When the financial crisis started at the end of 2007, many people were caught unawares and continued to live their life the way they know best, SPENDING! Although the signs were all the over the economy, some simply ignored the call for a change in behavior, and the result was people being laid off their jobs without anything to fall back on. If there is one thing that we have learned from the financial crisis was that we need to change with the times, like I have always said, you have to keep pace with the economy and adjust your financial goals with the changing economic environment. The following article by Laura Rowley shows how Americans changed their spending after learning of the difficult times ahead.
A new Yahoo! Finance survey finds consumers have hunkered down and adjusted their lifestyles in anticipation of a protracted economic downturn. More than half of respondents expect the recession to last three to five years, and they are cutting back accordingly: 57% have slashed spending — on everything from dining out, travel, and clothing to gifts, electronics, and movies. The survey of 2,000 consumers was conducted in April by Yahoo! and Decipher.
Moms such as Seattle-based Melanie Apostol are leading the charge — 65% say they are spending less. The 38-year-old, who has a seventh grader and is expecting another child this month, was laid off last fall from her job at a university, following big losses in its endowment fund. Within a month, she had found another position in communications at a high-tech company, but she is on a contract basis and pays for Cobra health coverage out-of-pocket. Her husband is a mortgage broker whose business has declined with the housing bust.
“I’ve been tracking spending religiously since the beginning of the year,” says Apostol, who manages her budget on an Excel spreadsheet. Vacations, clothing, and entertainment expenses have been reduced, and, like nearly half of respondents, Apostol is driving less — “Doing ten more errands per trip to save on gas,” she says. She is also among the two-thirds of respondents who use coupons, in this case, “the entertainment coupon books where you can go to a restaurant and get one meal for free,” she says.
More than one-third of respondents said someone in their household was looking for a new job (though some of those are currently employed). Michele Mehal, 37, who works at a Pittsburgh non-profit firm, is in that boat; her spouse, 45, was laid off in February from a retail management job and is making a career change.
“Our needs are being met, but we’re not going on vacations anytime soon,” says Mehal. “We rent our home, we have no car payment — we’re able to live modestly,” although they do shoulder student loans. “I’ve never had anything easy and understand the concept of taking one step back to take two steps forward. He’s wanted a change for a while, so we’re trying to make this as positive as possible.” Her spouse is among the 16% of respondents looking into further education because of the recession (the figure is 32% among 18- to 24-year-olds).
In terms of specific financial moves, more than a third of respondents have increased efforts to pay off debt, with moms and baby boomers (age 45 to 64) even higher at 42% and 40%, respectively. About one-quarter of households surveyed have obtained an additional source of income; 25% are drawing down on their savings to pay current expenses, while just under a quarter say they’ve increased their monthly savings.
Eleven percent of those surveyed have revised their investment portfolios. Among that group, 43% reduced their contributions and made revisions to where the money is invested; for baby boomers, the figure was 59%.
Gary Correia, a CPA, was recently laid off as vice president of finance for Taylor Guitars in El Cajon, California, after 13 years with the company, during which sales grew to $67 million from $18 million. While he contributed to his 401(k) this year, he’s “taken a little bit more of conservative approach,” says Correia, 52. “My philosophy was slightly more on the risky side — I thought I had a ten-year horizon before retirement, and that stocks will always do better in ten-year time periods. I’m not sure that holds anymore.
“It may be counterintuitive, but I got tired of seeing my portfolio go down and down,” he adds. “I left the existing funds where they were and switched current deferrals to a money market account. So if I put $100 in, I may not make much in interest, but I know it will still be $100, and not $90 or $80 or $70.”
About 60% of baby boomer respondents say they’ve made changes to their future plans because of the economic downturn. Correia, for example, is among the 19% of that demographic delaying retirement. “My 401(k) went down 37%,” he says. “I had figured I could retire between 59 and 62 at the latest, but I’m thinking about working three more years.”
Fortunately, Correia and his wife saved for years to foot the bill for college for their two children. He has a son who will graduate in December and a daughter who enters college in the fall. “She selected a smaller private school not too far from home,” he says, adding that, with scholarship and grants, the expense is within their budget.
In the survey, 12% of parents age 25 to 44 are looking at lower-cost educational options. Apostol, for instance, has a daughter in a private, independent middle school that runs $1,600 a month, and is considering public high school. “Since last summer, I have looked at moving into a better school district where the public schools are in top 50 nationally,” she says. But she worries that, because her job is on a contract basis, she won’t qualify for a mortgage, even though she has a down payment saved.
Leisure time is also changing amid the recession, as Americans shift toward simpler, lower-cost activities. Consumers say they are spending more time surfing the internet (48%); playing with their kids (46%); watching television (38%), managing their financial investments (36%); playing console video games such as the Wii or Xbox (33%); reading (33%); playing sports and working out (31%); attending religious services (29%); and doing volunteer work (26%).
As for how survey respondents feel about the economic meltdown, they’re mad as hell: 80% expressed some anger, with 44% calling themselves “extremely or very angry.” More than 60% say more should be done to get the nation back on track.
“Sometimes I’m a bit angry because I know I’m going to end up paying taxes and fees and increased costs of things because of these massive billion-dollar giveaway programs,” says Correia, who has lived in the same house in San Diego since 1984, avoided debt, and saved steadily over the years. “I wish they would keep better track of the dollars. Maybe that’s the accountant in me, but when you give billions of dollars, there ought to be a methodology of where it’s going, and making sure it’s the highest and best use. There seems to be no accountability on the part of either the government or those being given the money as to exactly where the money is going.”