Wednesday, May 4, 2011
Consumer Stages – Which are You?
I was laying in bed this morning thinking about consumerism. The fact that each and every one of us is a consumer. The reality is that it is something from which we can no longer get away. There are very few people in the world, let alone America, which consume only what they themselves have produced. How has this consumerism affected us and what type of consumer are you?
Understanding the stages of the consumer and which one we spend our lives in will tell us what our financial picture and outlook is. Below is a picture of the Consumer Stages on a line graph, this is done primarily because we do not stay in one phase all the time. We move back and forth. Yes, we may spend the majority of our time in one or two stages, but we will still move back and forth.
The four stages, as stated above, are Consumer/Debtor, Consumer/Consumer, Consumer/Saver and finally Consumer/Investor. In each phase the type of consumer we are depicts the type financial condition we either are in or what our future financial condition will become.
Consumer/Debtors are the individuals who are not Money Conscious. They basically have no idea where their money goes, how much they make and are primarily focused on consuming just to have. They are often reckless with their spending and are accumulating debt beyond what they can pay off in the short term. This is the stage that many Americans found themselves in during the hay days of the housing boom in 2002-2006. They usually carry a revolving balance on their credit cards for years, rarely seeing the balance drop, while keeping up with the minimum balance payment.
Consumer/Consumers are individuals that have a slight grasp on what money is and what it can do for them. Typically this individual is focused on things, but understand value and how spending less on one item can help them purchase another more desirable item. They may focus on coupons and sales, knowing that the money saved can help them buy the new shoes or golf clubs they want. The fact remains; they are still consumers and may move back and forth between Consumer/Debtor and Consumer/Consumer. They typically do not carry over a balance on their credit cards for extended periods of time.
Consumer/Savers are individuals that are focused on getting a good deal and how they can set aside a little money. Like the previous two stages, they are focused on consuming, but are able to cut back or are conscious enough about how much money they make so that they have a small emergency or rainy day fund. They rarely, if ever, carry a credit card balance and are able to make large purchases with money saved rather than going into debt to do this. These savers live within their means, knowing that the money they set aside will allow them to enjoy future purchases.
Finally we have the Consumer/Investor. At the far right end of the spectrum, the Consumer/Investor is rarely focused on consuming. Investing is their focus and consuming is the byproduct of their investing. These are individuals who, at some point in their lives, realized they could live off of their investments. They spend their time and effort putting their money to work for themselves. Yes they still are consumers, but at some point in their lives their consumption was focused on buying things like property, art, cars, homes and other tangible items that would give them a return on their money and are not just consumed. In addition, they purchase items with the intent that the money they save will be used for additional investments and not just on buying more stuff. These are the individuals that eventually reach the definition of wealthy.
As mentioned above, the stages are not separate and distinct. We move back and forth between them. But the question we need to ask ourselves is in which stage do I spend the most of my time? For example, we have friends who, in the rush to not miss the market, purchased homes well beyond what they could afford. They were Consumer/Debtors, at the time. Because of this costly mistake and the integrity to pay for what they purchased, they now find themselves house poor and are stuck in Consumer/Consumer or even falling back into Consumer/Debtor all so they can keep the house they cannot afford. Their house now owns them, rather than them owning their house.
For those of us focused on paying off debt, our focus should be to stay in the Consumer/Saver stage. This will allow us to keep paying off the credit balance, which in a sense is saving. But ultimately, all of us should strive to glide between Consumer/Savers and Consumer/Investors.