1,072 people respond: “Are you spending less because of a possible recession?”

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1,072 people respond: “Are you spending less because of a possible recession?”

25 comments — written on February 1st, 2008

[RSS readers, click here to see the slideshow in this post]

Earlier this week, I took a survey on whether people were spending less because of a possible recession. In just over a day, I got 1,000+ responses (like my earlier research on women and gender). I have very low standards, so two successes is enough for me. Today, I’m announcing that I’ll be doing regular surveys on interesting personal-finance topics. If you have an idea, just add a comment to this post. You’ll have access to a large user base and professional analysis. Basically, I’ll do all the work!

Before I present the data, I want to give a huge thanks to Rob Rubin, who’s helping with the analysis. He’s got a great suite of products:
1. First, search FindABetterBank to find banks that match your criteria (high-interest, online, local ATMs…)
2. Once you match, use BankSwitcher (”Switching banks is hard…we make it easier”)

Rob is so great that last night around midnight his time, I pointed out that he was missing my favorite checking account (the Schwab checking account). By 9am this morning, he’d added it to his database. Please check out his sites — they’re extremely useful.

Without further ado, here are the results of this week’s survey! [RSS readers, click here.]

Slide 2 — Women and baby boomers are most worried about a recession.
Slide 4 — Most people have reduced their spending by less than $50/week, but 14% have cut spending by over $100/week.
Slide 6 — Restaurants and recreational expenditures are likely to be hit hardest by lower spending.

—

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[Too small to read? Click here for a larger version]

What questions would you like to see in future research? Leave a comment here.

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25 comments

Leave your own

1

February 1, 2008
Eric Poulin

I’d love to hear answers to the following :

When I want to buy something, I…
a) save the money first, then buy it
b) don’t buy it because I don’t have enough disposable income
c) buy it on credit or borrow money from a friend

Do you pay off the credit card balance monthly? (yes/no/usually)
How many credit cards do you own? (1,2,3,4+)
2

February 2, 2008
baddriver

findabetterbank.com and bankswitcher.com are both down.
3

February 2, 2008
James Barton

Mr. Sethi,

Do you think these changes in spending could be accelerating us into a recession?

James
4

February 2, 2008
Matt

Neither link to FindABetterBank or BankSwitcher are working. The sites seem to be down…

Do you have an alternative link?
5

February 2, 2008
Ramit Sethi

Thanks for letting me know the sites are down. Rob is aware of the problem and working to fix it now (Saturday, 9:17am).
6

February 2, 2008
Ramit Sethi

Update, 9:28am: The sites are back up.
7

February 2, 2008
rob rubin

The site is back up. Sorry for the trouble.
8

February 2, 2008
Stu

The slideshow is impossible to read; the text is just too small.
9

February 2, 2008
Vic Maurer

Hi Ramit,

What I would be most interested in seeing is some sort of analysis that relates fear/confidence ratings about the looming recession versus what their regular money habits look like. The slide results tell us how habits have changed because of the prospect of recession, but not how regular habits relate to consumer concern.

So for those that are confident that the recent downturns are not a threat to their overall financial picture, what have they been doing to begin with and how have their habits changed versus those who feel concern about their financial picture because of the threat of recession. I wonder if confidence ratings would align with the extent to which readers are following financial best practices identified on this site and others.
10

February 2, 2008
Lucy

I don’t really want to be that data geek who just jumps in to pick apart the survey, but I’m feeling hard pressed not to offer just a wee bit of advice, since you do have a professional analyst putting his good time towards the number crunching.

If you are trying to get info on changes in people’s behavior, adding in another question or two might give you more thorough, interesting and possibly unexpected data. The initial question, “Has recent news of a recession made you reduce your spending?” is actually two questions. 1. Have you reduced your spending, and 2. Is it because of recent news of a recession?

Wouldn’t it be interesting if you found that, for example, 70% of respondents had reduced their spending in the last three months, but only 50% of those who said yes attributed it to news of the recession? Wouldn’t you be curious why that other 20% reduced spending in this time frame – and if it was related to the recession in a different way? Ie. maybe a person reduced their spending because of the direct effect of the interest rate cuts or stock prices on their assets – that person might not attribute this to ‘news of a recession’, although it is related. I realize these surveys are expected to have a biased sample, and just give some interesting illustrations of your readers’ experience and choices, but your quantitative data won’t mean much if you are inadvertently losing respondents with relevant experiences at question 1.

It’s hard to control for how people might interpret your questions – breaking down a “what/why?” issue into a few simpler questions can help illustrate those issues you couldn’t have predicted, or provide more specific data on what is affecting people’s behavior.

/lecture
11

February 2, 2008
moom

I suspect this is because the younger respondents have only experienced the very mild 2001 recession if that. The older people are the worse the recessions they have experienced.
12

February 2, 2008
Working Dollar

The last ingredient that always put the economy into a recession is 2 quarters of increased unemployment. That being the case, people are often forced to spend less. Those that spend less tend to fear job loss and so they gather rather than spend.

If spending drops at drastic levels for 2 more quarters after a recession has occurred, coupled with two more quarters of of further umemployment, we hit what is called a “trough” in the economy. This is the point where people tend to stop spending at near alarming rates. The last time the economy was hit this bad was back in 1978.

Just adding a few facts to your research, not trying to be a naysayer.
13

February 2, 2008
Jean

The surveys are interesting to take and to read, so I’m happy to hear more are planned in the future. I have a three items that could be areas for improvement on the next one.
1. I’m not a numbers person. That’s why I like your blog; you always provide anecdotes and language that makes me better understand the reasoning behind the numbers. So, in addition to simply showing the quantitative results, I’d love to hear your opinion (and maybe other opinions) on why the results are the way they are. In this survey, I especially liked hearing the quotes from those surveyed.
2. I completely agree with Lucy’s comment: I answered no, but the truth is, I’ve made cuts to my spending for reasons other than the recession.
3. Sort of related to my second item, but what about those that responded no? Are they being foolish?
14

February 2, 2008
Justin

So I checked out your links to a better bank, but with all the things I checked it came up with one ETrade Bank, which has an annual fee of $180. I thought I’d give it a shot because I got annoyed at my bank this summer when I tried to apply for an overdraft protection plan for $250, and was declined because I didn’t have enough annual income as a student…but wait, they said, you can get a credit card! I told him I wanted a $500 limit on the card, but when I got I found out it actually had a $1000 limit. How nice of my bank to be able to strap me with another way to go into debt that I didn’t want to begin with.

On other fronts though, I’ve had success with your comments about how to get your bank to remove overdraft fees, so thanks again for that!
15

February 3, 2008
rob rubin

Justin, our research at FindABetterBank indicates that E*Trade charges $5 for every $100 of overdraft — clearly a bad choice for anyone who fears their balance may fall below $0.

If you’re concerned about how much credit you’re being given, I would recommend finding a bank that enables you to link a savings account for overdraft protection (most do) because if you have a $500 overdraft line of credit, that $500 less another lender may be willing to extend to you.

In my opinion, linking a credit card account for overdraft protection is a bad idea because it’s usually treated as a cash advance — which carries a lot of fees and higher interest rates.
16

February 3, 2008
toment

My comments are in response to Jean’s question about those respondents who answered “no” to the basic question. I’m one of those respondents and I don’t consider myself financially foolish—actually quite the opposite. I answered no because I already maintain a significant cash cushion in a high yielding money market fund to cover economic downturns, unexpected expenses, temporary job loss, etc. I also fully fund my 401k at work, fully fund an IRA, contribute to a variable annuity, and invest in taxable funds EVERY month. I’ve been doing all this for over 20 years. I also pay my credit card bill in full each month and track ALL expenditures by category so I know what I have and where my money goes. To me, people who do not do all of these things each month are the foolish ones.
17

February 3, 2008
GenKreton

Some people seem to be assuming younger people are not as worried about a recession as the older crowd because they have not experienced one. However, I, as a young person, must contend that many of us don’t fear a recession because our expenses are quite minimal in comparison.
18

February 3, 2008
What I've Been Reading (2.3.08) | Schaefer's Blog

[...] Ramit Sethi ran a very interesting survey looking at: “Are you spending less because of a possible [...]
19

February 4, 2008
LivingBelowMyMeans

My question is, why do people have to adjust their spending in the first place? If people were wiseenough to control their spending so that they weren’t living beyond their means, then “recession” wouldn’t be such a scarey word.
20

February 4, 2008
The Penny Saved

Thats a good point LivingBelowMyMeans but I think there is something deeper than that going on. People don’t fundamentally understand WHAT a recession is. For most people it is something that looms ahead and is scary. How many people really understand what a recession means? 10%? 20%?
21

February 4, 2008
Laura

Thanks for posting the results up. I’m in the same boat with Lucy and Jean. We’re cut down on some expenses to save for a down payment on a home.
22

February 5, 2008
CFA Level 1

Interesting results. Thanks fro putting these up.
23

February 5, 2008
Jessica

I would love to see a survey about cash sweep options people are either forced or have chosen to accept with their brokerage accounts…looking today I can find information on several brokerage firms and some sweeps go to a bank…others money markets (if you meet the minimums)…some just earn interest while idle…but the rates range from 0.10 to nearly 3 or 4%…all automated…which sounds so easy…but I think are popular with investors (if not forced) during this “down time”. Thank You
24

February 6, 2008
Darrin

I’ve adjusted my spending for fear of a recession, but have put the money I’ve saved directly towards paying off debt in case things get really bad.
25

February 7, 2008
Smith

A good budget, living below your means, and planning make it where you don’t have to change much of anything when the markets turn. Having adequate savings (in cash), and multiple income streams protects you from living a fear based life.