A new study from the Money Anxiety Index (moneyanxietyindex.com) reveals that consumers follow a pattern of saving and spending based on their level of financial anxiety.  The study shows that when the money anxiety level is high, scared consumers tend to increase their savings and cut down on spending.  Conversely, when the level of money anxiety is low, consumers feel more financially safe and they tend to increase their spending and reduce savings. 

The latest demonstration of the link between consumers’ level of money anxiety and their spending habits is evident in the December retail sales report, which shows an increase of 0.2 percent over the November, and 4.1 percent over the same month last year.  The increase in retail sales mirrors the Money Anxiety Index, which shows a gradual decrease of 13.1 in the level of consumers’ financial anxiety during 2013.

Consumers’ tendency to hoard money during times of high money anxiety is evident in the comparison between the pre and post Great Recession years.  During the two recessionary years of December 2007 to December 2009, consumers increased their pace of bank savings by $100 billion compared to the two years prior to the Great Recession.  According to FDIC data, domestic deposits grow by $700 billion from December 2005 to December 2007, were as the growth in deposits increased to $800 billion during the recessionary period of December 2007 and December 2009.

The link between consumers’ financial anxiety and their spending habits has been empirically demonstrated in a new behavioral economics book - Money Anxiety, which shows strong association between consumers’ level of financial anxiety and personal consumption and expenditure.  When money anxiety increases, consumers save more and spend less, which pushes the economy into a recession. Conversely, when money anxiety decreases, consumers save less and spend more, which expands the economy.
Human nature has not changed since day one - our ancestors hoarded food and wood when they were scared, and we do the same with our money.


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