Are We Buying Value?

Earlier this week I posted about ad scams that were proliferating on the Internet and television. While you might not fall prey to the whole cash for gold scheme, chances are you have been influenced by advertising. After all, the goal of advertising is to get you to buy something.

The question is: Do you really need it?

Consider these facts:

• The average U.S. consumer debt rose more from 2000 to 2007 than it had in the past 25 years and household debt is about 140% of household income (source: US Bureau of Economic Analysis, US Federal Reserve, McKinsey Global Institute)

• The average US consumer saved less than 4% of his or her disposable income for the last 9 years (and in the 2nd quarter of 2009 this number increased to about 5%!).

• The average credit card debt for households that have at least one credit card is more than $10,000. (source: Nilson Report, April 2009)

• The US spends more money on advertising--to the tune of $140 billion per year--than any other country. (source: The Nielsen Company 2009)

I'm not suggesting that we should stop spending money. In fact, most economists feel we must continue to spend money as this is our only way out of this recession. But we need to make sure we get the most for our money and focus on real value. If you listen to or submit to advertising but don't use common sense and good judgment, you will never be able to find real value.

Let's look at the top 10 categories in 2008 ranked by how much they spent on advertising:

1. Automotive - Okay, we all need cars and they are big ticket items, so huge ad spends here makes sense.

2. Pharmaceuticals - Definitely causing consumers to waste money. Yes, there are needs for pharmaceuticals, but mostly we're treating the symptom and not the cause. According to the Drug Enforcement Administration (DEA), the United States buys and uses 90 percent of the world's Ritalin supply--and more than 1 in 10 boys ages 6-14 have been prescribed Ritalin! When I grew up, hyperactivity and short attention spans were answered with "boys will be boys." I know there are legitimate cases of ADD and ADHD where Ritalin can help, but 1 out of 10? Come on. One study found that pharmaceutical companies spend more on advertising than they do on research and development.

3. Autos again...

4. Quick Service Restaurants - Three out of ten Americans are obese. Need I say more? Spending less money here and cooking more healthy meals at home would be a much better use of consumer money. This would save everyone money up front--and on the back end in health care costs.

5. Department Stores - We need clothes, household appliances, etc. But are we buying value or "fashion" we can't afford? I like to occasionally splurge on nice clothes too and I do think the best value is to buy quality things that you will actually wear, but I always hunt around for the best deal.

6. Cell phones - I'm addicted to my phone too. This is such a growing space now the ad spend is probably justified. But always look around for cell phone promotions to get the biggest bang for your buck.

7. Motion Pictures - Yup. I love a great movie, too.

8. Direct Response Products - This one is a killer as I mentioned in my previous post. There are so many people selling you things you don't need, or things that are actually very bad for you--but it's also the fastest growing segment of advertising. Buyer beware!

9. Restaurants - I love to eat. I love to eat at great restaurants and there are so many. But again, consumers need to make sure they are not wasting their money and instead focus on value and health or they will be paying too much on food AND too much on health care (over 30% of Americans are obese and your waistline is one of the best predictors of health).

10. Furniture stores - We need furniture. But again, are consumers buying value or style? I like design, too--but I also want to make sure I'm getting a good buy. Savings.com and other deal sites have great furniture coupons to help you get more for your money.

Bottom line, we're being hit with thousands of advertising messages a day that are focused on getting us to buy something. It's important that we all continue to spend money, but it is more important than ever that we do this wisely. Buying things you need and getting good deals is an investment in the future. Wasting money is not. Before you whip out your wallet, use some common sense and some research to make sure you're buying what you really need and also getting the best deal.

Saving money feels good.