Will 2011 be the year of living frugally?
Or will the buy-it-now and get-the-latest-gadget trend continue? There is much disagreement about whether Americans have really changed their thinking about frugality and spending.
Of course, some people are being forced to change their ways — because they lost their jobs or they’ve gotten in way over their heads in debt. Some economic watchers say once the economy roars back and unemployment declines, many of those who turned frugal will revert to their old spending habits. Others argue that the 2008 Wall Street crisis gave us such a wake-up call and created so much mistrust of the global financial system that we won’t soon forget it.
There’s evidence on both sides of the argument.
Spending like always?
A National Retail Federation prediction for 2011 says it’s hard to predict what consumers will do in the new year. But the trade group points out that “the latest eye-popping tech gadget” is likely to get many to pry open their wallets. Sales of wildly popular smart phones, iPads and the new Microsoft Xbox 360 Kinect game are proof of that.
MasterCard notes in its SpendingPulse tracking survey that online shopping rose 15.4 percent in 2010 compared to the previous holiday shopping season. That doesn’t sound very frugal to me.
Consumers were expected to spend 3.3 percent more during the 2010 holiday shopping season than the year before, according to retail federation forecasts. November and December holiday sales were up only 0.4 percent in 2009, following 2008’s dismal 3.9 percent decline in retail sales.
Other evidence that spending will make a comeback: Direct mail offers for rewards cards jumped fourfold in the third quarter of 2010 compared to the same time period in 2009, according to data from Mintel Comperemedia, a Chicago-based market research firm.
Frugality fans point to the historic drop in outstanding credit card debt and the increase in savings among American families as proof that we’re changing our ways.
Shift toward frugality
The dramatic drop in revolving debt (much of that credit card debt) is certainly evidence of a shift in thinking. The latest G.19 report from the Federal Reserve shows Americans have shed nearly $173.1 billion in credit card debt since August 2008. It’s true that much of that wasn’t voluntary. Credit card issuers tightened lending standards, charged off delinquent accounts and forced other account holders to reduce spending as credit limits were slashed.
The economic downturn forced many people to spend less — either because they had lost their jobs or feared that they might lose them in the future. Part of the decline can also be attributed to negative publicity about the potential “gotchas” of credit cards.
Debit cards have become the No. 1 noncash payment method, according to the most recent Fed payments study. That’s a trend that bodes well for the frugal-minded because debit cards tap the user’s checking or savings accounts for funds rather than borrowing with credit cards.
I’m among the frugal folk, by the way, and I have been for years. I closely monitor my spending and save more than average Americans. I don’t have cable TV (not because I can’t afford it, but because I want to keep expenses low). I shop at discount and second hand stores. It’s now a way of life for me and, except for occasional purchases, I don’t splurge that often. I guess I inherited some of that from my grandmother, who lived through the last major U.S. economic crisis — the Great Depression. When she died she had her life savings hidden in her home. She didn’t trust the banks or the government.
The question for today is how many of us will make life-changing financial decisions — to save more and spend less — because of the Great Recession?
How many of us will make serious inroads into paying off debt during the upcoming year?
How many people will set aside at least 10 percent of each paycheck for savings toward retirement, emergencies or the next big economic crisis?