2013 was the first year in which the level of consumer financial anxiety declined to its lowest level in four years. The Money Anxiety Index decreased by more than 10 points throughout the year – from 92.4 in January to 81.9 in December of this year. 

The Money Anxiety Index (moneyanxietyindex.com) declined to a recorded low in the past four years reflecting a more favorable financial mood among consumers.  The December Money Anxiety Index, which currently stands at 81.9, was 10.5 points higher at 92.4 in the beginning of 2013.  The 10.5 point decline in the level of consumer financial anxiety in 2013 was the greatest single-year improvement in the past four years.  Cumulatively over the past four years, the Money Anxiety Index declined 12.5 points, from 94.4 in October of 2010 to its current level of 81.9. 

The improvement in the level of consumers’ financial anxiety is reflected in some major economic indicators such as personal consumption and retail sales.  Personal consumption has gradually increased throughout 2013 indicating more financially confident consumers.  In the first quarter of 2013, personal consumption increased by 1.1 percent over the fourth quarter of 2012.  In the second quarter of 2013, the increase in personal consumption jumped to 2.5 percent over the previous quarter, and in the third quarter of this year, the increase reached 4.1 percent according to data from the US Department of Commerce.

Another indication of improved level of consumer financial anxiety is the report released last week by The Commerce Department showing that durable goods orders jumped 3.5 percent in November as demand increased for a range of goods from aircraft to machinery and computers and electronic products.  Non-defense orders, excluding aircraft, surged 4.5 percent making November’s figure the largest increase since January.  The report suggested strength in manufacturing, which supports the observation made by the Money Anxiety Index that consumers are exhibiting less financial anxiety, thus creating greater demand for durable goods. 

The link between consumers’ financial anxiety and their spending habits has been documented and demonstrated in the newly published book Money Anxiety (moneyanxiety.com), which shows empirically the link between consumers’ level of financial anxiety and personal expenditure. The Money anxiety book also explains why the level of consumer financial anxiety impacts retail sales and bank savings by introducing a newly-developed segmentation method called Behavioralogy, which defines the financial behavior of consumers during various levels of financial anxiety. Behavioralogy identified six types of financial orientations: Mattress Money, Durable Diet, Power Play, Tiny Treats, Rate Race and Castle Craze. 

Overall, 2013 was a good year for the economy. Whenever the level of financial anxiety decreases we can expect an improvement in the economy because less anxious consumers spend more, and personal consumption makes up about 70 percent of the economy.

 
 
Durable Diet is a behavioral economics phenomenon where consumers decrease consumption of durable items, such as computers and electronic products, during times of high financial anxiety, and resume such purchases once the level of financial anxiety subsides.

Novembers’ 3.5 percent increase in orders of durable goods indicates that consumers are easing a little on their Durable Diet, which they have been on and off since the start of the Great Recession in December of 2007.  The increase in durable goods orders in November corresponds to the improvement in consumers’ level of financial anxiety reported by the Money Anxiety Index (moneyanxiety.com). During the Great Recession, consumption of durable goods decreased by 16.3 percent from $1,210 billion to $1,012 billion.  This decrease is the essence of the Durable Diet behavioral orientation, which shows how consumers prolong the use of their durable and most expensive items during times of high financial anxiety. 

The report released Tuesday by The Commerce Department shows that durable goods orders jumped 3.5 percent as demand increased for a range of goods from aircraft to machinery and computers and electronic products.  The report suggested strength in manufacturing, which supports the observation made by the Money Anxiety Index that consumers are exhibiting less financial anxiety in November thus creating greater demand for durable goods.  Non-defense orders, excluding aircraft, surged 4.5 percent making November’s figure the largest increase since January.

The link between consumers’ financial anxiety and their spending habits has been documented and demonstrated in the newly published book Money Anxiety (moneyanxiety.com), which shows how the economy improves when consumers are less financially anxious. When consumers are less financially anxious they spend more and save less, and when consumers are more financially anxious, they reduce their spending and increase their savings.

 
 
A newly-released book, Money Anxiety,explains our financial behavior during good and bad economic times, and shows how we alternate between our instinctive and rational financial behavior.  The Money Anxiety book defines six distinctive behavioral patterns, or behavioralogy, associated with our savings and spending habits during varying economic conditions. 

During tough economic times, which we experienced in the last recession of 2007 to 2009, our tendency to accumulate money in bank accounts stemmed from our instinctive reaction to looming danger, just as our ancestors hoarded food and wood when they faced a risk to their survival.  This financial behavior, defined in chapter five of the Money Anxiety book as “Mattress Money”, is the reason bank deposits accelerated during the last recession, and reached a record high of $10 trillion despite meagre interest rates.  Once the economy starts improving, our financial decisions gradually became less instinctive and more rational.

Our spending habits also alternate between instinct and rational according to economic conditions.  During tough economic times, we tend to instinctively reduce large expenses and spend only on necessities such as food closing and personal care.  This behavioral pattern, defined in chapter six of the Money Anxiety book as “Durable Diet” shows how In the first year of the last recession, December 2007 to December 2008, automobile sales in the U.S. decreased by 29 percent — from $68.2 billion to $48.3 billion.  Once the economy started showing signs of slight improvement, our financial decisions became less instinctive, and automobile sales started increasing.

The Money anxiety book also explains why and how our financial decisions alternate between instincts and rational based on the level of financial anxiety.  The book introduces a newly-developed segmentation method called Behavioralogy, which defines the financial behavior of consumers during various levels of financial anxiety.  Behavioralogy identified six types of financial orientations: Mattress Money, Durable Diet, Power Play, Tiny Treats, Rate Race and Castle Craze. 

The Money Anxiety book is available in paperback and eBook formats in all major online booksellers like Amazon, Barnes and Noble, Google Play and iTunes store.  The book is highly beneficial to business and financial people by helping them plan and price their products and services based on anticipated consumer demand during varying economic conditions.