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Consumers acted in complete contrast in responses to consumer confidence surveys in the first two months of 2015, showing that what people say and what they do with their money are mutually exclusive .  In February of this year, the two leading survey-based consumer confidence indices reported a decrease in the level of consumer confidence from the previous month.  Yet, in actuality, consumers increased their consumption during February by about $12 billion or nearly 1 percent.  That is paradox because consumers spending should decrease with lower consumer confidence.

A similar but inverse scenario occurred in January of this year, when the two leading survey-based consumer confidence indices reported an increase in consumer confidence from the previous month.  However, actual consumer spending in January declined $28.5 billion or about 2.4 percent.  Here, again, a contradiction between what consumers reported to confidence survey and what they actually did with their money during the same month.

The Money Anxiety Index, which is based on what consumers actually do with their money, correctly reflected the financial confidence of consumers during the first two months of this year.  In January of this year, the Money Anxiety Index showed an increase of 0.9 points in the level of financial anxiety among consumers, i.e. lower confidence, which was accurately reflected by a decrease of $28.5 billion in personal consumption.  Similarly, in February of this year, the Money Anxiety Index showed a decrease of 2.5 points in the financial anxiety of consumers, i.e. higher confidence, resulting in an increase of $12 billion in personal consumption.   

The Money Anxiety Index measures consumers’ level of financial worry and stress based on financial activities.  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 is highly predictive.  It signaled the arrival of the Great Recession over a year prior to the official declaration of the recession in December of 2007.   
Dr. Dan Geller is a financial behavior scientist exploring the link between the level of financial anxiety and the savings and spending habits of consumers.  In his book, Money Anxiety, Dr. Geller uncovers the mystery of the financial mind, explaining why we hate to lose more than we love to win and why we spend when safe and save when scared.

 


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