Spend less, save more: Are we ready to shift priorities?

Imagine the U.S. as a nation of chastened savers.

That’s how Merrill Lynch & Co. economist David Rosenberg sees the future in the wake of the economy’s struggles of the last year, the housing crash and the ongoing credit crunch.

He believes that "frugality is now replacing frivolity" in the U.S., and he expects that shift to last as aging baby boomers, in particular, get religion about their personal finances.

His views are the focus of my weekend column in the Times, "The Case for a New National Frugality."

Rosenberg has long had a dour outlook for the U.S. economy, so the idea that the world’s most devoted consumers (us) will shift from spending with abandon to saving with a passion fits his overall scenario.

But could the saving mentality really take hold in America, after 25 years of extraordinarily conspicuous consumption?

As I note in the column, at this point many people may figure it’s just too late for them to start saving. Maybe it has always been too late. As Edward Yardeni, an economist and head of Yardeni Research, puts it: "There's just no way you can really save out of the median income in this country and retire comfortably."

So it would be easier for many folks to just go on spending every dime and let the future take care of itself -- or not.

Anyone else want to weigh in on this issue?

Comments

[Brad]

Hmmmm...so the poor, struggling middle classes can't afford (or be bothered) to plan for their future yet they can afford to service the debt they incur to finance their ostentatious lifestyles today?

In the 1969 the Rolling Stones sang, "You Can't Always Get What You Want". In the 1989 Queen sang, "I want It All And I Want It Now". The choice is yours.

[Joel]

It's actually quite simple...there IS no time like the present to begin bringing ones spending under control and start the process of saving. And don't use the excuse, which I used myself for many years...It's not that much money. How much difference could five, ten or twenty dollars make? Psychologically and materially they made all the difference in the world to me.

I was a very good American consumer for many years until a health setback knocked me out of full time work for eight months. I blew through my meager savings and was supplementing my disability check with credit cards. I was looking at an enormous pile of debt when I returned to full time work. I tried to pay them off...I truly did. But I realized it was a fruitless endeavor when even the credit card companies wouldn't reduce or forgive any of the interest on the debt I owed. So I declared bankruptcy in 2003.

But I hadn't learned my lesson. Less than two years after my bankruptcy was finalized I was almost $22000 dollars in debt with credit cards and an auto loan. It was then that I "got religion". It took me twenty six months but I paid off all my outstanding debt. I learned to budget. I learned to scrimp and I learned to save. I read articles online, I checked books out of the local library and bought several that were clearly helpful.

I am now debt free except for a few very specific items: an auto loan for a new car I bought in June at an interest rate 12 % less than my last car on which I make one-and-a-half payments every month, a student loan and a small credit card balance from a break I took this summer which will be paid off in two months. I save money each week into five different savings accounts...short term savings, long term savings, downpayment on a home of some sort, replacement of my car when it's time to buy again and my "rainy day" fund which will help pay my bills if I'm injured or out of work for any reason. I am putting away 25% of my income between my 401K contribution, company match and a Roth IRA and invest in stocks though I am an admitted novice at that type of investing. And, yes, I do take vacations and I do have nights out and go to concerts and shows...a lot of shows. In other words, I have a life. And I'm doing all this on around $46k/year between my two jobs.

And so can you. You just have to decide that you want to and, more importantly, you're willing to learn and experiment to find new ways of doing things. I may never own a home but I will have a comfortable safe place to live. I may never be able to retire completely, and eat bon-bons all day, but I will be at the point where I'm working at something part-time to keep me busy, to keep me active and bring extra money home. Does that sound like that bad of life? I'll take it thanks. Enjoy your day.
Peace

[anne]

here's a thought.

maybe the masses have run out of the choice to spend. Maybe they're so deep in debt from eating their houses over the last few years that there is nothing "over."

that isn't saving, that's digging yourself out of a hole.

[Mike]

I keep asking myself if saving on an after tax basis is for suckers ? Look at it this way: My wife & I have saved for 20 years maxing out tax deferred and not living too expensively. The only debt we ever had was mortgage (we don't own a house right now, first priced out in CA, now too scared). With no kids we do more than OK. But with the Gov't bailing out everything in sight, the dollar tanking and the tax cuts rolling off the taxes on our capital gains & interest income are going to fill the void that the non-savers created. Whose the sucker in this picture ? what's the point in saving ? Maybe the tax code needs a change !

[Keith%20]

Joel,
Your story is my story. I am 40 years old and make $46k a year. I used to be a classic American consumer. Then had to file bankruptcy in 1998 and it just dropped off my credit on Friday. I have paid off all my bills except, one personal loan and a students loan. I have 4 savings accounts, a 401k, and a Govt pension. I have learned to take my lunch to work, and rarely eat out. I don't spend money on paper towels or trash bags and I recently gave up my cell phone. I have a home phone and work phone. I'm finding more and more ways to save money. I save about 30% of my paycheck. I used to think it was hard to save, now I love it! I watch the Suze Orman show on CNBC every Saturday, and she gives great tips on spending and saving. I'm moving closer to my goal of owning a home. Americans can save if we let go of trying to be like everybody else and thinking that we need everything now. You appreciate things more if you save to purchase it and most times, once you save the money, you don't really want that "thing" anymore. Come on America, lets change the economy and find ways to spend less and live simplier lives. Theres many free activities you can participate in, in Los Angeles. It's not necessary to spend a lot of money. Let's save, save, save.

[martscan]

I presume Joel also helps old ladies cross busy streets.

[Zendave]

get rid of all your wants

keep the needs

so easy to save enough money.

100k in the bank ...living on the beach on hawaii.

[Lou]

I was lucky in that I never got in debt, but after my wife decided she wanted a divorce, I realized that I didn't have much else, either.

I have worked hard to find ways to use money more efficiently so that I can do the same thing using less money, and the results are amazing. You can save, but you have to first have a paradigm shift before it can happen, in my experience.

[Robert Laughing]

NO time like the present, to CLEAR the decks, and get ready to PROFIT from all this crap bush gave us, AND our own ignorant greed. The next 6-15 months will be rough, but it will establish a new floor for stocks and housing. If you're not a mindless idiot, you can learn from all of this, no? Pull up the Dow/SandP 500/Nasdaq for 1980-1990, then 1990-2000, then 2000 to present; it doesn't take a rocket scientist to see, the crash fuel the next boom...in stocks, and in Real Estate. Life goes on, learn from it, PROFIT from it. Yes, retired, ON the beach, too!

[Joel]

To Keith...Congratulations! That is excellent news for you. You also mentioned something I forgot to put in my first posting...I save for something that I want and, like Keith, when the money is there I usually find I really didn't need the item but "wanted" the item. Zendave...a great mantra that I will remember.

And Martscan, you're right. I DO help old ladies across busy streets. They usually give me a dollar after they chuck me under the chin, like my grandmother once did, and I immediately deposit the dollar in one of my savings accounts so I can hit the streets in search of more old ladies to help. I never was a Boy Scout however...Funny thing huh? Enjoy your day.

Peace

[Bill Sardi]

Just what the insolvent banks want, Americans to bail them out by porking their money into another failing bank. Take $10,000 and place it in a savings account at 3.5% interest. The bank you deposited your money in loans out $9000 of that money and keeps $1 in cash reserve, and they make a profit off of this, while you experience inflation of 11-12% (the consumer price index says inflation is 4-5%, but doesn't count the cost of food or energy), so your $10,000 savings account loses about $840 of its purchasing power in the first year. Paper money is worth less and less every day. Your options are to play the stock market which has lost $ trillion this year, or real estate which will not see an upward trend at any foreseeable time in the future, or precious metals like gold and silver, which do have some intrinsic value, but this market is manipulated to depress the price of gold and silver by dumping more gold and silver into the marketplace so it will not be seen as an option to buying stocks. Let me know if you figure a safe place to store your money.

[Charles Duran]

Truly stupid question.

[David]

Save your money at a bank, get less than the inflation rate as a return and if the bank goes under and you loose anything over what the government insurance covers. Put your money in stocks and bonds, loose more money in a month than you saved in ten years. Saving for the rainy day, one illness will wipe it all out in a few weeks. Saving for retirement, forget it, you can't save enough, so you will still need to work anyway. At least when you spend it, you have something to show. Who was smarter, the guy who skimps and save and dies with money, or the guy who spends it on a good time and dies in debt?

[are they crazy]

I think some of you are too busy gloating to address the real issue. While you may have $100K in bank and enjoying Hawaii - that is not nearly enough to retire on. The point was saving on a median income to provide a comfortable retirement. It also depends on when one starts saving for retirement - a lot of boomers are caught in the trap of defined pensions morphing into 401Ks. What some have not addressed is that a median income even without debt, doesn't provide enough to pay day to day expenses, saving an emergency fun, saving for children's college and saving for retirement. Even if one could save $5K/month, unless they are very young, it's not enough to cover all those expenses. Wages have remained stagnant while the burden of providing for oneself has skyrocketd.

[Mac]

To answer the question posed in the article, I believe that not only is it too late for boomers to save a meaningful amount, but it is downright impossible for them to do so because of their mentality.

Boomers have bought into the New American Dream, not the one our grandparents yearned for (that their children do better than them and that they have enough money to never go hungry or be cold). The new dream that the boomers insist on living, involves a McMansion in the suburbs, a new car in the driveway, and a top-notch college for their kids. It goes so far above the basics that almost nobody has the income to support this dream. So, they max out their credit cards, buy a house they can't afford, and get so far in debt that bankruptcy is the only option.

I think it's too late for the boomers to downgrade their expectations, but I have high hopes for my generation (Gen X) and younger. We are beginning to spurn materialism and focus on other things.

[Thevail]

I think the best thing anyone can do to save money..is become AWARE.

What do you spend money on? Why? At a measly $5 a day..that's $150 a month.

American's, myself included, have grown up, and been trained and rewarded, for having nothing better to do than shop.

If 30% of the people in our country went for a bike ride whenever they have that vague urge to "go shopping" we'd be solvent and cure the obesity epidemic. A bit simplistic I admit, but the point is that "shopping" is what we do in this country. And don't tell me that's just women either..I see you eyeing that new PS3 and a couple of $40 games over there.

And part of the problem is that beong "thrifty" or "frugal" or even just "sticking to a budget" has been stigmatized, on purpose, by all of our media. They do make a living selling ADVERTISING after all.

Take a black skirt for example..sure there are lots of kinds, long, short, wool, knit, leather etc. etc., but really, aren't there only about 3 types that look good on YOU? So why keep buying into the hype that you need this years trend. Wouldn't you be doing yourself a favor if you bought a great skirt..that looks good on you? And not the other three you'll never wear.

Or better yet, when it goes on sale..buy a years supply of that awesome shampoo you love. It isn't going to go bad, and it's that much extra every month in liquid assets.

Shopping is not an activity..it's spending money..and for a lot of people, it's spending money you don't have.

[harry]

Join the spender's annomous to cure the urge to spend