Will the Great Recession produce a renaissance of thrift?
Could the recession prompt a Renaissance of thrift in America?
Ben Brewer, Deseret News
SALT LAKE CITY — Neven Lee Gibbs, a 59-year-old retired staff sergeant, grew up a self-described "grape of wrath" in California. His parents and grandparents were survivors of the Dust Bowl and the Great Depression, and for them, thrift was more than a quaint idea — it was a way of life.
"Dad wouldn't invest in the stock market for any reason," Gibbs said, "no matter how good the prospects were. In the early '60s the stock market dropped to a point where stocks could be bought for five cents. We didn't buy."
Gibbs and his uncles and cousins all own their homes and vehicles outright. For four generations, the family has sworn by the phrase "pay as you go."
With Americans collectively hitting a peak of $13.8 trillion in household debt four years ago, and now living through the Great Recession, the question arises: Will this economic disaster produce not just a temporary tightening of belts, but a real renaissance of thrift?
A 'Category 5'
Charles Stokes is the Roy Bergengren Fellow at the John Templeton Center for Thrift and Generosity. He studies, among other things, the savings habits of Americans of modest means. When describing the Great Recession, his metaphor of choice is a Category 5 hurricane.
"It was a major economic storm, a Category 5," Stokes said, "and those things happen sometimes. They're hard to predict and when they come, the question is, 'What's the infrastructure? Will the levies hold?' What we've seen is that the infrastructure wasn't very good. The institutional changes that happened since the time of the Great Depression really left Americans of modest means in a very vulnerable place when the Great Recession hit."
Prior to the Great Recession, Americans experienced 20 years of gains in net worth. For the bottom 50 percent of households, all of those gains are now gone — and the wealthiest 10 percent are 80 percent richer. The losses are largely due to the collapse of home values, a mountain of consumer debt and the decline of median incomes to 1993 levels.
Head above water
Keith Harper, a graphic designer, and his wife, Jen Harper, were among those caught in the storm. They bought a home in Seattle for $400,000 right before the housing bubble. "Exactly the wrong moment to buy," Harper said. "Our real estate agent told us if we'd waited a few weeks, we wouldn't have been able to get a loan."
Unfortunately, the loan went through and the value of the home soon dropped to $330,000. About a year later, Harper, who'd been working for a start-up, was laid off and the couple decided to move to New York. They rented their house but still fell $1,000 short of their mortgage payment each month.
"It was draining us," Harper said. They tried to refinance the loan, but the original lender had sold the mortgage. In fact, it had already changed hands three times, and the third lender, a subsidiary of IBM, was only a loan servicer and couldn't originate a new loan. Eventually, the couple defaulted on the mortgage.
Like millions of other Americans, they're trying to pull themselves back up. "We're bootstrappers," Harper said. Now renting and without a car, the couple keeps busy with freelance projects and entrepreneurial ventures. Currently he's rolling out Well Crafted — a digital portfolio application that enables visual designers to show their work across various operating systems on smartphones, tablets, e-readers and other digital devices.
The shift to thrift
Whether the financial vulnerability experienced by Harper and others is triggering a long-lasting culture of thrift, Charles Stokes isn't sure. Household debt has decreased by $1.3 trillion — more than nine percent — since its peak four years ago, but that's not the only metric that matters.