Today a report from the Commerce Department shows that personal income fell 1.4% in June. This is not terribly surprising, since unemployment sits at 26-year highs and we are still struggling out of a recession. What did surprise me, however, is that spending went up. Sure, inflation meant that the spending rate fell (it’s impossible to keep track of all these convoluted numbers), but the idea that spending increased even as personal income fell is somewhat troubling. That’s right: We’re making less and spending more.
Also interesting: The savings rate in June fell. While Americans might have changed their savings habits to accommodate recession, it appears that — for some at least — the change is only temporary. With signs that economic recovery might be coming, and with people beginning to feel a little more financially secure, it appears as though things may be sliding back into business as usual. Which is not a particularly good thing. One would hope that we as a society have learned some valuable lessons from the financial crisis and the recession. Lessons that include such tried and true personal finance basics as:
- Spend less than you earn.
- Build up savings.
- Plan for the future.
- Limit your purchases.
- Pay down debt.
- Provide a contingency plan and financial safety net.
We will see as the months progress whether or not these lessons have been learned. Or whether we are falling back into the same financial cycle — one that will repeat itself with even more catastrophic effects down the road.