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Subject:
Is saving money coming back into fashion?
Zhang Fei
11/17/2008 11:54:59 PM
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(Quote)
Spending less has become a new religion for Uptown couple Bree and Erik Liscinsky.
The 25-year-old newlyweds have learned to cook to reduce their tab for Lean Cuisines and Bertolli pasta meals. They search the Internet for coupons, brown-bag their lunches and steer clear of the dry cleaner.
Even the family dog knows times have changed. His walker is only coming three times a week, down from five, and his nails are being trimmed at home, which saves $12 a pop. "He doesn't get groomed anymore," said Bree, who knows she and Erik will need a big cash down payment when they buy a condo.
Greed is no longer good. Thrift is in. Again.
For more than a generation, the road to prosperity has been paved with credit cards, home-equity loans and adjustable-rate mortgages, forms of debt that middle-class Americans became comfortable with and relied on.
But the worst financial crisis since the Great Depression has led to harsh criticism about how Americans were funding their lifestyles. The scolding is hitting home with both overleveraged companies as well as individuals, who are cutting back out of necessity or fear.
Starbucks' fourth-quarter profit plunged 97 percent. Electronics retailer Best Buy scaled back its year-end outlook, citing a "seismic" slowdown in consumer spending. Car sales were off 32 percent in the third quarter and retailers are predicting a decline in holiday sales this year for the first time in decades.
More telling, perhaps, the U.S. personal savings rate, which measures disposable income that isn't spent, zoomed up to near 3 percent in the second quarter of 2008, after staying below 1 percent for most of the past four years.
Yet the nation has embraced frugality numerous times before only to cast it aside when the economy rebounds. The minimalism that followed the recession of 1990-91, for instance, melted away as the stock market and economy charted an upward course for the rest of the decade. Are we shelving profligacy for good or just putting it on the back burner for a little while?
Americans' attitudes about debt and savings appear to be fundamentally changing, according to economists and market research experts who have recently interviewed thousands of consumers. Weaving a financial safety net is becoming more important than having the largest plasma-screen TV on the block or the season's hottest handbag.
"We think this is going to become part of a new way of life," said Madelyn Hochstein, president of DYG, a marketing firm that conducts social research.
It isn't something that just happened, she said. Americans' attitudes about money began to change two years ago when the housing sector was still booming and mortgage lenders were competing for customers.
At a subconscious level, Hochstein said, consumers were uneasy about the rapid run-up in home values and knew it couldn't go on forever. Back in 2006 and 2007, more people began agreeing with the statement, "If I lost the job I have now, I couldn't get one as good."
Trend spotter Faith Popcorn agrees that consumer attitudes toward saving are undergoing a profound change.
Consumers are feeling "nouveau poor," she says, which means it is cool not to spend money and to brag about how little you're shelling out, a practice Popcorn has dubbed "one downsmanship."
Andrew Fereday can relate. He and his wife, AnnMarie, used to dine out frequently in Chicago and head to bars with their friends. A $250 bar tab wasn't considered shocking, and cabbing it was a way of life. But after the economic turmoil of the last few months, the Feredays and their friends have dialed it back.
"The couples we hang out with are much more likely to come over and have a beer rather than going out and running up a ridiculous bar tab," says Andrew, a 25-year-old insurance broker. "I never expected to send an Evite and have everybody say, 'That sounds like a great idea for a Friday or Saturday night.' "
The Feredays also are bringing their own bottles of wine to restaurants, shopping for furniture on Overstock.com and taking the No. 72 bus even if they are dressed up. They also are maintaining a $5,000 cash cushion in their savings account and increasing it by $250 each month.
In Skokie, Dave Charles and Laura Whitlock are embracing their own version of frugality. They bought their first house last summer after having a second child and have been unable to sell their Chicago condo.
Instead of two lengthy road trips a year, the couple is going away for a few long weekends. Dave, who designs residential heating and cooling systems, is changing his own oil again, and the 20-month-old is wearing hand-me-downs rather than Baby Gap. Instead of a new kitchen, Charles and Whitlock bought new appliances, ordered a new counter top and changed the knobs instead of getting new cabinets. Savings: $6,000.
"I think back to when I was a kid and all the things we didn't have then that we have now," Charles said. "I had nice toys, but I only had a few. We consume so much now. We could go back and get used to that again."
A new ad for Target, which experienced a 5 percent sales decline in October, taps into the vibe, showing a couple having an espresso in a trendy cafe that morphs into their kitchen and frolicking in a backyard tent. The tag line: "A New Day; New Ways to Save."
It's about time Americans got back to being frugal, says David Blakenhorn, founder and president of the Institute for American Values and author of "Thrift: A Cyclopedia."
Thrift has been a central value since the country was founded, but that began to fade in the 1970s when a long period of post-war prosperity created fertile ground for the birth of the Me Generation. "You had mass affluence," Blakenhorn said. "We began to act as if there was no limit to a continually rising standard of living."
Debt became a way to get ahead, and the U.S. personal savings rate actually dipped into negative territory in 2005.
The debt spiral came to a screeching halt last year as rising mortgage delinquencies sparked a credit crisis that precipitated a quasi-nationalization of the banking industry.
That's one structural reason experts think the thrift movement will stick around for a while. With credit so hard to come by, it will be harder for people to spend more than they take home. And with 72 percent of married adults in two-income households, there are few people to send into the workforce to bring in extra cash.
"This is much more than an ordinary recession. This is a watershed in the sense that it brought down the banking sector," said Robert Aliber, an economist at the University of Chicago's Booth School of Business, who predicts the coming year will be tougher economically than any since the early 1980s.
Blakenhorn believes 2008 is a watershed of a different kind. "This is the end of debt culture," he declared. "Necessity is pointing us in that direction."
He added: "Nobody is too poor to save money. Even the poorest Americans can and do save money. It's a question of whether institutions and incentives in society are encouraging it or discouraging it."
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