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Economy Scoop: April 10, 2024

More people are falling behind on their credit card debt at an alarming rate. According to a report from the Federal Reserve of Philadelphia, US credit card delinquency rates ended in 2023 at the highest level on record going back over a decade. Nearly 3.5% of all credit card balances were at least 30 days overdue. Accounts more than 60 and 90 days past due also climbed. About 10% of credit card borrowers carry a balance of over $5,200. 

The main problem is the rising cost of living. When adjusting for inflation, credit card balances are still below 2019 levels.

FAQ: How can I limit my spending?

The three secrets to spending less and saving more are creating a budget, trimming non-essential expenses, and automating.

Creating a budget isn’t necessarily about tracking every single dollar. Even reviewing our expenses once to establish a baseline budget provides us with a framework for spending decisions. If we know we’re trying to limit our dining out budget to $300 per month, we might be more likely to suggest a more affordable date night at the end of the month.

We also love finding easy wins. One thorough review of our monthly expenses can reveal hidden recurring subscriptions we don’t need or bills we might be able to negotiate lower. Some apps help identify these things more easily.

Finally, automation is the greatest tool for building wealth. We can hide money from ourselves by automating transfers directly from our paycheck account into different savings accounts for various purposes. If it’s in the spending account, it’s more likely to be spent.

Economy Scoop: April 15, 2024

The market slumped on Monday as investors worried about the escalating conflict between Iran and Israel.

The strong consumer retail spending report also fueled fears that inflation will remain high and policymakers will refuse to make borrowing cheaper anytime soon.

First-quarter reports from the financial industry have been strong so far, an encouraging sign for the broader economy.

FAQ: What exactly do Wall Street banks do?

Wall Street bank business models can be opaque and confusing. They mainly earn revenue from lending, managing investments, executing trades, and brokering corporate deals.

The traditional banking business model entails taking deposits, paying some interest to the depositor, and lending that money to someone else at some higher interest rate. Banks profit from the spread between the rate they pay the depositor and what they earn from their loans.

Investment banking isn’t actually the investing arm of the bank. Investment banks assist companies with large transactions, earning fees for their advice. In the same way that a real estate broker earns a commission for helping sell your house. Investment banks earn a hefty commission for helping you value and sell your company to other companies or the public (IPO).

The investing arm of the bank is called asset or wealth management. These divisions earn fees to oversee clients’ money, provide advice, and invest on their behalf.

Economy Scoop: March 28, 2024

The US economy actually had a good year last year, even if it might not have felt like it. In a revised update, the Commerce Department reported real Gross Domestic Product (GDP) grew at a 3.4% annualized rate in the final three months of the year, down from 4.9% in the third quarter but way better than economists predicted. The economy grew 2.5% throughout 2023, which is around average for the US.

Americans spent more, and disposable income shot up, even after accounting for inflation and taxes. Businesses exported and invested more, and the government spent more.

FAQ: What is GDP, and why does it matter?

Gross Domestic Product (GDP) is how we track how much stuff the economy is producing. The actual number (~$27 trillion) doesn't matter as much as the direction and magnitude. We track the growth rate of real GDP (inflation-adjusted) to know whether the economy is expanding or contracting from the previous quarter.

The reporting style can be a bit confusing. The main number you hear will be an annualized growth rate (+4.9%), representing how much the GDP would increase/decrease if the economy hypothetically grew at that rate for an entire year. It's different from how much our production increased/decreased quarter-to-quarter (+1.2%) and not representative of the growth/decline over the past year (+2.9%). Annualizing the past quarter’s change makes the backward-looking number a little more forward-looking.