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Why Americans are Spending Like Crazy!

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Bad news, everyone. Inflation is still high. January’s Personal Consumption Expenditures price index, the Fed’s inflation gauge, came in at 5.4% higher than a year ago. The Fed will continue to raise the interest rate to bring inflation under control. Despite their best effort, everything is still getting more expensive every day.

However, high prices aren’t fazing American consumers. We are spending like crazy! This will fuel the economy and keep prices high. It’s simple. If demand is high, businesses will charge more. Eating out is crazy expensive, but all the restaurants are packed. Prices will go up.

NPR did a good story on this, but I want to give it a personal take. Yes, the RB40 household is part of the problem. We are going to Disneyland! This trip will cost more than our 12 days vacation in the Maldives. The price is ridiculous, but we’ll do it anyway. See why we are spending like crazy along with many other American families.

Strong labor market

The job market is still very strong. The unemployment rate is just 3.4%. That is super low. It seems like anyone who wants a job can get one. When you have income, you don’t worry too much about spending.

Mrs. RB40 took a sabbatical last year. She loved it but decided to go back to work for 4-5 more years. She still enjoys her work and she likes making money. Her job is secure so high prices don’t really bother her that much.

On the other hand, my income is much lower since I retired from my engineering career. Over the last few years, my blog income has been dropping and I haven’t been able to find a good side gig. I’m a lot more sensitive to inflation than Mrs. RB40. I don’t even want to step out of the house anymore.

Like most married couples, we joined our finances so we have to find a middle ground. Since Mrs. RB40 is bringing home the bacon, her vote has more weight. As long as she has a good income, she wants to splurge occasionally. I’m fine with that. Our passive income is still increasing so that takes the sting off a bit.  

Inflation

Another big reason why Americans are spending more is inflation. Everything is more expensive so we spend more even if we buy the same stuff. Groceries, utilities, transportation, and entertainment are all more expensive this year. We are all spending a ton of money on just the necessities.

Also, Americans want life to go back to normal after being stuck at home during the pandemic. We want to have fun again. I feel the same and splurged on a trip to Disneyland. For the three of us, our 2-day tickets to Disneyland cost over $1,000. The flight to CA during spring break cost $1,600. Two nights at the cheapest hotel near the park cost $500. I’m pretty sure food will be very expensive in the park too. This same trip would have cost much less just a few years ago. The travel and leisure industry is making up for the lost time.

Today, Americans are splurging on experiences even if they cost a lot more. The pandemic showed us that life is short. We only live once so we might as well enjoy it, right? Who knows what can happen next? Besides, RB40Jr is 12 years old now. We want to take him to Disneyland before he’s too old to enjoy it.

The good old days

Disneyland used to be an affordable experience for everyone. My dad took us there when we immigrated to the U.S. in 1986. Each ticket was under $20. Even poor immigrants could afford that price. We visited several more times in the 80s and 90s. Back then, Disneyland was the place to go when you visit California.

Mrs. RB40 grew up in Southern California and visited Disneyland 10+ times when she was young. She was part of her high school band and they performed at the park once or twice every year. They’d play a few songs and get the rest of the day to roam the park for free. Wow, that’s awesome!

Mrs. RB40 and I had great childhood memories at Disneyland and we want our son to experience it at least once. Unfortunately, Disneyland is becoming unaffordable for many Americans. The ticket price has risen more than inflation nearly every year. However, people who visit Disneyland want their children to experience it too. And we’ll pay whatever it cost. Many families will need to save up or put the trip on credit cards, but they’ll do it to relive the good old days.

Fortunately, we’re wealthier now and can afford to splurge occasionally. But this probably will be the last time I visit Disneyland. For the same price, we could have a lot of fun in Argentina, Vietnam, or some other exotic destinations.

Spending like drunken sailors

American consumers have switched from spending money on stuff to spending on experiences. The travel and leisure industry is taking advantage of this shift and jacked up the price. We don’t like high prices, but we’ll still pay for it because we want to have fun now. Why wait? A trip to Disneyland probably will be a lot more expensive in a few years and our son will be too old for it.

As long as the labor market is strong, Americans will continue to spend like crazy. The Fed will need to put the kibosh on the economy to slow down consumer spending.

What about you? Are you spending like drunker sailors too? Or are you smarter than that?

*Passive income is the key to early retirement. These days, I’m investing in commercial properties with CrowdStreet. They have many projects across the United States. It’s been working so well that I’m planning to sell our rental condo so I can invest more. Go check them out!

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Image credit: Bermix studio

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.

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