Coping with the Recession: How America's Financial Habits are Changing
- 2009 13 May
Editor's Note: This is Part II in a special 3-part series on the economy. Read Part I: Recession Watch: Is the Economy That Bad?
Americans are experiencing the effects of the current recession. Employers are cutting wages and work hours. Millions of people are losing their jobs. Household income is declining.
At the same time, many consumers have been hit with the realization that they have too much debt. This debt was based on too few assets. In the past, easy access to credit led to more borrowing and higher amounts of credit. Feeling wealthier, consumers spent beyond their income. U.S. households are in far greater debt today than ever before.
Stretched like a balloon, budgets have reached their breaking points. A Money magazine poll shows that 88% of us will be more frugal, and 89% are making changes in how we manage our finances (Money, June 2009).
People are discovering that recession corrections can be painful. Although not always welcome, market corrections play a useful role eliminating unwise practices and players. Many over-leveraged banks, businesses, and families are learning the hard way that sound financial principles win out in the end.
America's Changing Economic Habits
Millions of Americans are experiencing a rough time. The middle-class is being hit particularly hard. Accustomed to a certain standard of living, it has been difficult for consumers to give up things they believed to be essentials in life. Whether they are good money managers or not, they are being affected by the recession.
Many consumers have had to make lifestyle changes to survive. Desiring to improve their financial situation, they are finding ways to balance the budget.
In a forum on “The New Frugality” (C-Span, 4/17/09), Pennsylvania high school students discussed how their families are making changes. Here are their responses:
Brent – Our family carpools, and we share cars to save money.
Krystal –I’ll eat at home more often instead of eating out all the time. I’m attending college next year, so I’m looking for ways to cut back on spending.
Carlos – Our family has always talked about budgeting, saving, and fiscal responsibility. In our home, credit cards are taboo.
Peter – We limit the number of cars to two cars and we cut down on driving. I’ll take the train into Philadelphia instead of driving. Since I was a sophomore, I’ve been doing odd jobs and saving money for college.
Megan – I work in a restaurant for extra income. I’ve noticed lots of people stop by to fill out applications.
Nick – We’re eating out less often. My parents both took small pay cuts at work.
Grant – Dad got laid off from his job as realtor. Now he’s renting apartments to lower income people in Philadelphia.
When discussing their changing economic habits, this is what adults participating in the forum said:
George – I was laid off from Chrysler four weeks ago. They have cut bonuses there. People are having to be frugal The government needs to be more frugal, too.
Tom – I’m 29, a full-time student, and I design Web sites. I have always lived carefully and responsibly. Families need to help each other.
Jerry – At 61, I’m retired but not by choice. I got laid off. I shop at Aldi’s and buy store brands. No more deep sea fishing trips and cruises for me. I also feel frustrated that I can’t give more to my church.
Find Realistic Solutions
These tough times are testing the relationships of some couples, especially the ones accustomed to a higher standard of living. Families without a safety net for emergencies are finding it harder to make adjustments.
Couples are taking a more realistic look at their higher costs of living. Tom, employed in the housing industry, is thinking about giving up the expensive family vacation this year. He’s also reconsidering what makes a house a home. Realizing he can no longer afford his house payments, property taxes, and upkeep on the large house, he has decided to move to a smaller home. “My business isn’t bringing in the money it used to,” he said. “We can’t continue to live as if I’m still making a lot of money.”
Recent studies indicate that families don’t change their lifestyle for about six months after their income is reduced. If a family ignores their financial situation during this six-month time span, the results can be detrimental.
Roles are temporarily changing because of the recession. Husbands, who have been laid off, take care of the children and house responsibilities. Their wives are bringing home a regular paycheck. Dads take their kids to the bus stop and to school. Children are enjoying more time with their dads.
Some couples report they are now tackling money problems as a team. They are also spending more time together, as they did when they were first married.
When money was “rolling in,” many families lived as if their income would always be there. Now that their income is meager, the credit line is gone, and credit card limits are lowered, families are learning to live on finite amounts of available cash.
Joe, who is retired, moved to a smaller place he could afford. His daughter and son-in-law moved in with him. His son-in-law is laid off, and his daughter makes minimum wage.
Margaret is retired and was raised to be a good steward. She says she enjoys Starbucks coffee and won’t give it up. But she cuts costs by buying a 40 oz. bag of coffee and brewing a good cup of coffee at home.
Scott has always been frugal. He enjoys the simple pleasures of life. With less income coming in, he’s cutting back on food costs by gardening.
Assess Our Situation
There is no doubt that these economic storms are forcing Americans to reexamine their priorities in life. They are redefining their goals when it comes to family, finances, and faith. They are abandoning business-as-usual and making some tough choices.
Now is a good time to assess our situation. Put it in perspective. We can find out how and where we can get help, if needed. As stewards of our incomes, homes, and resources, we do have a choice to live more responsibly. It may take minor corrections or a major overhaul to take back control of our lives.
Copyright 2009 Deborah Nayrocker. All rights reserved. Permission to reprint required.
Deborah Nayrocker is the author of The Art of Debt-Free Living and Living a Balanced Financial Life.