This new set of circumstances forced us all into a new reality. In the three months that followed, consumers sobered up. Household spending (which accounts for more than two-thirds of U.S. economic activity) fell by nearly 4.5%, the sharpest dip in 28 years. If those numbers don’t mean anything to you, do an economic survey of your own.
Ask some friends what they got for Christmas in 2008, and compare it to their gift intake for 2007, 2006, and back. I wasn’t complaining when I unwrapped the only gift from my wife last year and found a $20 Obama t-shirt. The year before I got a 42â€-inch flat screen T.V.
President Obama went to Wall Street earlier this week to warn the financial world that tighter regulation is coming, an attempt to prevent future failures on the level of Lehman, cautioning that “…the old ways that led to this crisis can not stand.†For consumers, he offered a Consumer Financial Protection Agency that would act as a watchdog agency over financial products. The proposed agency, which needs Congress’ approval, would also promote financial literacy and good money habits to consumers.
Many of us already get the message: 2009 has been a year of spending less, saving more, paying off debt, and borrowing less. And we’re better off for it. It was the fall of Lehman that changed our relationship with money. Even after the financial markets staged a rally beginning in early March of this year, consumers continued their new frugal ways. In fact, consumer borrowing had its biggest one-month drop–ever–in July, according to the Federal Reserve’s most recent tally.
Be warned: As the economy enters a new cycle of healing, you’re sure to see a parade of pundits on television, grumbling that consumer confidence is still down in the dumps. They’ll whine that we’re being too stingy and not spending enough to spark meaningful economic growth. Ignore those gripes, and keep doing what’s right. You’re too big to fail.
John Simons in the senior personal finance editor at Black Enterprise magazine.