The post-pandemic economy has brought higher inflation, higher interest rates, and overall increased spending. It’s also characterized by record-setting consumer debt.
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The Federal Reserve Bank of New York recently indicated that total American credit card balances are $1.14 trillion as of Q2 2024. This stunning figure represents an increase of about $27 billion, or about 5.8%, compared to a year ago.
Today, recessionary fears are on the rise again. But despite this reality, Americans are still spending money. Bank of America CEO Brian Moynihan explained how Americans are spending their money in the current economy — and said the problem is what people are spending their money on.
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Americans Are Spending to ‘Maintain a Lifestyle’
According to Fox Business, Moynihan highlighted that Americans are largely using their money to “maintain a lifestyle.” The average Bank of America customer has more money in their account today than they did pre-pandemic. But, the summer months have indicated a change in spending habits.
“The people who had an account with us in January 2020 before the pandemic, you look at them now, they’re still sitting with much more, even inflation adjusted, much more in their account,” Bank of America Chairman and CEO Brian Moynihan said on CBS’ “Face the Nation.”
While consumers are pulling back slightly on spending in essential categories during these 2024 summer months, Bank of America has also noticed where Americans are spending the most is at restaurants or on travel. This indicates a focus on lifestyle rather than on necessities.
“The problem is, [that] has started drifting down, which indicates that they’re using that money now to maintain a lifestyle,” Moynihan said.
Account balances are starting to decrease — while at the same time, consumers are finding ways to spend less on essentials.
“But on the other hand, they are spending a little bit less. They’re going to the food store the same number of times, [they’re] spending a little bit less, which means they’re basically finding bargains and things like that,” Moynihan explained. “And you’re seeing corporations cut prices to respond to that. And so it’s the way the economy works, and it’s slowing down.”
The biggest issue with spending to maintain a lifestyle could be that you don’t have enough funds to cover the essentials including housing, utilities and groceries without going into debt. Here’s why that’s dangerous for your finances.
Why It’s Important to Avoid Lifestyle Creep
A focus on maintaining a lifestyle ties directly into lifestyle creep. This happens when you start spending more as you earn or have more money. More of your money goes towards keeping up with an inflated lifestyle. This can mean getting a bigger house, a new car, dining out at restaurants more often, or taking lavish vacations. However, if you’re not careful, higher spending in frivolous categories can land you in debt.
It’s crucial to set aside funds for necessary expenses first while also allocating funds toward saving and investing. Spending to maintain a lifestyle — and “keep up with the Joneses” — should never jeopardize your financial security.
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This article originally appeared on GOBankingRates.com: Bank of America CEO: The No. 1 Problem With Where Your Money Is Going
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