HAMMOND, Ind. — Are Americans suddenly savers?
After years of negative savings rates and credit-financed consumption, many Americans have learned hard lessons taught to them by today's tough economic climate. But will these members continue their newly found savings ways once the economy bounces back?
Credit Union Journal asked just those questions of credit unions and other analysts across the country.
"My opinion is yes - I think with what we see with Regional (FCU) members is they are saving more and they aren't borrowing as much," said Kevin Kosek, director of $92-million Regional FCU, here.
Kosek believes it's none too soon, as Americans need to start saving again instead of always relying on credit, and that today's economy may be a blessing in disguise.
"I hear members now saying that they are glad they can put money in their savings account," he said. "I overheard kids in the grocery store asking their parents if they are going to get a new car. They said no-they were just going to get their car fixed. I think their savings is going to be like a security blanket for them. People were going 100 miles per hour and not thinking about the future."
Kosek said that recovery is "way down the line," and people need to continue to save. "I'm hoping it sticks," he said. "I hope people learn from the mistakes in their past. This makes us re-evaluate our way of living."
Asking a Simple Question
One Regional FCU marketing campaign is stressing this new way of living. "We ask a simple question: 'Do you really need that?' I am hoping that makes people think," Kosek said.
Henry Wirz, president of SAFE Credit Union, North Highlands, Calif., said he also expects the current economy to have long-term effects on members' savings habits.
"My father lived through the Great Depression, and his financial behavior was shaped by his experience until he passed away in 1980," Wirz said.
He noted that the high unemployment rate, the stock market losses that have decimated many 401(k) plans, the decline in home prices, and the failure of so many businesses have either directly affected SAFE CU's members, or indirectly affected them as a result of constant media coverage.
"Here in California it is difficult to find someone who has not been directly affected by the financial crisis," he said. "The baby boomers who are close to retirement may never overcome the combined effects of seeing their 401(k) plan and their home decline in value. It is likely that many of the baby boomers will have to change their savings habits just to enjoy some semblance of retirement. My daughter just graduated from college and like most of her friends is having a hard time finding a full-time job."
Experiencing joblessness, or the inability to find full-time employment, Wirz believes, will have a lasting effect. "The thought will always be that unemployment or under-employment can happen again," he said. "My daughter is saving as much as she can to build a fund for unexpected events."
Wirz also expects thrift to become fashionable. "Our local newspaper is publishing a series of articles on how to save $1,000," he said. "The editor understands that his readers are shifting their lifestyles and want more information about living a more thrifty lifestyle. I think thrift and a host of other lifestyle choices from the past, such as growing your own food, sewing your own clothes, bringing lunch to work, living in smaller homes or even being a renter will become more popular than before the financial crisis."
Save More, Live More
"I think people will do more and more to live a better life with less and to save not only more money but also to save the planet by leaving less of an imprint in every possible way," he continued. "I don't think we can go back to being big borrowers because credit won't be as easy to get, interest rates will be higher and incomes will grow more slowly."
Paul Stull, SVP-marketing for Arizona State Credit Union in Phoenix, said that Americans have seen enough pain to make some changes that will last for the foreseeable future.
"Unemployment should remain at or near 10% through 2010," he said. "That, coupled with stable to slightly recovering home values in many places, will continue to place an emphasis on saving."
Like Wirz, Stull believes the greatest indicator is lessons from the past. "For many of us our parents or grandparents became great savers during the Depression," he said. "Those habits stayed with them for many years. The second historical trend that supports a bias toward more sustained savings rates is the fact that the historical average savings rate is around 7%. We dipped below that number in the early '90s. That average has held over time and this current correction should start to balance that out. In short, all indicators are that savings is here to stay-at least for a while."
Stull suggested that becoming a saver is a "very attractive fashion."
"For those who still suffer with homes that are worth much less than what they paid or those who have lost 30% to 40% of their 401(k) accounts, saving will be a red badge of courage for having survived the millennial recession," he said. "Saving also has some great support in the Gen Y demographic. They view the world differently and can see the value of sustainability. Reduce, reuse and recycle are very savings-friendly goals, and with the emphasis on sustainability as a local, national and world value, savings should find a very fashionable place in the mix.
"Of course our economy needs the consumer to spend for us to get the benefit of a full recovery and all of our reasons to save could be washed away in a frenzy of low interest rates and cheap goods," Stull cautioned. "I am betting that there will be some combination of that, but basically I see savings as being the long-term winner from this recession."
The Newly Cautious
Carol Szaroleta, director of marketing and business development for Destinations Credit Union in Baltimore, expects people to be more cautious with credit in the future.
"I think for the most part, we will see the majority of people trying to live within their means," she said.
However, she expects saving to be less affected.
"Despite the best intentions, people will be digging out of the current mess for a while - those who could save before, might save more to give themselves a better cushion against the hard times. Those who couldn't save before may attempt it on a small scale - something which credit unions are very good at helping people with. I believe people will be more frugal in their lives. We will see much less wasteful spending, and certainly less conspicuous consumption."
But not everyone believes consumers' savings habits will have a permanent change.
"The current interest rate environment is horrible," said Jeff Schwalen, president of Hiway FCU, Saint Paul, Minn. "We pay higher interest than Treasury across the board, but it is still very low, historically speaking. I believe that when the economy turns around and people feel more secure about their job outlook, they will return to investing in the stock or mutual fund market. They will do so to seek a higher rate of return to make up for the low rate they currently earn and they will have forgotten that most of the stocks and mutual funds lost over 30% of their principal value. Consumer memory is very short I am afraid."
That said, Schwalen does believe that thrift will remain fashionable.
"I also believe we will be seeing an increase in the inflation rate making most commodities more expensive relative to current income which should drive the thriftiness in the future even after the economy turns around and jobs are more secure," he said. "While there may be greater help to the general population for medical coverage from Congress in the next couple of years, the decrease in funding for pensions and demand for a fix for Social Security will provide a huge incentive for consumers to be wary conserve especially for the baby boomers who are now retiring and getting more set on a fixed income."
Fred Becker Jr., president/CEO of NAFCU, which has backed savings initiatives, agreed, predicting that Americans will likely put a little extra aside and spend a little less, but not to the degree that others predict.
"Right now people are delaying purchasing things they will eventually have to purchase," he said.
Becker doesn't expect today's economic storm to have the same impact of the Depression. "I don't think that this is the extent that was," he said.
A positive for credit unions, Becker agreed that this time is bringing more consumers to leave banks for CUs.
"I think many people are looking for stability, and want people who are looking out for their interests," he said.
