The Great Recession: Are We More Frugal?
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Credit Cards In The News
Credit cards have been hitting the news lately. Over the past year, almost everyone I’ve run into has had their credit limits reduced for one reason or another. Then, in late February, the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD, for short) went into effect. For specific information on how these laws impact our lives, read this article from Free From Broke.
Have Our Habits Changed?
The most recent credit card news is a bit disappointing. According to a report by CardHub.com, Americans have cut $93 billion in credit card debt from 2008-2009. Great news, right? Unfortunately, an estimated 90% of the reduction is due to borrower bankruptcy & credit card company charge-offs on accounts over 180 days due, while only $10 billion was due to consumer payoffs. In other words, we haven’t drastically turned as frugal as we thought.
Of course, there are plenty of conclusions you can draw from this study. Perhaps we aren’t as frugal, or maybe in the midst of the Great Recession, people have chosen to prioritize other bills over the credit cards, like their mortgage, electricity, or car payments. Also, I suspect a drastic increase in “fix my credit” cases out there, where they encourage card holders to stop paying on their accounts for months, then come back and attempt to settle the debt for pennies on the dollar.
Frugal Out Of Necessity
The good news is that credit card use has hit a plateau. The true test of whether we’ve collectively changed our habits will be on the other end of the Recession. Will credit card use increase again, or will people continue living within their means with debit cards? In America and much of the West, will we turn from a negative-savings rate, to setting aside money for emergencies? Are we just being frugal now because we HAVE to? It seems any answer right now creates more questions! Ever since my early 20’s when I applied for a credit card to get a free Padres T-shirt, my credit use increased! I jumped the pay-back curve by a few years when we paid off our credit cards a bit over two years ago.
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Oh yeah, my first card was for the free gift! And I had one of my cards limits lowered (no big deal).
I think some will change their ways for good but in the long run credit debt will be back up. Hope I’m wrong.
I think some people will keep their frugal ways — others will probably drop their frugality when they’re flush with money again.
@Craig/FFB I hope you’re wrong too, but it seems inevitable that it will swing back up. The Great Depression had an effect on one generation, but I’m not sure the Great Recession will even have an effect on our entire generation, because most of the news & education we get is focused on getting back to our former economic spending status.
@RainyDaySaver I agree. I just hope more people than average keep their frugal ways. Only time will tell I guess.
I don’t get the sense that any new realities have set in. It seems like people are just putting up with the nuisance of not consuming recklessly for the time being. The Great Recession probably had the most impact on people who lost their jobs, but other than that the government worked very hard so that the majority of people did not feel a real impact. I wonder if not taking more pain now will haunt us in the future.
I can’t remember which blog I read it on (I check about 30 daily), but there was an article about how consumers are putting their credit card payments first, above their mortgage payments. I’m assuming it’s because CC’s have much higher interest rates, and maybe the new notifications on people’s statements are making them realize they should really pay off their credit cards.
I wonder the same thing – not sure protecting everyone from all the harm makes us stronger or more independent down the road. The greater the government, the smaller the people.
I’m all for paying off credit cards, but at least make sure you’re making your mortgage payment first! If you don’t make your mortgage payment, you don’t have a place to live!
I think the fact that so many people spend more than they earn on credit, I don’t think we’re going to see much of a frugal revolution take place anytime soon. I’m sure there are many since the financial collapse who are now more responsible with their hard-earned dollars but there’s still a whole generation of people who ‘live for today’ in a sense that money is not object.
@The Rat Unfortunately, you’re probably correct. There are people who have cut back out of necessity, but their habits have not changed.
Outside of a return to valuing family above personal achievement our society will continue to spend instead of save. The myth of meritocracy has made greed an acceptable value; risk be damned. Credit has also filled the gap when emergencies crop up. The loss of buying power coupled with the stress of living in a dual income household fuels shopping and eating in restaurants etc.on credit as a release. In the end, an unhealthy obsession with fulfillment in the workplace as opposed to the health of the family will have a far greater cost to our society than national debt and personal debt combined because it erodes the ethical and spiritual core of our country. Hoping self absorbed people will spend less and live within their means is akin to saying that if a frog had wings it wouldn’t bump it’s ass on the ground every time it went somewhere. Living your personal worth means being okay with looking like you make less. The make believe meritocracy continues to slide. Only strong families will spend the financial truth because God’s design for living gives them what careers and consumer goods cannot.