Saving money could be trend that's here to stay
This is both good news and bad.
The bad news is, our new frugality is actually hurting the economy. As the Associated Press recently reported, "Because consumers fuel about 70 percent of the economy, their tightfisted habits mean the rebound could stay unusually sluggish."
But the good news is, we're saving more. Last year, Americans put away 6.4% of their disposable income, compared with less than 1% that the country socked away during the more heady days of the pre-recession.
I spoke to a personal finance adviser who agrees that this new culture of thrift is here to stay for some time to come. Shelton, Conn.-based Thomas J. Casey, CFP, has been a certified financial planner for 25 years and specializes in everything from wealth management to tax preparation and college aid planning.
"Yes, we will be more thrifty for a long time, because people got burned quite heavily," Casey told me. "Just as an example of what I'm talking about, I was out in California about two weeks ago talking to people, and out there, they had the thinking that because their houses were going up in value 5% every year, they could use their home equity line to use the house as a cash machine. But everybody out there has found out you can't do that. What goes up must come down."
And even though we had that dot-com crash about 10 years ago and the economy went south for awhile, Casey says that the Great Recession is even worse: "Everything collapsed," Casey asserts.
But for a lot of folks, that's led to a new mindset that, even if it doesn't help the nation out as a whole, it should help a lot of us individually. "For a long time, it was almost uncool to save money," says Casey, who's seeing his client base actively being more strategic and conservative when it comes to handling their savings and investments.
But he does worry about certain segments of the population, like the younger, affluent twentysomethings who haven't been hit as hard by the economy due to their parents propping them up. And he fears for most high school and college students. From his vantage point, the education system still isn't doing enough to prepare youth for a world filled with credit and debit cards, compound interest and overdraft fees.
"Schools get them ready to take the SATs, but they don't get them ready for life," Casey said.
But for the rest of us, having muddled our way through the Great Recession, either unemployed or working three times as hard just to keep our one job, this new frugality may have many of us better prepared for whatever financial downturn might hit us in the (hopefully) far-off future. By learning to save money, we may just save ourselves.
Geoff Williams is a regular contributor to WalletPop. He is also the co-author of the book Living Well with Bad Credit.