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At least once a week, 24-year-old Eric Recker opens an Excel spreadsheet to check his budget. After graduating from Michigan State in 2011 with student loan and credit card debt, Recker knew he needed to be strict with his money.
Now, two years later, he's paid off his credit cards and two student loans. He also puts 15 percent of his paycheck into savings and contributes to his retirement account. While he’s not taking fancy trips or eating out every night, by sticking to his budget he gets to enjoy small pleasures, like going to see his favorite team, the Lions, play the Bears on Sunday.
“I realized I had money to go to the game because I stuck to my budget,” he said. “I do stuff, but I try to be frugal about it while still being able to enjoy myself and not be anti-social. That can be tough line to walk, but it makes the rest of the month worth it.”
Recker is not the only one working to shed his debt load and become financially secure. Since the recession began, Americans on the whole have started engaging in more financially responsible behaviors. According to a recent study from the Federal Reserve Bank of New York, overall household debt declined by $78 billion last quarter, putting it 12 percent lower than its highest levels in fall 2008 and at its lowest level since 2006. And among young people, savings have increased.
“A couple of silver linings have come out of the recession, even though it was very harrowing time to live through,” said John Sweeney, the executive vice president of Retirement & Investing Strategies at Fidelity Investments. “We saw some changes in behavior — reducing debt, increased saving for retirement — that tend to be lasting structural trends.”
While it is going to take a balance of borrowing and savings to create long-term financially stability, experts say there are positive signs that Americans have learned financial lessons from the recession.
Since the depths of the recession, Americans have become more frugal. Overall, household debt has been on the decline, while mortgage balances and credit card debt have shown major reductions. Americans' credit card debt remains 16.5 percent below its July 2008 peak, according to the Federal Reserve. And New York Fed data showed housing debt has come down to $8.38 trillion from $9.99 trillion in mid-2008, a 16 percent drop.
Another good sign that Americans are getting on stronger financial footing is the decrease in delinquency rates — that is, people are actually managing to pay back the debts that they do have. Current delinquencies on mortgages are nearly 26 percent lower compared to the same time last year, according to a TransUnion study. Even in areas where debt levels are growing — student loan debt and car debt — the delinquency rate on both of those types of debt has declined since June, according to New York Fed — which is a sign of more stability in the job market and personal finances.
In tandem with paying down of debt, Americans are now feeling better about their economic situations since the recession began. A survey of investors done by Fidelity Investments found that people are becoming more confident and prepared for bumps in the road. When the financial crisis started, 64 percent of investors reported they were either scared or confused about their financial futures, while 45 percent indicated they were prepared or confident. But today, the situation is almost reversed, with 61 percent saying that they currently feel confident or prepared and 45 percent feel scared or confused.
And in a positive feedback loop, those that have become more confident are engaging in positive investing behaviors like increasing savings, decreasing their debt, and starting an emergency fund. Sweeney said these behaviors are particularly promising because they tend to be long-term changes.