If the Great Recession has taught people one thing, it's this: They need to take charge of their finances.
It's a lesson plenty are heeding. People are saving more and spending less. The personal savings rate has risen to more than 4 percent after sinking to near zero in the months before last fall's meltdown. The number of people getting financial counseling is 3.2 million, double the amount two years ago.
For years, the traditional savings account has been a quaint relic of the past. There were just too many other things to do with our money -- and most involved spending it. Home improvements -- and, for many, a second home; a second car and then a third; overseas vacations. The list went on. Saving meant putting money in a 401(k), and many didn't put as much into those as they could. Then the market plunged and the value of those accounts fell with it.
Now, many people are reassessing their approach to socking money away.
While personal income is down slightly since the recession officially began in late 2007, the personal savings rate is rising. In 2007 the savings rate stood at 1.7 percent of after-tax income. That climbed to 2.7 percent in 2008, and in July -- the most recent data available -- hit 4.2 percent. As people fear losing their jobs, they will save more: Economists expect the savings rate to top 6 percent in coming months if unemployment -- which was 9.7 percent in August -- continues to rise.
Credit isn't as easy to get anymore, so people are getting creative to find new sources of funds.
Bank loan balances declined by 4.6 percent for the year ending in June. But credit union loan balances rose by 4.5 percent, according to industry associations. Credit unions -- which are nonprofits and weren't as tangled in subprime mortgages -- are in better shape to make consumer loans.
Borrowers also have begun to explore less-traditional options. The credit crunch helped fuel the growth of what's called peer-to-peer lending, in which companies enable individuals to make loans to one another.
Many cardholders, meanwhile, have been surprised to see their credit limits cut. Credit card companies slashed limits for 58 million cardholders, or about a third of consumers, in the 12 months ending in April, according to a report issued last month by FICO, the company that produces the most widely known credit scores. A majority of the cardholders had good credit scores when the cuts were made.
Gloria Womelduff said Chase recently lowered her limit to $7,500 from $10,000, even though she says she's never late on payments and always pays more than the minimum.
"I'm as squeaky clean as you can get," said Womelduff, 56, a hospital research coordinator in Kansas City, Mo.
People are saving more and cutting their debts. But at some point, they'll start spending more. Businesses big and small hope so. What's emerging so far, though, is a more prudent consumer.
The use of coupons soared 19 percent in the first six months of this year vs the first half of 2008. People are reading bills more closely, looking for mistakes and to identify unused services that can be eliminated.