When I was young, I worked in Roxbury Massachusetts. For anyone who knows Roxbury, it is a Ghetto. I still to this day recall ALL the brand new Cadillacs parked in the driveways of all these run down 'shacks', and in the parking lots of the low income housing projects.
Some parts of our human nature have not changed. Just as that generation sacrificed living in a good home in order to drive a brand new Cadillac - the consumer of today still drink their Iced Chai Lattes, even as they live on the streets.
In this post, I want to explain just some of the ways that the *new* consumer 'Cheats'. These are a few reasons why the consumer is still alive and well even in the face of 15% + (Actual) unemployment.
1) Take an example of the average Joe in a $300k home that has just been forclosed on. Where he likely had been paying a $3000 per month mortgage, he is now more likely paying $1500 a month in rent. Most of that $1500 difference is disposable income. Likely, some pays down the debt he did not default on, and the rest goes to buy a new flat screen TV, or Starbucks coffee habit.
2) Jr. moves back with his parents. Now junior might not be buying a new flatscreen to use with his new Xbox360, but since mom and dad are paying his biggest expense (rent) - ANY income is free and clear to feed his bar and restaurant bills.
3) Don't want to move back in with the parents (or more than likely they don't want you)? Just cash the monthly check that they send to you...after all, mom and dad's of the largest populous (baby boomers) are largely retired, and likely have 100's of thousands, or millions in mutual funds, 2nd homes etc. They LIVE to give to their children.
4) Speaking of demographics, many of those baby boomer's parents are at that ripe old age where one dies. All that inheritance money can go a long way.
5) Laid off? Credit shut-off? Time to pick at those six figure 401k's and IRA's. Doesn't matter that there is an early withdrawal penalty - after all we have been taught to consume for many decades.
Old habits don't die fast, they play out over time. I am not saying this is a healthy, nor a sustainable method for consumption. But just like in that Ghetto, people will want to look good, want to consume at any cost. The aforementioned is just some of the methods being used now days.
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