Consumer Credit Levels are Rising…How should you respond?
I added a page from the recent release of the consumer credit numbers on the Federal Reserve website through August of this year. It is alarming. If you look at the to chart on the on the Federal Reserve release you will see the consumer credit outstanding. This is basically the amount of consumer debt that is held by people. So loans other than mortgages. Things like credit card debt and auto loans.
Anyway, you will see a fascinating phenomenon in 2020, consumer credit went down! But ever since then it debt has increased. And the sad part is that it looks like the rate of debt increase is accelerating. It is likely that the reality is even worse because these debt numbers to not take into account for Buy Now, Pay Later debts that are held by non-bank companies.
Why is this happening and what should you be doing? In 2020, I think everyone was shocked into the drastic change. The world was shutting down and the news was constantly talking about how many people were dying every day. (CNN had a death count ticker for crying out loud!) So naturally, everyone had a shift in priorities and realized they should change their ways before it is too late and before the impending economic crisis.
Now the pandemic is in the rearview and we never had as bad of an economic crisis in 2020 or 2021 as many people feared. And now, it seems we are finally in the recession that many worried about back in 2020. But yet no one seems to be prepapring, everyone seems to still be spending. And spending beyond their means.
Ultimately, this comes down to a spiritual problem. The culture tells us to spend spend spend. Consume, cosume, consume. But that is not what the Church teaches.
The Catechism of the Catholic Church:
2535 The sensitive appetite leads us to desire pleasant things we do not have, e.g., the desire to eat when we are hungry or to warm ourselves when we are cold. These desires are good in themselves; but often they exceed the limits of reason and drive us to covet unjustly what is not ours and belongs to another or is owed to him.
Are we buying on credit because we are trying to fulfill desires that exceed the limits of reason? Are we trying to fill a void that should be filled by Jesus? If so, you should use the spiritual resources we have as Catholics to keep your priorities in the correct order. Thankfully we have a lot of tools in the Catholic toolbox to help with this, things like confession, adoration, the rosary, the Bible, the saints and so much more. This will help make sure you are addressing your worldly problems in a proper spiritual context.
Once you have that in place you have got to start tracking your income and expenses, your finances will never align with the values you say you have if you don't track your spending. From a practical standpoint, you need to do this now. Likely we are heading into some tough economic times and if you are one of these people with a growing credit card balance and no money set aside it will become very difficult for you if companies start to lay off employees.
The rising cost of goods is likely contributing to this. Our grocery bill is noticeably higher this year than it was one or two years ago. Fuel for your car and utilities at home are more expensive; and those are just costs to provide basic needs for your family. You also feel the squeeze in more luxury items like travel and entertainment. Please adjust your budget to accommodate these higher prices and make sure you are spending less than you are earning.
You can do this by simply getting your bank statement and adding up how much money is coming in and how much has been spent over the last 3-6 months. You can then build a budget from there and start manually tracking what you spend money on each month. One way to simplify this is to focus on one or two categories that have been hurting your budget the most over the last few months. For many people eating out at restaurants is one of those categories. So, you make a commitment to focus on that category and make sure you stay on a set budget. If you are drastically over budget, you may have to take more extreme measures and use some of the online tools to track your spending or hire a financial coach or advisor to help you.
“For where your treasure is, there will your heart be also.” Matthew 6:21
God Bless
Written by Phil Francois CFP®