disrupting normal cash flow.

 

Certainly there are millions of households in our country struggling with this issue as the unemployment numbers continue to climb. If we calculated unemployment in the same manner as the government did in the 1930s, we would be reporting national unemployment in excess of 20%. That would likely be enough to have a psychological impact on those with jobs and further depress discretionary spending. 

 

The high rate of real unemployment is the proverbial “elephant in the room” that economists do not want to address. We must find jobs for those individuals and restore their incomes or retail sales will be a very long time recovering. Absent this, the economy, the stock market and housing will be very slow returning to healthy levels.