The New Frugality: Habits Worth Keeping, Those Worth Forming

Saving your money and being frugalDuring The Great Recession, being frugal became downright cool, so found Booz & Company when it surveyed Americans. Consumers boasted about the bargains they were getting at consignment stores and fewer hostesses were embarrassed about serving private-label food, instead of the national brand names. In the Mintel Group survey, 75 percent said they wanted to reduce spending and 65 percent wanted to pay off credit card debt. From 2011 to 2012, income for credit card companies dropped 15.8 percent.

Now that the economy is in recovery, consumers will be deciding what habits of the New Frugality they want to keep. After all, America has a shot at becoming a nation which again can live within its means. There really had been a time when the family didn’t buy a television until it could be paid for in full with cash.

Behaviors that will probably continue include those which conserve gasoline. Even young people had cut miles driven annually about 23%, reports research from Pew. For them as well as their parents, that meant doing more online, including the way they bank. Pew notes that more than 63 million Americans maintain their checking and savings online. Some young people may never step into a brick-and-mortar bank.

Another habit that seems engrained is demanding bargains. Thanks to the smartphone, it’s easy to comparison shop. When the bargain isn’t enticing enough, consumers will likely continue to wait to buy until it is. Also, it’s unlikely those who switched to private label will return to paying premium prices. A walk through the big boxes such as Wal-Mart shows more and more shelf space for the house brands. The Booz & Company survey found that 55 percent opted for the best price, not the status of the brand.

A trend that began a half century ago – Do It Yourself (DIY) – accelerated during the two economic downturns in the 21st century. Way back then, it was Ikea who told consumers they could save money by assembling the furniture themselves. An unexpected side effect was the tremendous satisfaction coming from that kind of DIY, which became known as the “Ikea Effect.” Both to save and gain that sense of mastery, Americans will probably continue to improve their property themselves, handle some of their own financial planning, create their own wall hangings, and even manufacture on their own what they need for their small businesses. There, technology has helped.

Of course, there has been some loosening up in spending. Again there are long waiting lines on weekends at moderately priced sit-down restaurants like Olive Garden. New car sales are up, as economic confidence leads to trade-ins on the clunkers. Families are looking at houses again. More conservative lending policies will ensure, though, they that don’t buy more house than they can afford.

But even the steepness of the downturn hadn’t changed some deeply rooted beliefs and values, such as students’ right to attend the college of their choice, no matter how expensive. According to Pew, the average loan debt for college graduates in 2011 was $26,600, a 5 percent increase from the year before, with no end in sight. That is one habit that could be changed through introducing the fundamentals of return on investment (ROI). Students planning to major in fields that provide in lifetime earnings low ROIs on tuition and fees could be encouraged to start their education at a low-cost community college and then transfer to a public state school. Student loan debt could vanish as a national and individual economic problem.

Another mindset that could change is the belief that “it’s impossible to save.” Currently for many, the preoccupation is on reducing debt and spending, not on a proactive plan to save. Before post-World War II affluence, America was a nation of savers. Can that value system ever again shape how Americans see their world? While the economists argue about that one, actual money can be saved – passively. Ways to do that include not claiming the maximum deductions on income tax withholding, authorizing automatic contributions to the company retirement program, and socking away all the funds from a windfall such as an inheritance, tax return, profit on the sale of a house, or winning the lottery.

The New Frugality habits acquired and the ones that are being presented as solid economic common sense demonstrate the importance personal finance has taken on in American life. In itself, that could lead to the creation of greater wealth for a greater number of people.

Photo credit: 401(K) 2013 / Foter / CC BY-SA

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