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In the third quarter of this year, consumers nearly doubled the pace of spending and reduced the pace of savings by half as their level of money anxiety subsided compared to last year.

The amount of consumer spending in the third quarter of this year increased by 3.0 percent compared to an increase of only 1.7 percent during the same time period last year according to the latest personal consumption data released by the U.S. Department of Commerce.

Conversely, the pace of bank savings decreased by half in the third quarter of this year up only 0.6 percent compared to an increase of 1.2 percent during the same period last year according to the latest data reported by the FDIC.

The increase in the amount of spending, and at the same time, the decrease in the amount of savings, is prompted by a lower level of financial anxiety. The Money Anxiety Index, which measures the level of financial stress and anxiety among consumers, decreased by 7.4 index points between the two periods. In the third quarter of this year, the Money Anxiety Index stood at 64.5 compared to 71.9 during the same time last year. 


 
 
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Immediately after the September 11 attack, the Money Anxiety Index jumped 5.1 points and continued to climb up 21 points in the aftermath of the terror attack.

Analysis by the Money Anxiety Index shows that the terror act of September 11, 2001 immediately increased the level of money anxiety of people in the U.S.  In the month of the attack, September, the Money Anxiety Index jumped 5.1 points from 56.9 in the previous month and continued to climb up nearly 21 points when it peaked at 77.6 on December of 2001.

Research conducted and published by Money Anxiety shows that fear and uncertainty are the main triggers of financial anxiety.  When the level of money anxiety increases, people tend to react instinctively by reducing their spending and increasing their savings.  This reaction originates in the reptilian part of the brain, which oversees survival and self preservation.

The level of money anxiety is the catalyst between analytical thinking and instinctive reaction.  Research in behavioral economics shows that when the level of money anxiety is low, people tend to use their frontal cortex for analytical thinking, also known as “system 2.”  Conversely, when the level of money anxiety is elevated, people tend to react more instinctively, using their reptilian brain or so called “system 1.”

The Money Anxiety Index measures the level of consumers' financial worry and stress based on their spending and savings pattern. 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 Money Anxiety Index functions as an early-warning system to shifts in the economy, allowing financial advsors to react in time to changes in the economic cycle. The Money Anxiety Index Is highly preidictive. It predicted the arrival of the Great Recession over a year prior to the official declaration of the recession in December of 2007.



 
 
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The November Money Anxiety Index at 62.5 is exactly where it stood on December 2007 when the Great Recession officially started.  It took the Money Anxiety Index, which measures consumers’ financial stress, 8 years to go back to its pre-recession level.  
During the 8-year cycle, the Money Anxiety Index peaked in December of 2010 at 95.5 and started its gradual decline to its current 62.5 level.  The Money Anxiety Index was faster on its way up than on its way down.  It took the index only 3 years to reach its peak in December of 2010, and 5 years to go down to its current pre-recession level.

The decline in the level of money anxiety among consumers is a reflection of improving economic conditions. Among them is the latest jobs report showing that the labor market added 271,000 nonfarm jobs in October with healthy gains in construction, professional & business services, education & health and leisure & hospitality.

The timing of the decline in the level of money anxiety is also important.  November is the gateway to the holiday shopping season, which is a critical time for retailers.  The return of the Money Anxiety Index to its pre-recession level suggest that consumers are ready to spend more this holiday season than in any of the past 8 years.  

The Money Anxiety Index is produced by Dr. Dan Geller, a behavioral finance scientist and the author of the book Money Anxiety. The index measures the level of consumers' financial worry and stress based on their spending and savings pattern. 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.