Weak economy motivates Americans to save more
Sunday, December 27, 2009
As crazy as it sounds, losing a $70,000-a-year job has been good for Marty Morua's finances. The former Wall Street stockbroker says the setback forced him to scrutinize his family budget and snip away at expenses. And soon, even with less income, their savings grew.
First, he and his wife decided to live on her salary so he could be home with their 5-year-old daughter after school. Without a nanny, they saved $12,000 a year. He dropped services he didn't use on his cellphone -- texting and video games -- to pocket $250 a year. He took a defensive-driving course for a 10 percent discount on his auto insurance and dropped car-rental and roadside-assistance coverage, for an extra $150 a year.
For holiday gifts, he turned to thrift stores and gave home-baked cookies.
"When I was working, I didn't look at the price tag," he said. "In a strange way," he added, losing the job "has been a blessing to teach me how to become aggressive and wise about saving and ways to save -- areas I never would have thought about."
The recession has caused a seismic shift in the consumer culture, converting die-hard spenders into savers. A growing number of people, either smarting from a job loss or spooked by the financial crises of others, are scrambling to get out of debt, establish emergency funds, and add to their retirement and savings accounts.
After having taken the first plunge by cutting holiday spending, many are seeking more substantial ideas on how to sustain their frugality.
With the turn of the calendar, financial planners and counselors typically get an influx of calls from people seeking help with New Year's resolutions to save money. This year, the requests have multiplied.
"Before, people came to us when they hit a crisis. Now they come to us as a preventative measure," said Emily Appel, director of the savings program at Capital Area Asset Builders, a nonprofit organization in the District that mainly counsels low- and moderate-income residents.
Demand for the services has increased so much, Appel said, that the organization has added classes. Also, she said, more middle-income people and young professionals are signing up. "When you see your friends go through financial crisis, you want to know how to prevent that from happening to you," she said.
Frank C. Boucher, a financial planner in Northern Virginia, said he advises novice savers to put non-retirement funds into safe high-yield instruments, such as CDs. "The rates aren't terrific, but they're better than regular savings accounts," Boucher said. "Money-market fund rates are also very low. . . . Stay away from stocks and bonds unless you're putting money away for retirement, college education and if you [won't need the money] for three to five years."
Consumer spending, which represents 70 percent of the economy, helped propel the nation out of previous recessions. This time, consumers seem to be more cautious, and they are increasingly holding on to their dollars.
The savings rate in October reached 4.4 percent, up from 0.8 percent in April 2008. Some economists say they think savings will return to the 7 to 8 percent levels recorded before 1990.