Will Frugal Habits Last?

I have been intrigued that frugal is now fashionable.  According to a survey by HSBC, fully 85% of households surveyed had modified spending and saving habits due to the recession. Certainly, the recession has forced most people to re-examine their spending patterns.  But, when the economy rebounds, and even if it looks bleak, there will be some kind of recover, with past spending patterns reinstate themselves?  Interestingly, in the same survey, 76% said they thought that past spending patterns would resume when financial conditions improve, meaning that saving rates would return to near zero; and credit cards would be used heavily.  Although I believe that people have a very short memory and many may indeed forget their newfound frugality in a heartbeat; but I think that a large proportion of households will retain some frugal patterns in their lives.  Here’s why:

–Lack of real wage growth, although the economy itself may improve, unless wages rise, I don’t see spending power increasing

–Lack of access to easy credit, it seems that a lot of spending was fueled by credit cards and home equity loans.  With banks and financial institutions pulling in the reins on this, it is unlikely that credit will return to previous easy levels.

–Many people are underwater on their mortgages — with an estimated 1 out of 4 or 5 mortgages underwater, it’s hard to see that spending habits will return to where they were at the peak of the real estate boom.

–Retirement portfolios are down, some sharply — with many people revising their retirement plans and realizing the risks inherent in investing, saving is likely to be prominent in their thinking

–Increasing numbers of people are embracing simplicity — although there’s certainly self-selection bias, it seems that a lot of people are embracing simpler, more environmentally-sustainable, living. Even if financial conditions improve, many may retain frugal habits.

see other posts at this week’s Festival of Frugality