The American economy may have grown up on credit, but it will have to mature on saving and investment.

That's what the people said in the American Banker's 1992 consumer survey. The public is turned off by the debt accumulated in the 1980s, and is, at the least, expressing a desire to be more thrifty.

Broad Consensus

Five of every six interviewed for this year's survey agreed with the proposition that "consumers have taken on too much debt." And seven of 10 said they were "trying harder to save money than a year ago."

Both numbers were higher than in 1991. (The 1992 survey report has been mailed to American Banker subscribers. This is the first of five excerpts.)

There are reasons for bankers and other consumer lenders to worry that consumers' credit and savings attitudes are not just reactions to the recession. They may mark the beginning of a permanent shift in habits and behavior that threatens many banks' primary source of income.

Redirecting Bank Efforts

Recent declines in consumer installment debt, as well as slow growth rates in the still-expanding mortgage and credit card sectors, hint at how the world of financial institutions could turn upside down. More attention would have to be paid to savings and investment products and their very different profit characteristics.

To be sure, there is no conclusive evidence yet of a lasting change in consumer saving habits. While some trend-watchers expect more money to flow into savings as soon as consumers clear away their debts, most bankers and mainstream economists remain believers in the cyclicality of credit.

"As things get better, people will revert to their traditional behavior," said D. Bruce Wheeler, executive vice president of Mellon Bank Corp. in Pittsburgh. "Behaving more confidently will mean reaching for more credit."

"This recent recession hit groups that were unaffected by earlier downturns, including the baby boomers," said Phil Johnson, president of Leo J. Shapiro & Associates in Chicago. "They will be back."

|Long-Term Changes'

But something different is afoot, according to Matthew Lehrman, director of sales and marketing at the Bank of Scottsdale, Ariz., a community bank with about $70 million in assets.

The boom in mortgage refinancings "is a good indication that people are making long-term changes," he said. "Concurrently, permanent savings are going up, and that's a challenge."

"It's clear to me that bankers in general are not facing this issue head on," said Michael P. Sullivan, a Charlotte, N.C., consultant and former bank marketing director who spends much of his time trying to alert the industry to some inexorable demographic trends.

For example, he said, with the aging of the population - a result of the end of the baby boom in 1964 -- will come fewer household formations, fewer home purchases, and less of the debt and consumption that propel that economic engine.

Mr. Sullivan said bankers must reorient their thinking toward "astute investment services, rather than credit. That is where they will get their all-important fee income in the future."

$64,000 Question

Whether the survey's anti-credit findings and broader indicators constitute a sea change or a blip is "the $64,000 question," said Mr. Wheeler of Mellon. He leans toward the latter view. But the retreat from - or revulsion at -- credit has gotten more pronounced since the 1991 American Banker consumer survey.

The Gallup Organization Inc., Princeton, N.J., which conducted the survey of 1,002 randomly chosen adults in April and May, found that the number agreeing that "consumers have taken on too much debt" rose two percentage points, to 83% from 81%.

More telling, in that the statistical margin of error is plus or minus 3%, was that the percentage "strongly agreeing" with that statement rose to 68% from 64%.

Meanwhile, there was a four-point increase in those agreeing that they are "trying harder to save money than a year ago," to 69%. And the number strongly agreeing leaped by eight percentage points, to 57%.

The Way of the Baby Boomers

It may be a confirmation of what demographers had been expecting as the baby boomers, whose life stages and behaviors have driven the economy since 1945, moved toward middle age.

(The oldest of the 78 million boomers are now 46, the youngest 28). Credit and consuming give way to future-oriented investing -- whether in homes, financial instruments, or children's education.

Consider these possible signs of a diminishing credit addiction:

* Total consumer installment debt declined 1% in 1991, to $729 billion. By June 30 this year, the seasonably adjusted total had fallen another 1%, to $721 billion.

* The one type of installment debt that has continued rising -- credit cards and other revolving accounts -- grew 6% last year, down from 11% in 1990, 14% in 1989, and 20% or more in the mid-1980s. The remaining growth may be a result of consumers viewing their credit card lines as loans of last report.

* Growth in domestic credit card spending has fallen into single digits; the double-digit increases that MasterCard and Visa reported consistently in the 1970s and 1980s have migrated to "less mature" markets in Europe, Asia, and elsewhere.

* For the first time in the nine years of the American Banker consumer survey, the market shares of the bank credit cards -- measured by percentage of households owning and using them -- declined in 1992.

Household shares did increase in the more fragmented market for cards issued by retailers, including the Sears Discover card.

* The growth in total mortgage debt slowed to 3.5% in 1991, from 6.4% in 1990. Mortgages on single and multifamily residences grew 4.7% last year, down from 7.7%, and commercial banks' outstanding rose 3.8%, down from 10%.

Refinancings, not new loans, have accounted for much of the mortgage banking activity.

* During the first quarter of 1992, personal bankruptcy filings were at a pace to exceed one million for the full year. They will at least approach the million mark, which would be 130,000 ahead of the 1991 total, which in turn was up by 150,000.

Thus, millions of Americans have become credit-hobbled, if not entirely taken off the credit rolls, in recent years.

The macroeconomic effects are clear.

Rise of the Cautious Consumer

In April, when the American Banker/Gallup poll was getting under way, consumer borrowing took its 10th consecutive monthly decline and its biggest since June 1980, said economist Jack W. Lavery of Merrill Lynch & Co.

"Consumers are cautious," Mr. Lavery wrote in a report titled "Coping with a Tight-Fisted Consumer." "They're mending their balance sheets, shunning installment debt, and fine-tuning purchase decisions to yield the most value for the lowest expenditure."

The swing from debt over to savings is hard for many consumers, and is not happening quickly.

The saving rate, as a percentage of disposable income, has hovered between 4.4% and 5.4% since the late 1980s, according to the Federal Reserve Board. This concerns economists and policymakers who see rates that are three to five times higher in competing industrial economies like Germany and Japan.

With interest rates at or near historical lows, many consumers have been turning away from traditional bank savings products and are looking elsewhere for higher-yielding, if riskier, investments.

"We have to learn to lessen our loan-to-deposit ratios, and look for other sources of income," said Mr. Lehrman of the Bank of Scottsdale. "Luckily, this isn't all happening overnight."

Credit Still Has Life

Researchers at Payment Systems Inc. in Tampa, Fla., an affiliate of the American Banker, have said that consumer credit will remain a big, even booming, business through the 1990s. The shift to savings and investment would take hold gradually.

"The trend to nondeposit products such as annuities and mutual funds will not be reversed," said consultant Barry Deutsch, another believer in the decline of the credit culture.

In a newsletter to clients of his firm, the Deutsch Consultancy of Coral Springs, Fla., Mr. Deutsch recently wrote, "As middle-age baby boomers grow older, they will turn more conservative, but they won't sell out.

They've gotten used to having their funds outside the banking system and they won't rush to certificates of deposit just because they reach 65."

Prediction for 2020

The oldest boomers will be 65 in 2011. Mr. Sullivan tells bankers to expect that by 2020, the number of people over age 50 -- which he says is the final turning point away from credit -- will have grown 74%, those under 50 only 1%.

In the short run, bankers may not be hurt by their traditional thinking.

Susan Mohr of Lake City, Iowa, typical of customers making balance-sheet adjustments, said, "I'm not saving more yet. I'm trying to pay off all my debts first." An office manager in a two-income household who believes she has been affected by a credit crunch, Ms. Mohr found a way to consolidate her debts at a single bank.

Bigger Shift Among Women

But the stated desire to increase savings extends across many demographic segments, and has gotten stronger.

In 1991, when 49% of the total American Banker/Gallup sample agreed strongly that they were trying to save more, 53% of women said the same. This year, with the overall response at 57%, women jumped by 10 points to 63%.

Men showed a more modest seven-point increase to 52%.

Young-Adult Segment

People aged 18 to 34, the young-adult segment that tends to be turned down for loans more than others, are highly intent on saving. The number who strongly agree that they try to save more rose to 69% from 57% last year.

Contrast that with the 46% of consumers over age 55 who gave the same answer, up from 40% in 1991.

Groups that marketers view as "downscale" continued to be trying harder than others to save. These included people who never went to college (62% strongly agreeing, up from 56%), and those with incomes under $40,000 (58%, up from 54%).

Among customers of finance companies, which often make loans that banks will not, the figure was up only one percentage point, to 64%.

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