Finally debt-free! But a quiet financial trap may be lurking when your net worth turns positive

Economic Overview - The U.S. economy is experiencing a "K-shaped" recovery, leading to a widening divide between those who can save and invest and those who cannot [1] - American investors are increasingly optimistic, with spending on restaurants, business-class airline tickets, and home improvement projects rising [1] - The top 30 AI stocks have contributed an additional $5 trillion to household wealth in the U.S. this year, according to JPMorgan Chase [1] Consumer Spending Trends - Data from Bank of America indicates that spending among higher-income households increased by 2.7% year-over-year in October [2] - The wealth effect is driving increased consumer spending, with a 2023 Visa study revealing that for every $1 increase in household wealth, consumer spending rises by 34 cents, significantly higher than the pre-pandemic rate of 9 cents per dollar [5][4] Individual Financial Narratives - An example of an individual, Renee, illustrates the impact of financial recovery; she has paid off her student loans and built equity in her condo, leading to a positive net worth [2][3] - Despite her financial progress, Renee experiences the "urge to splurge," highlighting the psychological effects of perceived wealth [3] Wealth Effect and Risks - The wealth effect describes the tendency to increase spending when asset values rise, which can lead to debt or risky financial decisions if not managed carefully [4] - Experts warn that the feeling of increased wealth may be temporary, as market corrections could quickly diminish perceived financial security [6]