We’re good at spending; it’s paying that needs work

Recently, I posed this question to a group of business students: What is it that we do well—what sets the U.S. apart from the rest of the world?

Establishing a feel for competitive advantage is always a great way to introduce economic principles. I expected answers as diverse as agriculture, aerospace, medicine and technology.

When the first student to respond exclaimed, “we’re good at consuming,” I had to rethink my question and then admit that this is one of the driving forces in our economy deserving of deeper reflection. The comment fully derailed my lecture.

No question. Consumerism is alive and well in the U.S. And today we’re the tail end of the busiest extended shopping weekend of the year.

Unfortunately with the convenience of making purchases by credit card, this is also a weekend that can get many consumers into deep financial trouble.

Black Friday: The term for the Friday following our Thanksgiving holiday was coined years ago, as retailers reported it would typically be the day or weekend that the business moved from red ink (operating at a loss) to black ink (profitability) in their financial statements.

Heavy advertising, blockbuster deals and amazing buildup to the sales are commonplace. Most retailers offer door-buster specials and limited quantities of loss leaders. Do these actually work?

Absolutely! News reports circulate about shoppers camping out in front of stores days ahead of the big event, often selling electronics and computers and incredible price points (limit 5 per store — and, one per customer, please!)

Small Business Saturday: A newcomer to the frenzy, it’s the Saturday in the aftermath of Black Friday. Small business retailers were feeling the squeeze, finding it difficult to compete with all of the big box advertising and attention to mega retailers.

So American Express, the U.S. Small Business Administration and the Commerce Department teamed up several years ago to inspire and promote consumer attention to the little guy.

Cyber Monday: Today brings to a close this consumerism circus. There’s a new generation of consumers engaging in the marketplace where brick-and-mortar storefronts are giving way to the emerging virtual storefronts.

Digital technology has changing the game for consumers who are now armed with more information through use of their desktops, tablets and smart phones. Online sales, powered by local giant Amazon and other leading websites are certainly establishing a trend that continues to grow.

Yes, consumerism is alive and well, which is great news for retailers. Soon we will hear the early returns, much like during the election season on how the trends in holiday spending are shaping up compared with much-anticipated projections.

Regardless of how you elect to participate in the dance with retailers, there is an important lesson to be learned. Don’t buy if you can’t afford it. That’s the advice I’ve given my kids growing up. It’s the advice I give my students.

The dark side to all this spending, and consumerism in general, is that we’re buying far too much on borrowed money. In other words, we can’t afford it, but we really want it.

The significant personal debt that Americans are burdened with today must be addressed since our capacity will eventually be choked off by the cost of servicing the debt through interest payments.

In class, I opened the U.S. Debt Clock website for a teachable moment. The website runs real-time data on our national debt, consumer debt, along with many other relevant economic indicators including unemployment and entitlement spending.

Two of the numbers I wanted the class to observe were first, that U.S. consumers are carrying $843 billion in credit card debt. Secondly, student loan balances have ballooned to an all-time high in excess of $1 trillion. Students need to know this.

When all the dust settles following the holiday shopping, travel and family entertainment, what will your January credit card statements read? Will they signal a new high in terms of debt you now agree to service—or will you be able to pay off each credit card statement in full?

My definition of affordability is quite simple. If I can pay off all credit card purchases in full when each statement arrives, then I am able to afford it. Otherwise, I need to be able to say no.

Go to www.usdebtclock.org to see more data points on our economy.

Juergen Kneifel is a senior associate faculty member in the Everett Community College business program. Send your comments to entrepreneurship@everettcc.edu.

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