The latest quarterly report released yesterday by the FDIC is consistent with consumers’ Money Anxiety
showing that when consumers are less financially anxious, they increase their borrowing level and improve their payment record. The 2013 fourth quarter FDIC report released yesterday shows that bank loans increased by $91 billion, and over 90-day due payments decreased by $14 billion amid the lowest level of money anxiety in five years.
The relatively low level of consumers’ money anxiety is prompting consumers and businesses to borrow more. According to the FDIC data, “Total loan and lease balances increased by $90.9 billion (1.2 percent), with commercial and industrial (C&I) loans rising by$27.3 billion (1.7 percent), real estate loans secured by nonfarm nonresidential properties up by $17.1 billion (1.6 percent).” Additionally, more consumers are now paying their loan payments on time as “The amount of loans and leases that were noncurrent (90 days or more past due or in nonaccrual status) declined for a 15th consecutive quarter, falling by $14 billion (6.3 percent).”
The link between banks’ performance and consumers’ financial anxiety is empirically demonstrated in Money Anxiety -
a new behavioral economics book that shows how consumers modify their banking habits based on their level of money anxiety. Moreover, the strong link between consumer financial behavior and their money anxiety makes it possible for banks to project how consumers will behave with their money at various levels of economic conditions.
Money Anxiety Index in the Last 12 Months
The Money Anxiety Index
continues to decline indicating consumers are less financially anxious. February Money Anxiety Index stands at 76.6, down 1.3 from January. February Money Anxiety Index is the lowest in five years. During the past five years, the Money Anxiety Index peaked at 98.2 in June 2011, and has been trending downwards ever since.
Despite the severe weather conditions in the past few weeks, which adversely impacted some sections of the economy, the overall economy is showing a slow and gradual growth. The main adverse impact of the severe weather was on the housing market, where housing starts declined 16 percent in January to 880,000 units. However, the $10 billion per month reduction in its asset purchase program indicates that the Fed is projecting continued modest growth in the economy. Currently, it appears that the Fed will conclude its tapering initiative by the end of this year.
The link between the state of the economy and the level of consumer financial anxiety is empirically demonstrated in Money Anxiety -
a new behavioral economics book that shows how consumers modify their savings and spending habits based on their level of money anxiety. Moreover, the strong link between consumer financial behavior and their money anxiety makes it possible to project how consumers will behave with their money at various levels of economic conditions.
NEW YORK (TheStreet
) -- BY Mia Taylor
"When you look cumulatively at the last 20 years, we have had some major changes in the world economy," says Dan Geller, a behavioral economist and author of Money Anxiety.
"China came on board with tremendous economic growth that created affluence. It definitely created luxury consumers. The same thing with India, it has an improving economy also." Full story.
Understanding consumer financial behavior is essential to any type of business, but even more so to the real estate business, which is the first to drop and the last to grow during economic cycles. The reason behavioral knowledge and insight is so important is because the link between consumer financial anxiety, consumer behavior and the real estate market is very strong and significant. Read the full article in dailyproperties.com
If you want to find out what chickens do, don’t listen to what chickens say; simply observe what they lay.
The two leading consumer confidence indices reported conflicting results in their January report – one shows an increase in consumer confidence; the other a decrease. January’s conflicting reports on consumer confidence point to a flaw in asking consumers about their financial confidence rather than observing their financial behavior. The Conference Board Consumer Confidence Index reported that January’s index stands at 80.7, up from 77.5 in December. At the same time, and the same U.S. economy, the Thomson Reuters/University of Michigan's index of consumer sentiment reported a decrease in consumer confidence to 81.2 in January, down from the 82.5 posted in December.
Clearly, an increase and a decrease in consumer confidence cannot occur in the same time and the same place unless there is a sampling bias, which I tend to rule out since both survey organizations are highly professional and reputable. Nevertheless, repeated occurrences of conflicting consumer confidence readings point to a flaw in the concept of asking consumers how they feel about the economy rather than observing how they behave financially.
The latest research in consumer financial behavior shows that there is a gap between what people say about the economy, in response to consumer confidence surveys, and what they actually do with their finances. An example of this gap is illustrated in the Money Anxiety
book, which shows how consumers’ financial anxiety started rising three months prior to the time they reported fear of an economic slowdown in response to consumer confidence surveys. This gap, between what consumers say and what they actually do is the root cause of the conflict between the two leading consumer confidence indices.
The Money Anxiety Index
measures various economic indicators and factors associated with consumers’ level of financial worry and stress. The Money Anxiety Index consists of monthly measurement of the level of consumers’ financial anxiety for over 50 years. It spans from January 1959 to date. Historically, the Money Anxiety Index fluctuated from a high of 135.3 during the recession of the early 1980s, to a low of 38.7 in the mid 1960s. The 50-year average is 70.7 (July 1980 = 100).
Money Anxiety affects everyone regardless of demographic or psychographic affiliation because it’s a survival instinct all people share.New research from Money Anxiety (www.moneyanxiety.com) reveals that consumers instinctively increase their savings during tough economic times such as during the last recession. The impulse to increase savings is rooted in the reptilian part of the brain, which functions primarily as a self preservation mechanism. Our ancestors hoarded food and wood when they faced severe danger from the elements, and today’s consumers follow the same survival instinct when they hoard their money during times of economic and financial danger. This behavioral economics phenomenon is termed “Mattress Money”.
Since people share the same three brain functionality, instinctive, emotional and intellectual, people react in the same manner to economic conditions. When economic conditions are tough, consumers act in a similar instinctive manner by increasing their savings as a measure of self preservation. Evidence of the instinct to save during high money anxiety was during the two recessionary years of December 2007 to December 2009, when consumers increased their pace of bank savings by $100 billion compared to the two years prior to the Great Recession according to FDIC data.
The link between consumers’ financial anxiety and their savings habits is empirically demonstrated in Money Anxiety - a new behavioral economics book that shows strong association between consumers’ level of financial anxiety and personal savings. When money anxiety increases, consumers tend to save more and spend less. Conversely, when money anxiety decreases, consumers save less and spend more.