U.S. Consumer Financial Habits

This week’s article is a report on U.S. consumer financial habits. It contains some interesting insights into consumer habits.

Here’s a simplified model for life:

  • you go to work and do your thing;
  • you get some money;
  • you use that money to do your thing outside of work.

Generally, people want to do little of the work thing, and a lot of the non-work thing.

In practice, though, you get some inefficiencies. So the actual model is more like:

  • you go to work and do your thing;
  • you get some money;
  • you waste some of it (say, 10%);
  • you use 90% of that money to do your own thing.

It’s the second law of thermodynamics, as applied to financial management.

Every money transfer (between your work and non-work things) involves some loss of money in an unusable form

So how do people deal with those inefficiencies?

Enter U.S. Consumer Financial Protection Bureau

The U.S. Consumer Financial Protection Bureau produced a report (2017) about peoples’ financial habits.

Do people intentionally manage their finances? Turns out, not so much.

Considering that nearly half of all consumers say they “prefer not to think about money,” it is not surprising that most do not have a comprehensive personal budget or plan for their personal finances.

If you’ve ever picked up budgeting only to give up 3 weeks in, you might find these insights both relatable and actionable.

Executive Executive Summary

There’s an executive summary in the report, so here’s an executive summary of the executive summary.

People:

  • spend more than they intend;
  • underestimate the impact of minor purchases that add up;
  • want to manage their spending; but
  • find it overwhelming to actually manage their spending.

A good way to combat this is with short feedback cycles.

Research studies in a lab setting have found that providing feedback on spending behaviors to consumers leads to reduced spending.

If you spend money, you need to know ASAP how much money you still have left, and for what. Ideally, you know this before you spend the money.

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