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Consumer Debt and Responsible Spending

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Statistics released by the Federal Reserve suggested that the level of consumer debt stabilized throughout 2009, amounting to an estimated sum of nearly $2.5 trillion. To help comprehend these figures, this amount equates a consumer of debt of just less than $8,100 for every single individual citizen in the US.

Despite showing signs of steadying, this level of consumer debt is still a sharp increase on the figures reported at the turn of the century. What is interesting is that despite the continuing growth in debt and financial burden, consumer spending continues to rise sharply and out of proportion to inflation.

Is it Easier to Source Credit and Financing?

In 2000, an approximate sum of $585 billion was spent on consumer transactions. The figure by 2007 had risen to $841 billion, a staggering increase of over $200 billion. The largest increase was seen in video and audio equipment along with computer games and consoles, and even allowing for rates of inflation and subsequent salary increases, this escalation in consumer spending remains steep and bewildering. The question that these figures pose is how consumer expenditure can and debt levels rise in a way that it is completely disproportionate to a typical household income?

A possible answer can be found through the breakdown of consumer debt figures. From the 2009 statistics, 36 percent of consumer debt consisted of credit card debt, and this trend has been reflected for several years of financial spending. The main issue with credit and credit card usage is that, during periods of economic prosperity, major lending companies are far more likely to issue credit to applicants, an activity that does not pose a problem when financial growth is prominent and consumers have job security. However, as economies suffer recession or sector job cuts, this accrued debt becomes harder and to repay and leads to additional interest repayments due.

The lines between economic prosperity and decline are blurred throughout the beginnings of a recession, so ultimately consumers continue their established spending trends before they are aware that there is an issue. Therefore, although spending rises with economic growth it does not necessarily fall with recession, with the inevitable consequence of incurred debt and financial burden for the consumer. This cycle displays an alarming lack of financial awareness from lenders and debtors alike, and an irresponsible attitude from both parties with regards to wealth distribution.

Creating Financial Awareness and Skills

The average consumer in this scenario is guilty of little more than naivety. The current consumer debt level is the result of little more than a lack of financial awareness on behalf of the debtor, and a failure to comprehend the core principles of economics. Economies are known to traverse the boundaries of prosperity and decline through distinct periods of time, a concept often referred to as boom and bust. Unfortunately, the evidence seems to suggest that a consumer is more likely to spend their cash more freely in times of financial affluence, and not allocate or save their cash wisely as a safeguard for the inevitable period of hardship. While a large portion of the responsibility must rest with the consumer, governments also have a responsibility to ensure appropriate teaching for their citizens and implement regulations for their lending bodies.

There is a growing argument for schools and educational bodies to teach financial awareness and planning to their students, and include such programs in the core of a learning curriculum. Surveys and research have revealed that over 90 percent of teaching professionals believe that a program of this type should be taught in schools, in order that the next generation of adult consumers should be equipped to spend and borrow money responsibility. It is hard to contradict this theory, especially given the dangers of learned behaviour and children adopting their parents spending trends and strategies. By ensuring that young teenagers and students learn about the realities of the economy in addition to economic basics and principles, then the issues of reckless consumer spending and inflated debt should diminish over generations.

While improving the education and the financial awareness of young citizens, the government can create a long term resolution to spiralling consumer debt. However, short term action many also be required to create equilibrium between consumer spending and income. An example of this would be to tackle lending bodies and procedures, by imposing legislation to regulate the conduct of such organizations. This would not only apply to restrictions on who can source credit or loans, but help to ensure transparency in the lending options and interest rates that a lender offers. The concept of more stringent legislation would also reduce the role of credit collection agencies and bodies, who often purchase outstanding debts from lenders at a fraction of the original value, but still request the full amount from the consumer by using questionable methods. Though suspect, this conduct is entirely legal in modern society.

National and Individual Responsibility

The current level of consumer debt and spending is disproportionate to income, and the discrepancy between these two elements has become wider through this decade. This is an issue that needs to be tackled, to maintain a certain consistency in economies and also each individualโ€™s financial well being. Responsibility is the key word, with consumer and governments required to accept individual and collective accountability for their own part in maintaining financial stability. For governments, this entails taking a pro-active attitude towards economic education and its countries lending bodies, creating a society of financially aware consumers served by legitimate credit companies. For the consumer themselves, it requires them to budget their disposable wealth and spend responsibly, therefore creating a contingency sum for inevitable periods of economic distress.


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Navaid I. Syed is the owner and CEO of www.ExcitingAds.com / ExcitingAds! Inc. He is a medical doctor and was born in Mirpurkhas, Sind, Pakistan, on July 31, 1964. He graduated from Liaquat University of Medical and Health Sciences, Jamshoro, Sind, Pakistan, in 1990. He is Educational Commission for Foreign Medical Graduates, Philadelphia, PA, USA, certified.

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