When Times Are Tough, Americans Spend Anyway

Consumer confidence may be down this summer, but it hasn't really diminished the American Shopper's desire to do (and acquire) some neat stuff. I read a very interesting article over on CNN regarding our spending plans over the next few months. Here are a few excerpts:

Nine out of 10 Americans said they are cutting back expenses or discretionary spending at least somewhat because of the current economic conditions; according to a recent study from market research firm GfK Roper Consulting.

Only 11% of Americans believed it was a good time to buy things they want or need, down from 16% a year earlier.

Here's the interesting part(s):

Many Americans are leaving the car in the garage and staying on their living room couch. A whopping 50% of Americans plan to buy an HD or flat-panel TV in the next year, the study showed, with little difference between those who are hardest hit by the downturn and those who are not. Cable and satellite TV subscriptions are also way down the list on cutbacks.

Even in these tough times, 59% of Americans plan to take a trip of 100 or more miles in the next six months - only slightly below the 61% average of recent years.

But that doesn't mean they haven't changed their plans. To grapple with the rising cost of fuel, many consumers are opting for trips closer to home. This year, they may be packing up for Epcot instead of Europe.

First, my statistics training raised a flag—50% of Americans plan to buy an HD or flat-panel TV? It sounds a bit sloppy—50% of those polled probably said that, but I think that's about as far as it goes. The travel numbers and behaviors are probably legit though. Despite the high cost of fuel, people are (hopefully) saving more and watching their spending more closely.

And I guess I need to step my game up—I haven't had the 'Well, I guess we can't make a yearly European tour this year' conversation yet. But, I think these little studies do show that there is a segment of the country that is still finding ways to enjoy themselves—many are just finding better ways to do it.

Will You Be OK If Your Bank "Fails"?

If you haven't heard, a major West Coast bank IndyMac has been taken over by the government. There has been a small panic as many customers made a "run" on the bank--meaning they withdrew large amounts of money at once. Most banks cannot sustain such a large withdrawal amount over a small time period.

Not long ago, when banks failed, they went away. In today's age, the government tries to stem public panic by taking over the bank when it fails. Usually the FDIC (Federal Deposit Insurance Corporation) sends officials to assume the roles of executives (like CEO, CFO, etc) until the government can find another bank to purchase the assets of the failed bank.

You may be familiar with the FDIC--this is a government-run insurance corporation. Usually they have a sticker on the outside of your local bank, assuring that your accounts are insured up to at least $100,000. If you have an IRA (Individual Retirement Account) the government bumps it up to $250,000. There is also a lesser-known SIPC (Securities Investor Protection Corporation) which insures any stocks, bonds, CDs, etc up to $500,000.

So what does all that mean to you? Well..

It's time for this weeks episode of 'What Do We Learn'?

SCENARIO 1
Let's say you have $400,000 in cash in one account at JustTrustUs (JTU) Bank. If you're a regular reader here I don't know why you'd do that, but follow me. If JTU fails and is taken over by the government, how much money would you get back?

If you got the same deal the IndyMac customers got, you'd get $100,000 + 50% of the balance--in other words $100,000+($400,000-$100,000)*0.5 = $250,000. So you won't be starving, but you'll be out $150,000, which is nothing to sneeze at.


SCENARIO 2
Let's say that instead you take your $400,000 in cash and take half of it out of JTU bank and you deposit it into GiveusSome (GUS) Bank across the street. Now you have $200,000 each in JTU and GUS. Now what happens?

If only one bank fails (JTU):
JTU (failed) will give you 100K + (200K-100K)*0.5 = 150K
GUS (OK) will still have: 200K
You now have 350K!

If both fail:
You'd have 300K (through similar math).

So basically, you save 50-100K of your money by simply splitting. Not bad, but you can see where we are going here. If you have large amounts of cash and don't want to invest it, never have more than 100K in one account in one bank. Spread the wealth across several banks. With securities that you have invested, you should talk to your account holder about splitting the account if you are worried that it will fail --but be assured that established national companies most likely (emphasis on most likely) will not fail.

What do we learn?
- Never keep more than $100,000 in cash in one bank.
- Be cautious when keeping millions of dollars in one mutual fund or IRA.
- And if you have significantly less than 100K, let alone in one bank..relax, you're insured.

About Those Stimulus Checks...

Word is coming in on how the stimulus checks are doing—

Wal-Mart and Costco has good news to report:

Wal-Mart Stores Inc. and Costco Wholesale Corp. led U.S. retailers reporting higher June sales as shoppers facing soaring gasoline and food costs used federal tax rebates to buy discounted clothes and groceries…



Certainly the stimulus checks gave consumers additional money to spend,'' Britt Beemer, chairman of America's Research Group, said in an interview. ``Consumers are buying the deals. If retailers offer consumers great deals, they'll go out and shop for back-to-school. If they don't, consumers won't.

So consumers indeed are spending those stimulus checks, but many are saving them for worse times as well and are paying off debt.

Some households apparently used tax rebate checks to pay down debt and help offset rising costs for food and fuel, Federal Reserve Bank of Richmond President Jeffrey Lacker said on Tuesday…He said that anecdotal evidence indicated that workers were "putting their checks to paying off ... some credit card debt," adding: "It will take until next year before we disentangle (this)."

But before you go on thinking that we Americans are all high-brow and responsible, there have been other areas where a significant amount of those stimulus checks are going:

Adult entertainment Web sites began seeing a spike in business shortly after the first wave of checks went out in mid-May, according to Adult Internet Market Research Co., a New York firm that tracks the adult online world…Thirty-two percent of respondents referenced the recent stimulus package as part of their decision to either become a new member or renew an existing membership," said Jillian Fox, a spokeswoman for LSGModels, the company that tipped off the research firm.

Even in a period of near-recession in the America, there's always time for entertainment.

Happy 4th of July!

We're on break at Wealth Weekly. Please have a safe 4th and don't spend too much on firecrackers! Aww...go ahead--it's the 4th! I kid of course. (Or maybe I'm not).