Keeping Up With the Joneses

In 1916, Arthur R. “Pop” Momand debuted the cartoon, “Keeping Up With the Jonseses” in the  New York World.  The comic strip features a suburban family and there are constant references to the illusive Joneses, their nextdoor neighbors, who are never actually pictured, but serve as a benchmark for success.

Data from September 2009 estimates that revolving credit (basically credit card purchases) dropped by 10% to $889 billion as opposed to the $975 billion peak in 2008. Bank credit card debt represented 85% ($710 billion) of that debt. The Federal Reserve estimates that 40% of households spend more money than they earn.

The average credit card APR is 13.71%, a number that has been steadily climbing over the past few months. However, the Fed approximates that 9.55% ($84.9 billion) of those loans will never be paid back, a striking rise considering that the estimate was only 7.85% during the last recession. Though only a small percentage difference, the actual increase is drastic when you are dealing with BILLIONS of dollars.

The good news is that consumers have been spending less – consumer spending only represents 70% of GDP, and monthly debt fell by $10 billion in September. The end of September brought the total U.S. mortgage debt to $2456 billion (excluding home mortgages).

So what does all of this have to do with the Joneses?

Achieving the “American dream” has a plethora of implications, but one aspect that can be agreed upon is the realization of success. Every American, whether a new immigrant or multiple-generation citizen, strives to achieve success. Of course, the degree to which the dream is attained varies greatly between people and their relative personal expectations – some hope to live in a suburban house with a white picket fence, others a penthouse in the Upper East Side.

Many people are not content in knowing their own personal achievements, but attempt to peacock their wealth and success, taking part in “conspicuous consumption.”

I am not saying that there is anything wrong with wanting to live in a big house, have a lucrative career, and go on nice vacations, but it is important to keep things in perspective. Not everyone is destined to live in a $2 million dollar home, regardless if a mortgage company gives to a loan to purchase one. Consumption has been driving the economy, resulting in wealth for many Americans, but consumption has been, in some respects, the downfall of the economy. Many factors led up to the recession and consumers are not the sole culprit, but let’s be honest, overextending credit and over-consumption definitely had an impact on the already delicate situation.

Personal savings may have increased, and as long as there are job cuts and unemployment hovers around 10%, the total consumption will fall, but how long will this conservative consumption persist? It is hard to say, but as far as I can tell, the Joneses aren’t going away anytime soon.