How we changed from savers to spenders


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How we changed from savers to spenders
Thursday May 18, 6:00 am ET

Mark Terry

A walk through a suburban neighborhood on trash pickup day reveals an
awful lot about American culture. We discard a lot of stuff -- TVs and
radios, ironing boards, paintings, computers, doors, cell phones.

Has ours become a throwaway society? Maybe we should be conserving our
resources. On the other hand, a big part of the U.S. economy is driven
by consumer spending. Every new cell phone, plasma TV, car or upgraded
computer means jobs for somebody ... somewhere.

Ranji S. Dighe, associate professor of economics at the State
University of New York, says, "I know that consumer spending is 65 or
70 percent of the gross domestic product, so clearly spending is
extremely important for the economy."

So have times changed? Have our attitudes, about spending versus saving
and fixing old versus buying new, changed? During World War II,
Americans were encouraged to conserve, save and economize. After the
events of Sept. 11, President George W. Bush encouraged people to go
out and spend money. Have our values turned 180 degrees? And how does
that affect how we spend and save?

"In World War II," says Dighe, "it was a patriotic duty to save. During
the Great Depression, spending definitely would have been welcomed. ...
In World War II the emphasis on savings and thrift was necessary
because the entire economy was geared toward the war effort, so we had
to shift from consumer goods to war production. Whereas what happened
with Sept. 11 -- yes, we have been at war. But it's not quite the same
full-scale war as World War II. The war isn't consuming so much of our
resources that we can't afford to go out and consume."

Technology saves money
Over the years, several forces have influenced Americans' attitudes
about money. One is technology, which we have come to take for granted.
For instance, it's downright unusual not to see someone talking on a
cell phone today, no matter where you go.

Dorothy Holden, 81, of Nashua, N.H., says, "I think we had a very
different view of spending when I was younger. One of the things I
remember was, on the very rare occasions when anybody made a
long-distance telephone call, which was quite expensive in those days,
you had a three-minute egg timer that you turned up as soon as you
started the call, and at the end of that three minutes you just said
goodbye."

Long-distance calls have become a necessity, not a luxury, and
technology has made it easier, more convenient and cheaper.

Mo' flow
Two-income households are the norm now. Whether that's by necessity or
choice, the result is an overall increase in family income.

"I think there are more two-income families, and perhaps that generates
more of a reserve," says Julie Burns, 44, of Harrisburg, Pa. "Perhaps
it's just as the baby boomers age, there's a large group of people in
their 40s, 50s and 60s who are beyond the family financial obligations
and have money to spend."

Debt-level acceptance
One thing seems clear -- people are more willing to be in debt today
than previously. Shannon Surly, 34, of Waterloo, Iowa, says, "I am
baffled to see people in my age bracket who are able to go out and buy
a new car every year, who go out and buy $250,000 houses. I think
they're in debt up to their eyeballs."

They probably are. Paul Laviola, a certified financial planner with
Financial Planning Solutions Inc., in Media, Pa., says, "A big problem
is the easy access to credit and credit cards. With the previous
generation, getting credit was difficult. Today it's a matter of
filling out a credit card form or going on the Internet. People are in
an unimaginable amount of debt. And not just low-income people but
wealthy people, too. All along the spectrum. And I think it's the easy
access to credit that's the driver. Before you didn't have that."

In fact, in the United States consumer debt is at an all-time high.
Certified financial planner Stacy Francis of Francis Financial says,
"The savings rate is actually negative. I know it sounds odd. How can a
savings rate be negative? But it's actually because a lot of people are
spending more than they're earning. And the real question is: Why are
we doing this? Why are we buying things we can't necessarily afford?"

Francis thinks two major factors lead to overspending -- power and
happiness. "I think there's a real problem with the misconception that
having the power of spending equals your value. There's almost an
equation that having money plus spending it equals power. What people
can buy also really impacts their confidence."

Who, after all, hasn't gone shopping to celebrate a good day ... or a
bad one?

Second, says Francis, people still think money can buy happiness. "The
more money you have, the more you can spend, the happier you'll be. And
that's something that is definitely not true."

Francis cites a study conducted by economist Richard Easterlin at the
University of Southern California. He found that the amount of money
people needed to make them happy was $40,000 a year. Once basic needs
were met, increased money didn't really change how happy people
actually were.

Needs change
At one time, needs -- versus wants -- were relatively simple: shelter,
food and water.

As more and more goods were produced, "needs" became more complicated
and included things like telephones, hot and cold running water, TVs
and today, cell phones, iPods, high-speed Internet and two cars. Not
just a chicken in every pot, but a high-definition, flat-panel TV with
surround sound in every room. Society changed and so did our needs, or
at least our perceived needs.

"When I grew up it was, 'What did you need?'" says Carol Noreen, 52, of
Madison, Wis. "Now [young adults] need a computer and they need a cell
phone and they need digital cable access. Where did this concept come
from that these things aren't luxuries anymore, that they're things you
need to exist in society?"

Of course, maybe our "needs" haven't changed. Maybe manufacturers and
their advertising agencies have convinced us -- quite successfully --
that we need these products. Besides convincing us that we can't
possibly be hip, cool, powerful or happy without these products, there
is a peculiar sort of built-in obsolescence.

"It's a neat concept," Dighe says of built-in obsolescence, "but I
doubt there's very much of it in American manufacturing, and here's
why. So much of our manufactured goods come from China and Taiwan and
other places in the world. Unless producers all around the world
believe in planned obsolescence, it just isn't going to pay for
American producers to make products that just break down and have to be
replaced, because consumers will just stop buying them and start buying
more-reliable things produced elsewhere.

"I think you probably do have considerable obsolescence, not in a
literal sense, but in a marketing sense, replacing things that are new
and trendy."

Financial attitudes and how they affect you
Ultimately, our attitudes about money affect the quality of our lives.
How we spend, whether we perceive buying things as gauges of our
self-worth and whether we're going to save enough money to retire may
depend largely on how we were raised and how we react to how we were
raised.

"Some things I think are generational," says Carl Brookins, 73, of
Minneapolis. "I think a lot of it has to do with attitudes and how you
grew up and what your parents are like and the people around you. There
are a whole lot of influences. In general I think our society has
become much more of a throwaway culture, and we tend to replace rather
than repair. Of course, it's so expensive to repair a lot of things now
that it makes more sense to go and buy a new one."

Francis says, "I see the problem with spending among all different
ages, and that's definitely a bridge that bridges all different
generations. A lot of it doesn't have to do with what generation you're
from, it's more about how they were raised and what they were taught
about money. Did their parents spend frivolously? Was there a
competition with the Joneses next door? How were they taught about
money? And how they formed their attitudes and beliefs and values about
money is what stays with them the rest of their lives. It's much more
about that than it is necessarily about age."

When working with clients to get their finances under control, Francis
says she attempts to help them determine what's important to them.

"If it's security, we take that one step further and ask what will help
them feel secure. Maybe it's purchasing a home. It may be having a
certain dollar amount in their emergency fund. It may be putting a
certain amount away for retirement. And we make sure we do that first,
and then whatever's left over, you can have a ball with. Then there's
less of this constant tug of war between their spending and their
values."

"How did we do it before having a cell phone?" says Laviola. "I can't
imagine it today. And it seems like we're going down that slippery
slope of: We need to have a cell phone. I couldn't imagine watching TV
on a black-and-white 19-inch. Can you?"

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