As 2020 drags on, people all across the U.S. are taking stock of their assets, debts, and cash. With unemployment rates soaring and instability at every turn, Americans have begun conserving cash and paying off as much debt as possible. Economists have observed these trends and speculated as to the impact that shrinking credit card debt, mounting savings, and severely cut spending will have on the economy. While minimizing expenses makes sense for individuals and families trying to navigate this pandemic, some have expressed concern at the impact of reduced borrowing and spending on businesses.
Americans Have Curtailed Borrowing and Spending in 2020
With sweeping closures and tanking demand in a variety of industries, many Americans are finding themselves unemployed, underemployed, or concerned about the future of their jobs. This kind of financial insecurity is unprecedented for some, and as a result, individuals are conserving money. Many Americans are paying off their debts in preparation for future unemployment. This, paired with reduced credit offers on the part of lenders, has led to a record drop in borrowing. According to a report released by the Federal Reserve in May of this year, the percent change in the annual rate of revolving debt plummeted by nearly 31 percent in the month of March alone. This is the largest drop over a single month since 1989.
The Impact of Reduced Spending on Businesses
While saving money and paying off debt makes sense for individuals in a variety of financial circumstances, the mass shift in spending habits and borrowing has the potential to impact institutions at nearly every level. Companies of every size are already facing economic hardship due to the pandemic, and the businesses that stay afloat may continue to struggle even after restrictions are lifted by the states. If Americans are still reluctant to spend once businesses reopen, the economy may take even longer to bounce back.
Should Americans Save or Spend?
For Americans who like to keep up with the current goings-on in finance, all of this talk about the impact of increased saving and decreased spending on the economy can be worrisome. This is particularly true for people who know small business owners or who own small businesses themselves. While some news outlets have focused on the drawbacks of mass amounts of Americans decreasing their spending, the decision to spend or save is up to individuals. Supporting local businesses when possible is always a plus, but throwing oneself into massive debt to keep purchasing things as usual may not make the most financial sense. Ultimately, until things stabilize and people become more secure, Americans will likely continue to save as much as possible.
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