Amid reports that retail spending is picking up and the economy may be stabilizing, American families say they are looking beyond the eventual recovery to a more frugal future that embraces pinching pennies and saving money as a desirable and permanent financial strategy.
The First Command Financial Behaviors Index indicates that the majority of April respondents are embracing a more fiscally conservative philosophy in their personal finances. Three quarters of respondents believe the United States was “too wasteful” before the recession. They now say that “when I save and invest my money instead of spending it, I feel like I’m doing the right thing” and “a disciplined saving mentality brings me peace of mind.” More than half (58 percent) agree that “the current economic situation will have a long-term effect on my spending behavior.” And perhaps most promising, half say they have embraced frugality as a way of life.
“Americans are showing encouraging signs of a fundamental, long-term shift in their approach to personal finances,” said Scott Spiker, CEO of First Command Financial Services, Inc. “After years of living in a consumption-fueled economy, consumers are rediscovering the time-tested values of prudence and self-reliance. This change signals a slower but healthier recovery. And that should be celebrated. What we don’t need are encouragements from government or Wall Street to spend, spend, spend. Rather, the time has come for Americans to embrace a new frugality.”
This new attitude is emerging at a time when the American outlook on personal finance is improving. More than one-third (38 percent) of April respondents indicate that their personal financial situation is stable, a 17-point increase from October 2008. Almost half (46 percent) of respondents say they are still “cutting back even though I do not need to.” Only 34 percent say they are looking forward to “the economy rebounding so my spending habits can go back to normal” and just 10 percent feel that living paycheck to paycheck “is a perfectly acceptable way to live.”
Americans continue to cut back by reducing leisure activities (53 percent), attempting to reduce utility bills (49 percent), reducing clothing purchases (48 percent), shopping at discount stores (48 percent), increasing their use of coupons (46 percent), reducing holiday spending (45 percent), reducing travel (43 percent) and bringing their lunch to work (40 percent). Among those who are cutting back, 26 percent said that it is out of necessity and two-thirds (66 percent) said that it is “preparatory.”
Signs of a new frugality can be gleaned from the way Americans are handling their federal tax refunds. Out of those respondents who have received a refund, 45 percent say they will put the money into savings and investments and 40 percent say they are using their refund dollars to pay off debt. First Command’s ongoing research reveals that a disciplined approach to savings and paying down debt tends to increase feelings of optimism and financial security.
“As the ratio of savings to debt increases, so do feelings of financial security,” Spiker said. “The savings-to-debt ratio is perhaps the most significant contributor to feelings of financial optimism, for as one’s savings-to-debt ratio increases—meaning more savings, less debt—feelings of financial security increase, and feelings of being financially stretched decrease. The numbers make it clear that having a reasonable savings-to-debt ratio makes a person feel better about the present and more optimistic about the future.”
Relatively few consumers who have received a tax refund say they will spend it on such non-essential items as consumer purchases (16 percent), vacations (9 percent) and dining out (3 percent). Look for more of this type of frugal spending behavior in the months ahead. Less than one quarter (23 percent) say they “will stop cutting back once the economy is back on track.” The percentage of Americans who have cut back for good is on the rise, from 14 percent in February to 16 percent in March and to 18 percent in April. An additional 16 percent of Americans in April said that they will continue to cut back for 2 to 10 years.
“These results suggest that those who think spending levels will return to past highs anytime soon are living in a dream world,” Spiker said. “The average American has regained fiscal sanity, and that’s a good thing. We’re not likely to see a genuinely healthy economy unless Americans are spending and saving wisely.”
Compiled by Sentient Decision Science, LLC, the First Command Financial Behaviors Index assesses trends among the American public’s financial behaviors, attitudes and intentions through a monthly survey of approximately 1,000 U.S. consumers aged 25 to 70 with annual household incomes of at least $50,000. Results are reported quarterly. The margin of error is +/- 3.1 percent with a 95 percent level of confidence. www.firstcommand.com/research