Monday, April 07, 2008

Liquidity Constrained? Take a Vacation!

Now that we American consumers are all frothy and anxious to get our hands on this summer's Special Tax Unwinding and Preplanned Income reDistribution (STUPID) tax rebates, it's time for every business niche under the sun to urge us to SPEND OUR NEWFOUND CASH WITH THEM.

For example, here's an AP story:

AP: "Tax Rebates Could Be Ticket to Vacation"

Ah yes ... vacations. Exactly what we liquidity-challenged (read: debt-burdened) folks need to get ourselves back on track. It's not what Suze Orman suggested, of course. But what does she know, anyway?

Not nearly as much as the tourism folks, apparently.

"But we have seen some behavior that even when they are pinched, vacations are a right of life," [economist and director of the Tourism Institute at the University of Tennessee] Morse said. "People will borrow money to take a vacation; it is that important to them."

But what about polls suggesting that folks will put their chunks of STUPID money toward debt and savings?

The research suggests that consumers will say "one thing before they get the money in their hand but after they get it, they actually spend more than they got in the rebate," he [Morse] said.

Morse cites a November study by three economists from the Federal Reserve Bank, the University of Nevada-Reno and the University of Pennsylvania's Wharton School examining consumer habits from a similar though smaller rebate in 2001. The researchers tracked activity of 75,000 credit card accounts.

The study found that many consumers used the rebates to pay down credit card debt, just as pre-rebate surveys suggested they would do. But three to nine months later, they used their newly freed-up credit to buy even more. On average, they spent 40 percent more than the original amount of their rebate.

"If consumers use the 2008 tax rebate in a similar fashion as the 2001 rebate study suggests, consumers will spend more of the (2008) rebate than originally planned, generating opportunities for boosting 2008 travel demand," Morse's report says.

"We are sure hoping that he is right," said Leon Downey, chairman of the Southeast Tourism Society and executive director of tourism in the Smokies tourism community of Pigeon Forge.

Morse's report created a buzz last week at a Southeast Tourism Society meeting in Asheville, N.C. Hotel and travel destination professionals from 12 states — from Little Rock, Ark., to St. Augustine, Fla. — left with plans to order up ad campaigns and design getaway packages aimed at the rebate audience.

Here's that Fed study, for those of you who are sick enough (as I am) to actually be interested in this stuff:

Federal Reserve: Let's Save $10 ... Then Go Spend $14

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— Posted by Michael @ 10:46 AM

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