When the stock market prices drop, in some cases it could have some affects on consumer spending. Dropping market prices can have an effect on both individuals and businesses.
If stock market price drops are significant, it may cause individuals to change how they spend their money. Most experts suggest to not to invest money that you need within five to ten years. In these cases it will not have as much of an impact, but there may be some people who did invest money that they need in the near future. Some individuals borrow money from their home equity or other sources to purchase stock. If this is the case, they will likely have difficulties paying the amount due on the loan when stock prices drop. Even if they are not in financial trouble presently, some may begin paying more attention to how they are spending their money and cutting out some spending.
Dropping stock market prices may not have an immediate effect on some people, but they may start to consider their retirement accounts. Even if they have several years until they will have access to their retirement accounts, the current price drops may affect how they spend their money in the present time.
The changes in stock market prices may have some people rethinking some of the purchases they were contemplating such as home upgrades, vacation home, vacations and others.
Part of cutting off spending may be reducing the amount of money being put away for retirement funds and college saving.
College savings accounts may also be affected when the stock market drops. Funds that were invested for educational costs may not be available when they are needed for paying college costs. If students are not able to attend college as they had planned, then it may have a major affect on their income and in turn on how much money they have to spend on items.
Reduced consumer spending may affect some businesses enough that they either have to lay off employees or shut down completely. With more people unemployed it will cause more people to cut their spending even more.
Stock market drops also indirectly have an effect on pension payments. Pension funds invest a significant part of their funds in the stock market. When share prices drop, it reduces the value in pension funds, in turn lower pension payouts. Many retired people who are on a fixed budget need to find additional ways to cut spending if their pension payments are lowered.
With the many headlines about stock market prices possibly dropping and lower home values, many people reconsider how they spend money and how they will spend in the future. When consumer spending drops, it also has an affect on retailers and other businesses.
When stock market prices drop, it makes it more difficult for companies to raise funds through share prices for expansion or operating costs.
In some instances, consumer spending can be affected by dropping stock market prices.