By choice or by force, more U.S. consumers are doing something that seems almost un-American — embracing frugality and living within their means.
Maybe it’s a backlash to the excesses, the fast-and-loose mortgage lending and unabashed greed that contributed to the economic train wreck and staggering corporate bailouts that defined 2008.
Or perhaps the newfound frugality is involuntary, as layoffs mount, home prices plummet and 401(K)s shrink.
Whatever the reason, a new “grounded consumer” is emerging in these unsettling economic times, observers say.
“I think it’s almost as if we know, in a sense, we’ve gone a little too far,” said Amy McLawchlin, 28, of Dickinson.
“Our grandparents were big savers, our parents weren’t such big savers. It’s up to us or we’re not going to have a retirement; we’re not going to have those things everyone looks forward to in life, the American Dream.”
McLawchlin and husband Tommy, also 28, married two years ago, bought a house and had a son, Evan, — now 14 months old. She’s a health care administrator and he’s in commercial construction.
One Debt At A Time
About a year ago, the couple met with a financial coach with intentions of tackling credit card and student loan debt. As thousands of U.S. consumers were losing their homes to foreclosure, the McLawchlins wanted a solid plan.
The financial adviser helped put them on a path to savings and living on a budget, McLawchlin said. They’ve paid off the credit card debt, which wasn’t a lot, she said. Now, they’re focused on paying off about $23,000 in student loans, she said. Amy McLawchlin is a graduate student. “We’re hitting one debt at a time.”
Reducing debt and living by a budget is not about being miserly, but about conscious spending, she said.
Getting Their Stuff Together
“I don’t think I’m buying differently, I’m just sticking to a planned budget,” she said.
The McLawchlins were clients of John Schanzer, a Clear Lake area financial coach, who is encouraged by the number of young people wanting to get their financial affairs in order before there’s a problem, he said.
“Younger people in their 20s see what their parents are going through and they see they don’t have to go through that and they’re trying to get their stuff together,” said Schanzer, who’s certified by financial guru Dave Ramsey.
Schanzer coaches clients to pay cash for things such as cars, rather than financing. Saving for purchases and being thrifty is nothing new, Schanzer said. Before easy credit became the American way, most people didn’t buy things until they could pay for them, he said.
Although more young people are getting serious about their financial futures, the new frugality is being practiced by people of all ages and backgrounds, said Tracy Johnson, a cultural anthropologist and research director at Context-Based Research Group in Baltimore.
What ‘Means’ Means
The firm last month released a report showing how the economic meltdown was changing consumer patterns. Living below your means is en vogue, the report concluded. Consumers are redefining the American Dream. Among the findings, grounded consumers go through five stages before making life-altering changes. Those stages include understanding how the larger economy intersects with their personal economy.
In the first stage, consumers begin to understand they’re not what they buy, Johnson said. In the second stage, consumers begin to wonder how they ever got into a financial fix, realizing it’s fatal to live on credit, Johnson said. They begin to assess how they lived outside their means.
“There’s a deeper analysis of what they’ve been doing,” Johnson said. At that stage, consumers begin asking themselves exactly what their means are.
“They’re saying, it’s not my salary plus my credit limit.”
Grounded consumers then move from a “Me” to a “We” economy, in which they make purchasing decisions based on a balance of rational, emotional and social needs.
The fourth stage includes “un-stuffing” their lives and getting rid of emotional and material clutter.
“They’re belt tightening, but still finding ways to obtain gratification through little luxuries — proclaiming it’s time to ‘trim the fat, not the fun,’” according to the report.
Finally, the consumer walks the talk, putting new skills into action and making life-altering transformation, according to the report.
Land Of Opportunity
The report was based on research conducted in October and November in New York City, Baltimore, Miami, San Antonio and Lexington, Ky.
Researchers spoke to consumers of all ages who said changing their personal economy needed to start by stopping the drive to constantly buy, Johnson said.
“We talked to young families to people about to retire,” Johnson said.
The grounded consumer is still shopping, but her purchases are focused on things that bring family and community together, Johnson said.
One person bought a kitchen table with the idea that family and friends could gather and spend more time together, she said. Another bought a house specifically for a large backyard to garden and to spend more time with loved ones, she said.
“What we heard people talking about was wanting to return to what the American Dream was all about ... not the potential to buy, not the land of opportunity to buy more goods ... it was about family and connecting with loved ones and your community,” Johnson said.
Island resident Beth Ledeaux joined the growing ranks of the grounded consumer after Hurricane Ike flooded her house and thousands of others Sept. 13.
Ledeaux, 54, manager of health food store Peak Nutrition, said she was fortunate. She and husband David, 65, who works for a tugboat company, have insurance. They’ve found shelter with friends while repairing their Campeche Cove home, which had to be gutted.
‘Live Like A Spartan’
As she and David cleaned out the home, Ledeaux realized how much stuff they had that they didn’t need. The couple doesn’t plan to replace it all, she said.
“Boy, when I move back into my house, I’m going to live like a Spartan,” Ledeaux said.
Ledeaux is living the stages Context-Based Research Group outlined — going from a “Me” to a “We” economy and “de-stuffing” her life.
She plans to focus more on family, friends and neighbors, some she hadn’t spoken to for years until the storm had them all helping each other, she said.
“I think we had all become so isolated,” Ledeaux said. “We all need each other. The storm did something to me, changed my perspective.”
Mark Stevens, a multimillionaire and best-selling author of “Your Marketing Sucks,” doesn’t buy that U.S. consumers will change their spending habits for long.
“People are driven by the moment of fear right now, they are holding back,” said Stevens, whose latest book is titled “Rich is a Religion.”
“Greed is a human emotion that never goes away; it drives capitalism, people to buy new cars, bigger houses...” Stevens said. “If we don’t have greed, we don’t have capitalism, you could close down 90 percent of the businesses.”
Beyond food, toothpaste and toilet paper, there are very few things people need, Stevens said.
One Degree Below
Consumers don’t have to live like Spartans to become financially sound, Stevens said. They need to understand what money is — an asset base that, when managed well, provides a foundation for financial independence. And money helps people maintain a lifestyle they deem important, Stevens said.
The wealthiest people Stevens knows have something in common — they don’t waste money or use it for display, he said.
When Stevens was 17, his father died, leaving the family with $85. Today, the CEO of global marking firm MSCO has a nice house and nice clothes. But he didn’t buy them until he could provide a financial bedrock of security for his family, he said.
Everyone, no matter his financial position, should live one degree below his means, Stevens said.
People should understand what money isn’t — a means of impressing people or making them jealous, Stevens said.
Consider investor Warren Buffett, who last year had a net worth of about $62 billion. Buffett still lives in the $31,500 Omaha house he bought in 1958. The need to keep up with the Joneses got consumers into their current predicament, Stevens said.
The classic case is the consumer who is looking for a $300,000 house. A Realtor takes him to a neighborhood of $400,000 houses.
“The person says, ‘Whoa, I love the $400,000 home.’ The Realtor says, ‘Why don’t you stretch?’
“‘Stretch’ is a euphemism for buying something you can’t afford,” Stevens said.
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How to get out of debt
Want to get out of debt? The main reason people fail is for lack of a plan, said Clear Lake financial coach John Schanzer. Here are some tips from Schanzer on taking action to reduce debt.
Quit using credit cards
When I ask people why they think they need a credit card, the number one answer is: for an emergency. How did we ever survive before credit cards? Our grandparents used a rainy-day fund. If you like the convenience of the credit card, then use a debit card and only spend what you have in your checking account. You should have at least $1,000 in your emergency fund, if you have to use some of it, replace the money as soon as possible.
Calculate your debt
The best place to start this step is by obtaining a copy of your current credit report. This will give you a list of your financial obligations to all institutions that report to the three major credit bureaus. You can back this up with recent statements or any invoices that may not be included on your credit report. Next, write down the name of each creditor, amount owed and monthly payment.
Prioritize your accounts
Once you have completed a list of accounts, determine in which order you want to pay them off. As a general rule, it is recommended that you apply more money to accounts with higher interest rates; however, in many cases, the higher interest rate may coincide with a higher balance. If this is the case and you feel that you might get discouraged by not seeing accounts repaid quickly, you may want to pay off lower balance cards first. The goal is to free up as much money as possible to put on the remaining debts. This method will likely work best for you and keep you motivated toward the end result.
Determine disposable income
Calculate your income for the month; subtract all of your expenses including mortgage, utilities, food, debt repayment and any other costs of living. The amount of money remaining is what you will be able to apply toward your debt. Cutback on any unnecessary spending such as a gym membership that you don’t use, or cable TV that you don’t watch.
Develop your plan
Once you have determined how much disposable income you can apply toward debt repayment, you should begin by adding that amount to your minimum payment for your lowest balance account. As you apply the new higher payment to the account you selected, maintain minimum payments on all other accounts until it is paid off. Once your first account is repaid, apply that same payment amount plus the minimum payment of your next account. Keep this plan going, and over time, you will see your debts shrink and your disposable income grow.
Learn more at www.johnschanzer.com.
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How to build wealth
Want to build wealth? Mark Stevens, author of “Rich is a Religion” offers the tenets of the wealthy.
• Money is not simply currency; it is the currency of life.
• Wealth is a private matter.
• Always live below your means.
• You can always live very well but being highly leveraged is never living well.
• The most important money you have is the money no one sees.
• Rich people are those who can write out a check when they or their loved ones need the money.
• Buying depreciable assets is spending; acquiring appreciable assets is investing.
• The most rewarding achievement in life is to be content.
Stevens asserts that people need to understand what money is and isn’t.
Money is:
• An important instrument for creating a lifestyle you deem to be desirable and fulfilling.
• An asset base that provides you, when managed well, with the foundation for financial independence.
• An enabler that can improve your lifestyle and provide a deeper cushion of financial independence.
“This is all that money should be. When it is deemed to be more than this, it is actually less, and a multitude of problems arise.” Stevens said.
Money is not:
• A means to become the envy of friends and family.
• A currency you can use to collect as many homes, cars and articles of clothing as you desire.
• An unlimited supply of anything. No matter how long of a roll you may be on, in your business or on the job, always keep in mind Newton’s law that “For every action there is an equal and opposite reaction.”
• A stack of chips in a gambling casino. Yes, you can and often should take prudent risks in business and personal investing, but “prudent” is the key word. Never risk a sum that bets the farm, putting your lifestyle and your independence at risk.
Stevens also is author of popular marketing blog Unconventional Thinking at www.msco.com.
