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Consumers May Be Spending Money They Don’t Have

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Valentine's Day spending may give context to recent consumer saving trends.During the holiday season, many economists and retailers were enthusiastic about the overall increase in credit card spending, as most saw this as a sign the economy could soon recover.

However, many consumers may have been borrowing funds that they can’t afford to pay back. By over-spending, these cardholders could be setting themselves up for more debt and credit damage down the road.

In addition, many Americans are saving less these days, reversing an upward trend that has been ongoing since 2007, The Los Angeles Times reports. Last December, the rate at which consumers were putting their earnings into savings accounts fell to 5.3 percent, down from the 6 percent observed in August.

“Many people are being very cautious [about their finances],” David Wyss, chief economist at Standard and Poor’s in New York, told the Times. “Whether they’re being cautious enough is the question.”

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Wyss says that while the numbers have changed over the last six months this may be more indicative of a flawed system than a sign that consumers are taking on more debt. For example, he says the methodology used to deduce these percentages often overstates big-ticket items, factoring in the full price of the vehicle rather than the upfront deposit, the news source says.

Another criticism of the system is that it doesn’t factor in real estate appreciation, capital gains and stock holdings and puts too much emphasis on revolving debt – the kind consumers accumulate with basic credit card expenditures, the Times says.

The next big indicator of the overall savings trend could be Valentine’s Day sales. Consumers are expected to spend more than $100 on their significant other over the course of the holiday. If credit card transactions once again show big gains, this may be a sign that consumers are reverting to their old spending habits.

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