Newell Jones knew she was living well beyond her means
when the Great Recession struck: She was $24,000 in
debt. What surprised her, though, was how quickly she
climbed out of that hole during the agonizingly slow
had a lot of work to do to cut costs, start saving and
stop being what she called "a slave to the
the Great Recession, most of her $28,000 annual salary
as a court clerk went to paying the mortgage on a
one-bedroom duplex in Denver. She had turned to credit
cards to pay for fancy dinners, vacations, furniture and
had always thought that a recession was something that
happened a long time ago and it wouldn’t happen in my
lifetime," Jones, 34, said. "So it really was
a big wake-up call as far as ‘Can I afford the life
that I’m living?’"
learned she couldn’t.
Great Recession ended five years ago this month, but the
severe pain and fear it caused continue to haunt
Americans and have led to major changes in how Jones and
many others spend and save.
boomers who had hoped to retire remain on the job to
rebuild battered 401(k) plans. College graduates live
with their parents as they work at low-paying jobs and
look for better ones. U.S. companies outside the banking
sector sat on a record $1.6 trillion in cash at the end
of last year, afraid to expand for fear the economy will
than anything, the recession triggered a simple but
profound change — people are spending less and saving
more. That’s a key reason the recovery has been so
sluggish, economists said; consumers account for about
two-thirds of all economic activity.
adjusted behavior, though, has had a positive effect as
well. Many Americans have repaired their finances by
ending bad habits developed in the years leading up to
housing prices in the mid-2000s combined with
easy-to-get loans spurred U.S. households to borrow at
record levels. By 2008, they had piled up an all-time
high of $12.7 trillion in mortgage, credit card and
the same time, the percentage of disposable income that
people saved plunged to a historic low as rock-bottom
interest rates discouraged them from keeping money in
such lopsided finances, the housing market collapse and
subsequent economic crash sent many people into a
frightening world of underwater mortgages, foreclosures,
unpaid credit card bills and debt collectors.
people who avoided those problems faced financial trauma
as the value of their homes, retirement plans and
crash was more or less inevitable," said William
Emmons, a senior economic advisor at the Federal Reserve
Bank of St. Louis. "The rate at which people were
borrowing and spending was just really headed for
habits from the searing experience had a major effect.
Households have reduced their overall debt by more than
$1 trillion from the record high. And the personal
savings rate of 4 percent now is double the all-time low
hit in 2005, though a survey released Monday found that
many people still don’t have enough money put away to
deal with a lost job or other emergency.
a recent Gallup poll, Americans said they preferred
saving to spending 62 percent to 34 percent, the widest
margin since the company began asking the question in
of the things I’ve been concentrating on is putting
money aside so I’ll be prepared," said Eric
Rossman, 38, of Wappingers Falls, N.Y., who works in
mortgage on his two-bedroom condominium remains
underwater. And with two children — one requiring two
heart surgeries — Rossman and his wife have learned
they need to save for a rainy day.
become much more focused on having enough money should
an emergency happen," he said, noting they’ve cut
down on eating out and other "frivolous
still have to have your occasional night out,"
Rossman said. "But it’s not every meal."
his first son was born in 2011, Rossman and his wife had
about $2,000 saved, and they sometimes would dip into
that money for routine expenses. Now they’ve got
$10,000 in the bank.
are in a much different place than they were five years
ago, and the changes could be long-lasting, said Fabian
T. Pfeffer, an assistant professor at the University of
Michigan’s Institute for Social Research.
happened during the Great Recession in terms of wealth
and saving was so earth-shattering, it’s hard to
believe that didn’t change attitudes long-term,"
Denver, Jones was saddled with $24,000 in debt and went
on what she called a "spending fast" in 2009.
By eliminating all but the most vital purchases, she
paid off all her bills over 15 months. Then she started
was able to recession-proof my life by taking control of
my finances," said Jones, who has since married,
had a baby and bought a $169,000 house in Denver with a
20 percent down payment to replace the duplex she had
bought with no money down at the height of the housing
now, if the economy tanked again, we’d still be secure
in our financial situation," she said.
the economy and her own finances have improved the last
few years, she has loosened her spending. She sold her
duplex to help with the home purchase. But, she said,
"I always am worried I’ll slip back into my old
has tried to prevent that by blogging about her
experiences at AndThenWeSaved.com. She’s one of dozens
of people who have taken to the Internet to chronicle
efforts at cutting their debt since the Great Recession.
so many people found themselves in dire financial
condition, "a lot of the shame was lifted and we
were able to have a conversation about it," Jones
Great Depression in the 1930s had a similar effect on
people’s spending habits, producing a generation of
frugal Americans traumatized by the experience of bread
lines and bank failures.
2007-09 recession was the worst downturn since then. But
even though the scars remain, there are signs that some
bad habits could return as the memories fade.
household debt rose $129 billion from January through
March, the first time since the recession it had
increased for three straight quarters, according to the
Federal Reserve Bank of New York.
debt remains down about 8 percent from the 2008 peak, it
is up about $500 billion since hitting a post-recession
low a year ago.
the same time, the personal savings rate, which
quadrupled during the worst of the recession to more
than 8 percent, has been moving down again, Commerce
Department data show. It’s now less than half that
recent peak level.
statistics have led some experts, such as Mark Zandi,
chief economist at Moody’s Analytics, to believe that
the recession is unlikely to have the profound long-term
impact on consumer finances that the more severe Great
hunkered down, spending less and saving more through the
depths of the Great Recession and the early part of the
now Americans are starting to feel more confident in
taking on some added debt. Over time, they’ll continue
moving away from the sharply higher saving and tamed
spending of the recession and its aftermath, Zandi said.
won’t return to the profligate ways of the boom years,
but to the more reasonable levels of spending and saving
they engaged in before the housing bubble triggered that
huge increase in debt.
kind of lost our minds collectively and borrowed very
aggressively, and lenders lent very aggressively,"
Zandi said. "The Great Recession shocked us back