Post recession, a new era of consumer caution
A year after the Dow reached a 12-year low, investors and consumers are warier and thriftier. The change could last.
As a credit counselor, Rodney Tullie has been helping consumers manage debt problems for two years. That’s been long enough to witness, from a front-row seat, what some are heralding as the end of an economic era.Skip to next paragraph
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At Consumer Credit Counseling Service of Greater Atlanta, the nonprofit where Mr. Tullie works, client rolls swelled from 596,000 in 2008 to 754,000 last year. Many of those seeking help have lost jobs or homes. Most telling, however, is that Tullie’s average client still works full time but has endured a painful pay cut in recent months.
“One day, I spoke to two people back-to-back who had each had a 50 percent pay reduction,” Tullie says, recalling a day on the job in January. “They hadn’t changed jobs [or seen their hours reduced]. One person had been on his job for eight years, got a 50 percent pay reduction, and was happy because he still had a job.”
Call it the new age of the tightened belt. One year after the Dow Jones Industrial Average bottomed out at 6547, a 12-year low, Americans are still clinging to money as if nothing has improved since then. A 50 percent rise in the Dow since March 9, 2009, has ended the panic but not eased the worry.
Some observers wonder whether, in fact, a 60-year party has come to a close. Since the end of World War II, Americans have enjoyed rising rates of homeownership, expanded access to credit, and improved living standards by many measures. But now consumers are spending less because, it seems, they have no alternative. Their employers are shedding jobs and cutting wages. Their lenders are withholding the inexpensive credit that had for decades been the mother’s milk of a growing economy. Home equity – a reliable source of borrowed capital for homeowners through the mid-2000s – has utterly vanished for millions in a coast-to-coast housing downturn.
These forces have buffeted Ivy Hest, a recent college graduate, in ways that would have sounded all too familiar to her grandparents’ generation. She grew up in Boca Raton, Fla., where she went to private school, ate most family meals from restaurants, and went to the movies often. Then her parents lost their home in foreclosure. Now an unemployed community organizer in Boston, she has become extra cautious with her own money.
A fun weekend night involves having friends over for a potluck dinner and a board game. Meeting a friend for lunch sometimes means homemade turkey sandwiches in a park. She’s lived with three roommates for years, but she and her partner are nonetheless hesitant to buy a home.
“In terms of planning, we’re saving a lot,” Ms. Hest says. “Even though the economy is prime for buying foreclosed properties, we’re not too excited about buying anything before we’re stable.”