We keep hearing reports that the economy is recovering, more jobs are being created and the housing market is rebounding. That is all great news. So, why are so few people spending money and donating to charities?
It may come down to cautiousness. After a long recession, people are less likely to run out and spend a ton of money. They worked hard to cut back during the lean times. A more austere, modernist type of style reigned during the recession. It became cool to save money, cut back, recycle and pare down.
“The ‘wealth effect’ isn’t what it used to be…This refers to households’ tendency to spend some part of their increased real estate and stock market wealth and thereby boost the economy. During the boom years, Americans borrowed lavishly against rapidly appreciating home values. One Federal Reserve study estimated the extra cash at $700 billion annually from 2001 to 2005. Now psychology has changed. Careless optimism has given way to stubborn cautiousness. Wealth gains don’t translate into similar amounts of higher spending,” says a Washington Post article.
So, what gives? Many people are still trying to recover. While housing prices are rising, some people still have not gotten the price of their home back to what it was before the recession hit. Prices are up 12 percent, but still down from the 22 percent of the 2006 peak. They are recovering lost ground.
Taxes also continue to rise. That means less money is left over after taxes to give or spend. The cost of living is going up and paychecks do not always match up. With even less money left over, Americans will find it harder to give their money away to charity.