This blog is part two of a two-part blog post! Click here to read part 1
There\’s a level of consumer confidence that you and I have seen in certain sectors as we have navigated this time, and there is an index for it. The Consumer Confidence Index defined consumer confidence as a measurement of Americans\’ attitudes about current and future economic conditions. It tells you how optimistic people are about the economy and their ability to find jobs. They say that if confidence increases too much, people will spend more instead of saving. It creates higher demand that could trigger inflation. To stop it, the federal reserve will raise interest rates, which slows economic growth and increases the dollar\’s value. Raising interest rates also reduces exports because they are priced higher in foreign markets and make imports cheaper, reducing inflation.
So, there\’s a lot there. There\’s a lot included in that definition and the corresponding explanation around what happens when consumer confidence is high or low.
With that, we\’re experiencing a myriad of different converging challenges right now when it comes to inflation, hyperinflation, stagflation, and many other aspects that have been seemingly unchartered territories prior to the last year.
The definition of consumer confidence outlines how consumers view purchasing. Whether this causes them to hold off on or delay large purchases, or whether their confidence is at a point where they pursue these purchases. The federal reserve adjusts interest rates in order to slow the economy or excel the economy and monitors aspects like inflation, stagflation, or deflation to determine what is needed.
And so, it\’s important to know what the index is and what we are comparing it with.
I\’m going into detail with this because I feel like it\’s essential as we go into the topic of savings. It will help us understand consumer confidence, why people are saving, what they are saving for, what they should be saving for, and where you should be putting those savings in.
The conference board communicated that the index is currently sitting at 89.3. The balance put this in context by stating that the current confidence index is still better than its record low of 25.3 in February of 2009, in the middle of the recession at that point, the last great recession. The record high is 144.7, which was reached in May of 2000. So, with that, it\’s important to look at the fact that consumer confidence is a lag indicator. It is something that they report on after the fact and something we can look back at and say, \”okay, this was an indicator that drove all these other decisions, and that\’s why X and Y occurred.\”
Consumer confidence remains strong even during a lot of uncertainty.
Although this index is looking backward, it\’s a lag indicator. It is also important to ask yourself, \”Okay, if consumers were behaving a certain way, had a certain idea of where the economy was going, and were spending or saving more, what did that do to savings rates during that time? Now, as we\’ve seen savings rates decline, that shows that our sentiments around the economy and our consumer confidence are strong. That is because as people\’s savings rates decrease, that means they\’re putting more money into the economy and are less scared. They\’re less concerned about where their job will come from in the future and whether there will be jobs available.
In prior episodes, we talked about financial obstacles and about the importance of playing your players on the field, putting your dollars to work, and not just keeping them under your mattress or in a low-yielding savings account. But when we are experiencing inflation, when we\’re experiencing a devaluation of our currency due to a stimulus of printing money, our dollars lose value.
It is important for us to have places where we specifically put our money so that we are doing our best to curb inflation.
When we are experiencing a devaluation of our currency, it\’s important to look into options to preserve the value of the currency that you have. At this point, you may want to look into a high-yield savings account.
Now, these don\’t return anywhere near what they did even a year or two ago, but if you want to hold the line per se and protect the savings you have, maybe for a rainy day fund or something that needs to be easily accessible, you may want to look into something like that. You may also want to look into a money market account or a certificate of deposit. Any of these will be low risk, and they would allow you to preserve your capital.
It\’s going to be vital that you utilize asset allocation to ensure that your savings are not just all sitting in your savings account.
So, you\’ll want to look at other avenues. You may have a 401(k) through an employer, a separate Roth IRA, a traditional IRA, or you may have some other aspects of different avenues like precious metals. You may also have different avenues that you\’re comfortable with that you could diversify some of your savings into to reduce your overall risk and your overall volatility in your savings.
In this episode, we\’ve talked about the \”why\”, why it\’s important for you to set aside savings, and why it\’s essential for you to have that built into your plan to spend. With that, you will want to ask yourself, \”Okay, how do I also diversify into the market?\” and, \”Am I going to have a certain amount of savings set aside for a rainy day fund, for retiring at a certain time, or living a certain lifestyle? How about savings for building in a margin to create options in life?\”
From that, we looked at the \”where\”, where you could allocate to ensure that you have the proper asset allocation.
Now, beyond that, it\’s important to know \”how much?\” That\’s a big question that people have, \”How much do I put in and in what areas?\”
Something that I call a \”financial health check\” reveals how much money you should put in what areas. We\’ll be going through that in an upcoming episode.
But the important part is to make sure that you are saving and putting away money for the things you want to be able to purchase without going into debt and without having yet another burden.
My call to action for you today is to go in and see where you have savings.
Whether it is a retirement fund, a college fund for a child of yours or yourself, a savings account, a low yield savings account, find out where you hold your savings. My encouragement for you is to pull that together and figure out, \”Okay, well, how much do I have?\”
We\’ll go into how much you should have saved in future posts.
