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This wall has the purpose of explaining the Importance of consumer credit on economy. Utilizing many websites and other media, the goal is to provide this information in a way that is easy to read through and have better understanding of the impact of consumer credit on the economy.

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This website is very informative about the importance of consumer credit. It provides information about the consumer’s impact on the economy and how the credit system works.  The website shares how consumer’s purchases and spending habits are a huge cog in the economic machine which helps grow the economy itself.

I found this website very interesting and informative about the topic. It expanded my knowledge about how important consumer credit is for the economy.

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Why is credit important? Read on to find out how credit can be used to accomplish big goals - as well as what can go wrong when credit isn't used properly.

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What Is Consumer Credit? Definition & Economic Importance

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This website provides excellent information about what consumer credit is and how the everyday consumer purchases can impact the economy. It illustrates how consumers influence the investors which in turn has influence on the market and thus affects the economy. It explains why credit is important due to it being very volatile. This is because the consumer credit can either boost the economy positively when debt is created and paid off, or cause it to go into a recession if credit is bad due to lack of debt payments.

I picked this website because it provides a specific view on the importance of good consumer credit. This website expanded my knowledge on how credit can be a major factor for a recession or economic recovery and growth.

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What Is Consumer Credit?

Consumer credit is debt taken on by a consumer, typically to be repaid with interest in the future. As an economic indicator, consumer credit is used to gauge the indebtedness of Americans.

Consumer credit comes in two forms, revolving (or open-ended) and nonrevolving (or on an installment basis until the last payment is made), and either may be secured with collateral or without. Examples of consumer credit include credit cards, automobile loans, personal loans, and student loans. Mortgages wouldn't be included because housing is viewed as an investment.

Why Is Consumer Credit Important?

Consumer credit data is used by investors and analysts to determine the degree to which people are taking on credit to pay for goods and services. Investors and analysts tend to pair consumer credit with other types of data such as household credit and the personal savings rate to provide a bigger picture on how much American households owe and how much they are saving. Historically, credit has outpaced savings, and debt overall continues to climb.

When Is Consumer Credit Released?

The Federal Reserve releases its report on consumer credit on the fifth business day of every month, based on data collected from depository institutions from the two prior months. For example, July data would be released on the fifth business day in September. Investors and analysts tend to focus on the annual rate of the total outstanding balance and the year-on-year percent change for the reporting month.

Is Consumer Credit a Leading or Lagging Economic Indicator?

Consumer credit is based on the prior two months from its release date and is considered a lagging indicator. It shows the spending habits of Americans and serves as a confirmation of how their spending is affected by other lagging indicators, including inflation.

When inflation is accelerating and real wages show that people's pay isn't keeping up with the cost of living, they may turn to their credit cards for purchases.

Too much debt may mean more money from a worker's pay going toward servicing principal and interest and less toward savings or buying goods that help to spur economic activity. Less spending, particularly among the middle class, might translate into weak results in auto sales, retail sales, and home sales. And too much credit puts borrowers at the risk of delinquent payments-one late payment could force a lender to charge more interest and lead to a lower credit score.

Even though interest rates on mortgages and consumer loans usually go down during a loosening in monetary policy, the rates on credit cards aren't likely to go down as much.

High consumer debt combined with a recession would be bad for an economy with a high inflation rate. With no money pumped into the financial system, such as via quantitative easing, demand for money would be high, and interest rates would likely rise. Credit tends to tighten during a tight monetary policy, and sustained high inflation might push credit balances higher.

Below is a graph on consumer credit balances from 2004 to mid-2022, showing the percent change of total consumer credit, seasonally adjusted at an annual rate.

How Do Financial Markets React to Consumer Credit Data?

Stock and bond markets often react negatively to a pick-up in consumer credit, especially when it is a short-term increase. On the other hand, investors might react positively to a decline in consumer credit-in the absence of a recession-which could be a signal that consumers are taking on less debt and be a positive sign for the economy.

Michael Burry, an investor famous for betting against the mortgage market during the 2007-2008 financial crisis, used consumer credit data to determine whether the economy would face a downturn. Burry claimed that rising consumer credit and low savings combined with high inflation could spell a serious threat to the economy. In mid-2022, inflation had reached levels not seen since the 1980s, and consumer debt was rising.

Are Buy Now, Pay Later (BNPL) Loans Included in Consumer Credit Data?

Whether buy now, pay later (BNPL) loans-in which payments are made on a monthly basis after the time of purchase-are included in consumer credit depends on the lending institution. According to the Fed, banks should include them as part of their credit data, but many of the major BNPL lenders are newly established non-bank lenders, which means there is limited coverage. As such, the volume of transactions isn't meaningful enough to warrant separate categorization.

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What Is Consumer Credit? Definition & Economic Importance

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What Is Consumer Credit? Consumer credit is debt taken on by a consumer, typically to be repaid with interest in the future. As an economic indicator,

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How the Canadian Economy Benefits from Consumer Debt, CreditCardsCanada.ca

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This website is great at explaining the different types of consumer credit. With mortgages and non mortgage debt the economy can grow or recess depending upon the spending habits of the consumers. When consumers spend more the economy thrives due to increasing debt and credit. The increase in debt via borrowing creates needs for jobs which in turn creates more production and creates a cycle. This cycle however has weakness, if consumer credit drops from an increase in debt the economy will likely recess.

I felt this website was very important to add to my wall due to the facts it presented. With the economy acting like a machine it requires all parts to work smoothly and if a piece gets damaged it can cause the whole machine to fail.

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Consumer spending is vital to the economic growth of nations worldwide, Canada included, as long as we don't find ourselves in over our head. While corporations are often chastised for holding a record amount of cash on their balance sheets, it's actually consumer spending that accounts for the lion's share of economic growth. Let's take a closer look at Canada's latest consumer debt numbers from RBC Economics and what they mean to the future of our economy.

Mortgage and Non-Mortgage Debt

There are two main types of consumer debt: mortgage and non-mortgage debt. If you're like most Canadians and you aspire to one day own a home, you'll most likely need a mortgage. Residential mortgage debt includes mortgages with the big banks, as well as non-bank lenders and securitized mortgages. Non-mortgage debt includes all other types of consumer debt, including installment and revolving credit. Common examples of non-mortgage debt are credit cards, lines of credit, and personal loans.

Consumer Debt: By the Numbers

Household credit grew in April by 4.0 per cent year-over-year, following increases of 4.1 per cent in March and 4 per cent in February, according to RBC Economics (Source: RBC Economics - Canadian Credit PDF).

With home prices heading for the stratosphere, residential mortgage growth continues to outpace household credit, as homeowners take on larger mortgages. Residential mortgage growth edged down slightly to 4.9 per cent year-over-year in April, after four straight months of 5 per cent growth.

"Residential mortgage growth has stabilized in recent months and upside risks of renewed momentum are likely to be contained as housing activity is forecast to gradually moderate after a prolonged period of robust price and sales gains," RBC said.

The outstanding balances on non-mortgage debt, including credit cards, lines of credit, and personal loans grew by a modest 1.9 per cent in April year-over-year, following increases of 2 per cent in March and 1.9 per cent in February. When we drill down the numbers even further, we discover that while personal loans are up a whopping 11.8 per cent in April year-over-year, lines of credit and credit card debt are actually down 0.5 per cent and 1.4 per cent, respectively.

"In contrast, the emergence from cycle-lows for consumer credit indicates households have increased their appetite for non-mortgage loans," RBC said. "With offsetting effects, overall low rates of household credit growth will likely be sustained."

Why Consumer Spending Matters

GDP - short for Gross Domestic Product - is a measure of the market value of all final goods and services produced in a country. In developed countries like Canada, the United States, and the United Kingdom, GDP growth is primarily driven by consumer spending. In Canada household final consumption expenditure accounted for 57 per cent of our GDP, according to the World Bank.

A country's GDP figure is often used as a barometer for the overall health of its economy. When consumer spending grows steadily upward, it's usually indicative of a healthy economy. It's important for consumers to keep spending; any slowdown in consumer expenditures will be felt throughout the economy and can lead to higher unemployment rates. With sub-three-per-cent GDP growth forecast for the foreseeable future, it will be challenging for the Canadian economy to grow, especially if households stop spending and taking on debt.

Although consumer spending is important, there can be too much of a good thing. If consumers find themselves saddled with too much debt, it can lead to a slowdown in consumer spending and an uptick in bankruptcies and overall delinquency rates. The Bank of Canada has kept the overnight lending rate frozen at 1 per cent for nearly four years to help encourage consumer spending. If consumer spending slows to a crawl, it can lead to job loss and eventually a recession.

The Bottom Line

Consumer spending is an integral part of a growing economy. If consumers stop spending, it can lead to all sorts of unpleasant consequences, including unemployment and a recession. Through monetary policy, governments can encourage consumers to continue to spend by lowering interest rates and tax rates. Just remember to spend responsibly; only spend money you'll be able to repay when your bill comes due.

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How the Canadian Economy Benefits from Consumer Debt, CreditCardsCanada.ca

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Consumer spending is vital to the economic growth of nations worldwide, Canada included, as long as we don't find ourselves in over our head. While corporations are often chastised for holding a record amount of cash on their balance sheets, it's actually consumer spending that accounts for the lion's share of economic growth.

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This website was very informative and had a very intriguing perspective on how the economy is held up by consumer credit. The pdf expands upon the previous economic crises and how they were heavily influenced by consumer credit. This paper also explains how the economy could face disaster if consumer credit declined or didn’t exist. This paper is very useful because it offers a different perspective than most because it shows how the economy can be affected by consumer credit and crucial it is to have a healthy economy.

When reading this article I found information that none of my other selections have provided. This view was very interesting because it uses past crises and economic trends and compared them to the status of consumer credit.

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This video is so informative. It provides some insight into the history of banking which created the idea of credit from borrowing money from banks and paying back what was borrowed. This allows consumers to borrow money to purchase goods and pay them off later through debt to the bank. This video explains how the banks have to lend money carefully as to protect the economy from crises such as their example of the 2008 housing crisis.

I believe that this video shows how the consumers have a lot of weight on the economic scale and can influence the economy in many ways from their credit. This video cements the point that consumer credit is very important to the economy’s health.

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This video starts with information about an example market of car sales. It illustrates the associated percentages for which method consumers had used to purchase their vehicles, with majority using credit. The video then shows how how the consumer needs have changed over the last century, and how the wages have increased. This has resulted in economic growth and incentive to build credit. Lastly, the video brings up the possible risk to the economy with increasing debt, due to the potential for the consumers not paying.

I found this video to have a large amount of information in a nice concise manner. The video had many good points about the importance of consumer credit in the economy.

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How consumer spending impacts the economy

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I found the hook of this video to be very intriguing. The speaker gives a brief overview of some recent consumer trends and how many  people are concerned about the decrease in sales. The video then mentions that the consumers drive the economy. The video the goes on to say how the consumers have a lot of influence on the economy. Using the example of fear of job loss, the economy would be impacted due to consumer confidence diminishing and sale takings a hit from it.

This video further illustrates how consumers have importance to the economy and can impact it dramatically. I found this video very informative to the topic.

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How consumer spending impacts the economy

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How Credit in the Economy Works   Made Easy    Ray Dalio

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To start, the video refreshes the knowledge of what the economy is in a brief summary. An economy occurs when transactions occur. The video states that credit is the most important element in the economy while also being the least known. The video shows that while credit is the most volatile component in the economy it can allow both parties of the transaction to benefit.  Credit allows for consumer purchases which grows the economy by increasing the amount of transactions.

I picked this video because it is very enlightening from the information given. I found the speaker to illustrate what an economy and how all the pieces of it work. I also found it interesting how much consumer credit can affect the economy.

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How Credit in the Economy Works   Made Easy    Ray Dalio

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This picture is a great summary of key points about credit. It quickly describes credit, how it is obtained and earned through day-to-day consumer trading, and that it is very important for the economy.

This image was chosen because it is a very simple way to summarize what credit is and how it impacts the economy.

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This image is a pie chart illustrating the gross domestic product. Consumer spending is a huge part of the economy and has huge power in the health of it.

I picked this image because it is a great visual aid for many of my previous posts showing the importance of consumers.

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Images
Economy - USDN Sustainable Consumption Toolkit

sustainableconsumption.usdn.org

Images may be subject to copyright.

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Please click here if you are not redirected within a few seconds. Images Economy - USDN Sustainable Consumption Toolkit sustainableconsumption.usdn.org Images may be subject to copyright.

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1.  What did you learn about your topic that surprised you the most?

I found the fact that consumer credit is a huge portion of the economy and is very important and impactful.

2.  Provide a real-life example of how this topic is relevant or interesting for you?

This topic is relevant to me because I am looking to get a credit card to be able to start building my credit.

3.  If you could pass on your knowledge to a family member or friend, what do you think is the most important thing to pass on?

I believe I would tell my friends to build their credit but in smart ways to not risk going into debt by making mistakes when paying back.