Research Shows Decline in Borrowing Money

Borrowing in America today

Recent research is showing a decline in borrowing money. The Federal Reserve announced that Americans borrowed less for a tenth consecutive month. This marks the lowest amount on the records going back for seven years. It seems that most Americans are getting smarter about credit after the recession taught a hard lesson about credit.

In former years credit cards were thought of as emergency options when people needed money. People stuffed one credit card away for those times when cash wasn’t readily available. Once the recession began, people were surprised at how credit lending companies dealt with them. Many good customers saw their credit limits slashed. Other customers had huge hikes in their interest rates. Still others saw added fees attached to their bills.

The lessons learned on credit

The Federal Reserve reported that total borrowing dropped by $17.5 billion in November, which was much more than projected. In fact, economists calculated the fall of borrowing at only $5 billion. It seems that Americans learned the lesson on credit and new studies are giving reasons for their decline in borrowing. Some are fearful about their job prospects for 2010 and they are trying to replenish savings that were ravished by the recession. It was reported on Friday that employers cut another 85,000 jobs in December and that brings the total job losses in the country to 7.2 million since December of 2007.

Aggressive borrowers have problems too

There are also a growing group of Americans who still want new credit. They are knocking on credit company’s doors asking only to be turned away. Many banks were hit hard by the crisis of the economy and tightened their lending requirements. Even consumers with better-than average credit are having problems getting approved. Economists are worried that if lending doesn’t start happening again, consumers may continue to focus on saving rather than spending. While in former times they were concerned the low savings rates of US banks, now they are concerned that if consumers continue to save, they won’t be fueling the economy. Consumer spending accounts for 70% of total economic activity.

Credit borrowing down

Borrowing money is not like it used to be. Gregory Daco, economist at HIS Global Insight, said, “With consumers facing difficult labor market conditions and tight credit conditions, downward pressures on credit are likely to remain strong and improvements will be very gradual.” The overall drop of borrowing has fallen $17.5 billion, but the credit card borrowing portion of that number is also huge. Studies showed that credit cards fell by $13.7 billion, which is an all-time record decline in dollars. The drop was 18.5% from November, which marks the biggest decline since December of 1974.

Hope for the future

Studies are showing that regulations for borrowing money are not as easy as they used to be and it’s taking its toll on the American economy. Spending is still lingering and even the Christmas season didn’t prove to be as lucrative as retailers had hoped. Research is also showing that the tendency these days is for consumers to focus on bulking up their cash reserves and that is also hampering spending. Only time will tell when people feel comfortable enough to return to their old ways of spending, but economists are hoping it is soon.

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