Consumer
Moving Beyond the Great Recession: A Consumer’s Guide
September 27, 2011 | 
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Looking at the latest trends in financial patterns among US consumers, it’s safe to say that many of them have begun to learn the lessons of the Great Recession. In the third quarter this year, consumer debt has continued to go down. While much of this has to do with the fact that some homeowners are walking away from their mortgages, it’s not all bad news. Many consumers are being more careful about using their credit cards. And others have grown increasingly creative in how they navigate their finances by utilizing alternate sources of credit and exploring new kinds of personal investments, including short term loans such as title loans.
Many consumers need to consider new and innovative strategies if they want to gain control of their financial circumstances. Some may request the services of a bank to help them come up with the extra money they need. This assistance may come in the form of loans like home equity loans, or in other financial services like credit cards. However, these types of services aren’t ideal for everyone. Consumers who are already dealing with credit problems typically don’t have much of a shot at borrowing money these ways.
For these reasons, there’s been a growing market in non-conventional financial services. The alternative financial services sector is comprised primarily of short term loans, which allow borrowers to take out loans without needing a perfect credit history. Payday loans are arguably the most commonly available and widely marketed short term loans. Payday loans, while not requiring a credit check, typically require proof of income. This is because they usually need to be paid back by the end of the week, when the borrower gets a paycheck.
One alternative to payday loans is to take out a car title loan. Some borrowers prefer these loans because they tend to offer a larger amount of money. While payday loans tend to be for an amount no larger than the borrower’s paycheck, car title loans offer a more generous amount that’s based on the value of the borrower’s vehicle. And unlike payday loans, car title loans can often take several years to pay back. Consumers might take out a car title loan for “debt consolidation” purposes, using the loan to pay off their debts and then making one convenient monthly payment on the title loan. While this decision may make a lot of sense for consumers who can’t get the traditional tools to get on top of their finances, it’s still important to weigh these decisions carefully.
Although some experts correlate the title loan industry to the debt cycle, the evidence of recent months does not support this theory. The amount of personal debt in the country has decreased significantly at the same time that the title loan industry has grown. Most consumers have used title loans to get out of debt and reorganize their finances.
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Consumer Credit Report: Are You Aware Of Yours?
Talking about a consumer credit report, it is the yearly evaluation of each individual’s credit standing. When you are aware of things that are mentioned in your report, you can get plenty of benefits especially at the time of dealing with credit based services such as loans and credit cards.
Every year, by law, American citizens are entitled to get a free copy of their yearly consumer credit report, which includes everything pertaining to their credit risk profile. This gives financial institutions that are willing to offer you credit an opportunity to take a look at your profile and see whether you will be able to repay the amount or not. If your credit rating is not good, financial institution will treat you as a risk and therefore may not give you credit.
With good credit report, you increase your chances of getting cheaper loans and credit cards. What’s more, your application is not going to be rejected by the financial institution. There are three companies that provide a free consumer credit report on a yearly basis. It includes, Experian, TransUnion, and Equifax.
Being aware of what is there in your credit report; you get a chance to negotiate for better terms and conditions. In addition, you can repair your credit by challenging false details on your report. For this purpose, you just need to get a copy; unfortunately you need to get it from all the three companies that are mentioned above. This is because of the fact that financial institutions don’t report to all these companies, they just report to one with your past record of financial details.
And that is where if you only get a copy of one report then you are not going to get a complete idea of your financial status. Make sure that you get report from all three companies. It is going to help you in improving any negative details that are there in your report. It is of utmost importance that you update your personal details on a regular basis. For example, if you have relocated to another state, you should contact the credit bureaus and tell them about it.
Stay away from companies that promises to improve credit score in a matter of 15 to 45 days, they are scammers whose only intention is to get some quick money from you.
Last but not the least; evaluate the items that are having a negative impact on your credit rating and try to get rid of them.
The American Consumer Is Throwing in the Towel
The November Unemployment Report showed a decline in the unemployment rate to 8.6% as well as 140,000 jobs added in the private sector, which was partially offset by a decline in government payrolls of 20,000. Sounds good at first blush, private payrolls are adding jobs and the size of the government is declining. While it is encouraging, there are two major problems with accepting this at face value. First, employment is up, but not enough relative to where we should be more than two years into the economic recovery(?). Secondly, consumer spending indicates desperate behavior that is further weakening the underpinnings of this recovery.
We’ve discussed before that the economy needs to add approximately 125,000 jobs per month just to keep up with population growth. This month’s net number of 120,000 still leaves more people unemployed in the long run. The reason the official unemployment rate dropped to 8.6% is primarily due to the 317,000 people who haven’t actively looked for a job in the last four weeks and have therefore, fallen off of the unemployment report. Had those people sought employment, the continuing claims number would have been negative by nearly 200,000 and created a significantly different headline picture.
I question the impact of this recovery and have concerns about its ability to continue to gain traction due to the historical perspective of the jobs situation and our population’s spending habits. The Federal Reserve Economic Database is accessible by anyone. Looking at their employment graphs we can see that since 2007, the number of people not in the workforce has grown by more than 10 million. Conversely, when we look at the total employment level in the United States it shows that we are at the same level of employment as we were eight years ago. This ties in well with the thesis that American businesses and American workers are more productive than ever. This has led to healthy corporate profits while the domestic demographic spread continues to widen.
The American public on the other hand, is a bit of a concern. CNBC released a survey detailing the economic expectations of the American population versus our expected spending habits this holiday season. Retail sales have surged to all time highs, surpassing even 2007′s high, which was fueled by credit. This year, CNBC’s survey is expecting holiday spending to be 22% higher at the individual level. This would represent a 4.6% gain in total holiday spending over 2010. This makes no sense when 61% of American’s polled believe that the economy is in poor condition with equally dismal expectations for 2012. This is the worst reading in the five-year history of a poll that includes the euphoric ’07 highs as well as the desperate ’08 lows.
My fear for 2012 is not the Mayan end of the world. My fear is that Americans are dipping into the minimal savings they’ve built up in the last two years on one last party of a holiday season. According to CNBC, 74% of this year’s holiday purchases will be made with cash. This will leave most people skating on thin ice. The idea that we are spending more while expecting less just doesn’t jibe with the narrow cushion we stereotypically hold. When we combine this with the fragility of the European Union situation and its ability to quickly throw us back in recession, I’m afraid that this holiday’s spending habits may simply be the average American giving up and throwing ourselves a party while we still can.