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What Happens to an Experience Economy When There Is No Experience?

September 25, 2020
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FOMO - the Fear Of Missing Out - has been an ever-increasing force in our world culture as social media became more accessible and pervasive. Endless posts showing everyone’s perfect life and amazing experiences create a drumbeat of things you are not doing but could (should?) be. A few years ago I wrote about how these distractions affect consumers, as part of our ongoing mission to help our clients to use their money to have the lives they want.

And then coronavirus came along. Daily activities were suddenly forbidden - hugs, handshakes, meeting a friend for breakfast. As the virus settled in and life still had to go on, we all figured out how to do what we had to do. If you told me in February that I would meet a client in the parking lot wearing a mask and gloves to receive a check, that my clients would convert seamlessly to online meetings, that I wouldn’t work with my team in person for months, and that my client’s new baby would join our financial planning meeting on Zoom, I would have said you were crazy. Today it all seems very normal.

The question I am left with is: “Now that we are truly missing out, where does all that FOMO go?” Perhaps more succinctly, “What happens to an experience economy when there is no experience?” For someone like me (a financial planner with an unnaturally high empathy gene), the answer is both economic and existential. 

The term “experience economy” was coined by Joseph Pine and James Gilmore in a 1998 Harvard Business Review article. Our country’s economic evolution from agrarian to industrial and eventually to service was ready for the next step. The authors explained, “While...commodities, goods, and services are external to the buyer, experiences are inherently personal, existing only in the mind of an individual who has been engaged on an emotional, physical, intellectual, or even spiritual level. Thus, no two people can have the same experience, because each experience derives from the interaction between the staged event (like a theatrical play) and the individual’s state of mind.” Twenty years later, social media and FOMO cemented ‘experiences’ as something we value, thereby deepening the relevance of the experience economy to all of us. 

Allow me to briefly transition to a lesson in economics, to explain how consumer behavior plays out in a COVID world, and to start to understand some of the spending behavior since the pandemic began. The Consumer Price Index, better known as CPI, is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. CPI essentially tells us when goods or services, say - an apple, costs more than they used to. Keep in mind, though, that in today’s marketplace, consumers have an abundance of choices and resources to make smart decisions. If the price of an apple goes up by 10%, rather than pay the increased price for an apple, you might just choose oranges instead, thereby avoiding the inflation altogether. Many economists believe that this phenomenon (which is incorporated into the chained consumer price index) explains the behavior of the American consumer better than traditional CPI. The real question, then, is what happens the next time you go to the store? If the apple drops in price (or if orange prices increase), do you go back to your old favorite, or stick with the new?

We can use the same context to study what has happened to pandemic consumer spending, and how it may change again next year. Inflation is a risk that can affect consumer choice. So is COVID. And while inflation may have a gentle influence on consumer behavior, COVID is a major disruptor. 

First off, let’s dig deeper into consumer spending numbers to find out who is spending money on what. Harvard University’s Opportunity Insights Team, which tracks consumer spending, now reports that spending by all US consumers is down 7.3% from January to August 30. However, there is a significant bifurcation in spending habits of low-income vs. high-income earners. According to the Harvard group, “As COVID-19 infections increased in March, high-income households sharply reduced their spending, primarily on services that require in-person interactions.” From hair salons to dining out, travel, and the arts, high income earners didn’t choose to stop spending - they simply weren’t able to do so. Unlike 2008, when high income earners kept spending while middle income Americans slogged through the financial crisis, this time high income earners can’t make that choice. While basic services like salons have come back, some of the offerings of a robust experience economy - those “FOMO-level” events where we can be “engaged on an emotional, physical, intellectual, or even spiritual level”- are simply not available. 

But a deeper look through the lens of chained CPI shows that while the more obvious FOMO events aren't available, other alternatives exist for non-essential spending. High income earners have, in fact, swapped their old spending habits for new ones. Broadway may be closed until 2021, but different experiences beckon. RVshare reported a 650% increase in RV rentals in May, while camping trip planning website The Dyrt reported a 400% increase in website traffic over 2019. Online retail giant Wayfair saw second quarter sales surge almost 85% over the past year, as consumers redirected travel and entertainment budgets to home remodel projects. An August report from McKinsey notes, “...more than 77% of Americans (are) trying new shopping behaviors during the crisis...including new methods, brands, and places, with the intention of sticking with them in the long-term.”

While my academic training in psychology is limited to two undergrad classes, my life training in psychology is deep, as I have worked with more than 500 families over a 20+ year career. The elevated role that money plays in how we feel about life is why my professional mission is to help our clients to use their money to have the lives they want. How many of us know what life we want when this is all over? 

For high income earners, pent up demand should be well-matched with pent-up savings. Cruises and European vacations missed in 2020 will likely be rescheduled to 2021 or 2022, creating a surge in economic activity in the travel and entertainment industries. And if the McKinsey report is correct, consumers may in fact have new consumer habits for the long-term. Just as you could choose between apples and oranges once the risk of inflation passed, post-COVID consumers may identify new ways that they want to spend money in their experience economies. 

Six months into the COVID crisis, most people have adjusted at least to “life for now” and have figured out how to go about their daily activities as safely as possible - work, the grocery store, a visit to the doctor. But are those the things that really inspire and fulfill us as humans? We may not currently have FOMO, a fear of missing out, but that’s not to say that we don’t have plain old MO: missing out.

An April essay in the Wall Street Journal by Derek Blasberg, Head of Fashion and Beauty at YouTube, summed up his feelings about his mental shift from FOMO to no FOMO: “If there is nothing going on, what is there to be afraid of missing?” Months later, with a lack of “can’t miss” postings on social media and a newfound calm from a reduced level of activity, it becomes easier to identify which experiences that are “inherently personal” are important and satisfying to us as humans. As we have time over the next few months or year to reflect on what is essential, what is important, and conversely what is unnecessary, we can truly evaluate how we want to spend our days, our time, our focus, our energy, our money.

Each of us will decide that on our own. Will my team come back to the office? Yes, when the time is right. Will babies keep joining financial planning meetings? I hope so. Do we expect to give our clients the choice of how to interact with us when life returns to “normal”? Without question.

America 2.0 will start when we can live our lives and spend our money unencumbered by conversations about the dangers of - and therefore restrictions due to - COVID. Presumably that is when we can once again choose to use our money to have the lives we want. My expectation is that the coupling of old and new consumer habits will actually create a higher level of total post-COVID economic activity than we saw pre-COVID, which could be a win for both consumers and the economy. 

The next question for each of us will be - What do you really want to experience when life is back to “normal”?

Debra Brennan Tagg is a CERTIFIED FINANCIAL PLANNER™ Professional and the creator of the DBT360 Financial Plan, a proprietary program that helps her clients prioritize their goals, leverage their resources, and address their risks. She is the president of BFS Advisory Group and teaches the public and the financial services industry about the importance of values-based financial planning and investor education.