Spend Or Save: A Catch-22 For Today’s Recession

By Nancy K. Crevier

In a press release issued January 27, The Conferences Board Consumer Confidence Index reported a continuing downward trend, with consumer confidence dipping from 38.6 percent in December 2008 to 37.7 percent in January. On Tuesday, February 24, The Consumer Confidence Index reported an ever steeper slide down the slippery slope, with consumer confidence at 25 percent, the lowest recorded since the Index began in 1967.

The Consumer Confidence Index measures how positive consumers feel about the economy, determined by their savings and spending habits and utilizing information from the Consumer Confidence Survey, a representative sample of 5,000 US households. Lynn Franco, director of The Conference Board Consumer Research Center, said in January, “It appears that consumers have begun the New Year with the same degree of pessimism that they exhibited in the final months of 2008,” adding, “Looking ahead, consumers remain quite pessimistic about the state of the economy and about their earnings. And, until we begin to see considerable improvements in the Expectations Index, we can’t say that the worst of times are behind us.”

Building on that statement, Ms Franco said on Tuesday, “All in all, not only do consumers feel overall economic conditions have grown more dire, but just as disconcerting, they anticipate no improvement in conditions over the next six months.”

While not exactly pessimistic, Newtown residents are casting about for ways to make the dollar go further. Struggling with decisions to pull the plug on spending, even as the government promotes a stimulus to encourage spending, presents a quandary, but for some residents rethinking spending habits seems the prudent route in unsettled economic times.

“We are drawing on the mindset of our frugal family background,” said Renee Baade. She and her husband, David, are paying closer attention to how money is spent in the grocery store, for one thing. “I had tended to shop with convenience in mind and had gotten used to certain brand names,” Ms Baade said, but now that her husband does the bulk of the shopping, he tracks prices more closely and uses coupons. They are also making soup stock, using leftovers more efficiently, cutting back on eating out, and enjoying the less costly matinee movies or the bargain $2 movies at Edmond Town Hall. The Baades have also found that a cozy down comforter and space heaters have allowed them to turn the heat down. “The bottom line is, we are being cautious when it comes to spending, in general,” said Ms Baade.

Bob and Marty LaMarche have also always been on the conservative side, they said, but are making more of an effort to keep a well-stocked larder of homemade staples. “I buy less boxed cereal and instead have a little breakfast bar set up in the kitchen with oats, currants, nuts granola, cinnamon, bananas, and brown sugar,” said Ms LaMarche. Being proactive in the health department keeps little illnesses from becoming costly doctor visits, she added.

Clustering errands and sharing family cars cuts back on auto costs, said the LaMarches.

But some of the LaMarches’ savings go toward supporting local charities and food pantries. “In times like these, hard times feel close even if you still have employment. It’s a small world and we need to remember that what goes around, comes around,” said Ms LaMarche.

“We have reacted [to the slumping economy] like many Americans,” reported Mary and Ray Maki, “and have just drawn back with our spending even more. We dine out less frequently; we carefully plan meals, and make sure we use up leftovers. We ask, ‘Do we really need it?’ when considering a purchase,” Ms Maki said.

“I suppose the most significant action [for cutting costs] has been to consciously reduce the level of usage of my credit cards,” said Brian Amey, who is branch manager at Newtown Savings Bank on Main Street. “I had two, and have now stopped using one, have repaid the balance, and have closed the account,” he said. The credit card that he does use requires full payoff every month, saving him charges, fees, and interest.

On the home front, said Mr Amey, he and his wife are trying to keep the heating bill lower this winter, eating out a little less, and bringing lunch to work more frequently. His meal cost reduction techniques do have an ulterior motive, confessed Mr Amey: “It reduces the size of the meal, with the objective of trying to lose weight for the benefit of my health,” he said.

Tina and Ted Welsh have also found an upside to eating out less as a money-saving strategy, in that they are now trying new recipes and experimenting more with food, they said. They made an effort to enjoy more homemade meals when they realized that a lot of their expendable income was being “forked over” to eating establishments. “We have really enjoyed cooking more,” said Ms Welsh.

Like the Baades, they are also becoming fans of the matinee movies when they go out, or watching more movies at home.

Buying books can be rationalized when times are easy, but during this unsettled economy, the Welshes, both prolific readers, are looking for ways to feed their print habit without breaking the bank. “We are using used book sites like abebooks.com, and we use the library more for books and CDs,” said Ms Welsh. Instead of subscribing to print media, they are reading newspapers online.

“We are torn between spending to stimulate the economy and saving,” she said. “That is a dilemma.”

That dilemma is a real concern. Saving is beneficial to an individual, but it is not so beneficial to the population at large, according to an economic theory put forth by 19th Century British economist John Maynard Keynes. This “Paradox of Savings” says that if everyone saves money during a recession, demand falls, and total savings of a population are lowered, due to a decrease in the purchase of consumables and a lessened economic growth. So what seems on one hand a very good thing — saving — can be detrimental if a balance of purchasing does not also happen at the same time.

“It’s a tough area,” said John Trentacosta, president of Newtown Savings Bank. Overall, Newtown Savings Bank has seen consumer lending slow a little in recent months, with those who are borrowing doing so more cautiously. “People are doing what they need to do, not what they would necessarily like to do,” Mr Trentacosta said.

Still, said Mr Trentacosta, for those who feel very secure in their job situation, there are good opportunities in real estate and other ventures now. “At Newtown Savings Bank, our lending posture hasn’t changed. We never got involved in giving loans to people without the appropriate capacity. People who do have the capacity to borrow are still able to get loans,” he explained.

 “Clearly, for the economy itself, it is good for people to spend. But I think people should be a little careful about how they spend their money,” he said. During a recession is probably not the best time to stretch personal finances, suggested Mr Trentacosta. How much to spend and how much to sock away for a rainy day is a very personal decision, Mr Trentacosta noted. “If people are worried about staying above water right now, then spending freely is probably not a great idea,” he said.

“Be conservative,” he advised. “Sadly, that’s not what the economy needs.”