Many Americans say the pandemic changed their spending habits for the better, but experts are skeptical it will lastby Tanza Loudenback
Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, but our reporting and recommendations are always independent and objective.
- Surveys show that Americans redirected their discretionary income after restaurants and stores closed and social events were canceled because of the COVID-19 crisis.
- A majority of Americans say they're going to stick with their newfound spending habits, like cooking at home and supporting local businesses.
- While people are decidedly more mindful about spending during the crisis, some experts are skeptical their behaviors will outlast the pandemic.
- Sign up to get Personal Finance stories and tips in your inbox »
The coronavirus outbreak has hammered small businesses and spurred mass joblessness, all the while forcing changes to our normal routines: fewer social events, more homemade meals or restaurant takeout, and virtually no travel. This has all led to a record-breaking drop in US consumer spending.
Many workers privileged to still be earning a paycheck during the economic shutdown have leveraged the shift in routine to reimagine and streamline their budgets.
According to a TD Ameritrade survey of 1,000 Americans, more than two-thirds said the pandemic helped them find new ways to cut back on spending. Most reported a large spike in grocery spending, but a noticeable gap in their budgets once reserved for eating out, going on trips, and buying clothes.
In turn, savings account balances have spiked. And Americans seem confident their habits will last. According to the survey, 64% of Americans said their spending will be permanently changed post-pandemic. Respondents see themselves cooking more at home, tracking their spending carefully, and sustaining an emergency fund. A majority also said they'll likely buy more American-made products and patronize small businesses.
Now, as state and local economies begin to reopen, Americans will be putting their newfound spending habits to the test.
Experts say pent-up demand could drive consumers back to the status quo
"I think a lot of people have focused on supporting small businesses through this time, but honestly, I'm skeptical as to whether this mindset will last when this outbreak fades into memory," Matt Schulz, chief credit analyst at Lending Tree, told Business Insider. Schulz says he expects people to return to their favorite big-chain restaurants, for example, when restrictions are lifted.
While many people are wisely prioritizing savings right now, there is pent-up demand with summer fast approaching, says Bill Van Sant, a certified financial planner and senior vice president and managing director at Girard, a Philadelphia-based wealth management firm.
"I think people want to spend this money and they're going to spend it as soon as they're allowed, they're going to get right back into the swing of things unfortunately — or fortunately, depending on how you look at it. And they're also going to be buying probably big-ticket items like RVs, pools, stuff where they can control their recreation," Van Sant told Business Insider.
Indeed, a survey conducted by CompareCards, a Lending Tree company, found that just over half of Americans plan to "splurge" after the health crisis subsides, with the largest share (20%) saying they're saving money during this time for a vacation.
To be sure, discretionary spending has been paused by the pandemic, not eliminated. People will likely go back to dinners out and shopping, but some of the financial habits adopted in quarantine — being more mindful about how much money is going toward spending versus saving and shoring up cash for future emergencies, for example — is something experts hope outlasts the current crisis.
"I think the best thing that I'm recommending to clients instead of worrying about pinching pennies or worrying about what [the future] may look like is to just focus on what they can control and evaluate their budget," Brian Fry, a certified financial planner and founder of Safe Landing Financial, told Business Insider.
"If you see that you're spending more or too much or you're not maintaining your emergency fund or your needs have changed, then that's where it makes more sense to look at trimming some of the discretionary expenses," Fry says.