|
DEBT Jerry and Madeleine Bosco have been forced to switch to a strange, new role for Americans: from big spenders, with credit cards in hand, to penny pinchers. After the financial crisis hit, Jerry, who helps prepare booths for trade shows, had to take a 15 percent pay cut. Suddenly, the couple found themselves facing $30,000 in credit card debt with no easy way to pay it off. So they sold stocks, threw most of their credit cards in the trash, stopped eating out with friends and cut out ski vacations with their two sons and weekend trips up the coast from their home in Tujunga, Calif. Today, most of the debt is gone, but Jerry still hasn't gotten a raise, and the lusher life of the boom years is a distant memory. "We had credit cards and we didn't worry about a thing," says Madeleine, 55. "Our home price was going up. We got DirecTV, and got each of the boys Xbox" game consoles. From the start of record-keeping by the U.S. Federal Reserve in 1951 through June 2008, in booms and busts alike, Americans never failed to add to debt from one quarter to the next. Fortunately, their incomes also rose most of that time. Then wages stagnated in the new millennium. And instead of slowing their borrowing, Americans sped it up. Debt rose from less than 90 percent of annual take-home pay in 2000 to 130 percent in 2007. Americans weren't the only ones who borrowed recklessly. In the 10 years before the crisis, household debt as a percentage of annual pay rose by a third or more in nine European countries. It topped 170 percent in the Netherlands, Ireland and the U.K. Then came the financial crisis and the hard times that followed. In the U.S., debt per adult fell 12 percent the first 4 1/2 years after the crisis, mostly a result of people defaulting on loans. In the U.K., debt per adult fell a modest 2 percent, but it had soared 59 percent in a comparable period before the crisis. Germans and Japanese are culturally averse to borrowing and didn't build up debt before the crisis. Nevertheless, they've cut back since
-- 1 percent and 4 percent, respectively. "We don't want to take out a loan," says Maria Schoenberg, 45, of Frankfurt, Germany, explaining why she and her husband, a rheumatologist, decided to rent after a recent move instead of borrowing to buy. "We're terrified of doing that." Such attitudes are rife when it has rarely been cheaper to borrow around the world. German lenders are dangling mortgage rates at 2 percent. In normal times, record low rates would trigger a borrowing boom like few in history. "But that was the world we knew before 2008," says Jim Davies, an economist at the University of Western Ontario in Canada. "People have a lot of worries and concerns about whether they can make the payments." And a lot of anger, too. Anita Williamson of Bristol, England, says she and her husband were wrong to borrow so much during the boom
-- 1.3 million pounds ($2.1 million), much of it to buy a home. But she says the banks were far too eager to lend. One bank allowed a loan to be "self-certified," a practice mostly banned now that allowed lenders to take the word of borrowers that they could afford the debt. "It's very easy for people to believe the so-called experts at the bank," says Williamson, 55, who had to declare bankruptcy to get out of most of her debt. When it comes to finances, she adds, she won't touch a bank again with a "barge pole." Mark Vitner, a senior economist at Wells Fargo, the fourth-largest U.S. bank, warns not to see a popular revolt behind every dollar in debt that's shed. He notes that populations are aging in many countries: People don't need to borrow as much as they did when they were raising families. Still, he thinks a new distaste for debt is playing a big role. "A whole new generation of adults has come of age in a time of diminished expectations," he says. "They're not likely to take on debt like those before them." ___ SPENDING In France, Arnaud Reze has stopped buying coffee at cafes to save money. The Kawabatas in Japan rarely eat out. Glen Oakes in the state of Washington used to take an expensive vacation every year, such as to Disney World in Florida. He stopped five years ago. Around the globe, in small ways and large, in expanding economies and contracting ones, consumers remain thrifty. You can see it on some High Streets in the U.K., dotted now by secondhand boutiques and pawn shops. Or in weak car sales in Europe, which have plunged to their lowest level in more than two decades. Or in the remarkable rise of Dollar General, a discount chain with 10,000 stores in the U.S. that has more than doubled its profits the past three years. After adjusting for inflation, Americans increased their spending in the five years after the crisis at one-quarter the rate before the crisis, according to PricewaterhouseCoopers. French spending barely budged. In the U.K., spending didn't just grow slowly, it dropped. The British spent 3 percent less last year than they did five years earlier, in 2007. High unemployment has played a role. Unemployment in Europe is 11 percent. But economists say scarring from the financial crisis, and the government debt crisis that started a year later has spooked people who can afford to splurge to hold back instead. Reze, 36, is the last person you'd think would feel pressure to save more. He owns a home in Nantes, has piled up money in savings accounts and stocks, and has a government job that guarantees 75 percent of his pay in retirement. But he fears the pension guarantee won't be kept. So he's not only stopped buying coffee at cafes, he's cut back on lunches with colleagues and saved in numerous other ways. He figures he's squirreling away an additional 300 euros ($400) a month, or about 10 percent of his pay. "Little stupid things that I would buy left and right ... I don't buy anymore," he says. Even the rich are spending cautiously and saving more. Five years ago, Mike Cockrell, chief financial officer at Sanderson Farms, a large U.S. poultry producer, had just paid off the mortgage on his home in Laurel, Miss. He was looking forward to having extra money to spend. Then came the financial crisis, and he decided to put the extra cash into savings. "Earning nothing, just like everyone else, " Cockrell says. "I watched the news of the stock market going down 100, 200 points a day, and I was glad I had cash," he says, recalling the steep drops in the Dow during the crisis. "That strategy will not change." The wealthiest 1 percent of U.S. households are saving 30 percent of their take-home pay, triple what they were saving in 2008, according to a July report from American Express Publishing and Harrison Group, a research firm. Steve Crosby, head of wealth management at PricewaterhouseCoopers, says that when he talks to the rich, he's reminded of his grandparents who held tight to their cash decades after they lost money in the Great Depression. He expects the financial crisis will haunt his clients for a long time, too. "There was a scar, and it's measured in half-lives, just like radioactivity," Crosby says. "People want control."
___ THE FUTURE The good news is that after years of living with less, paying debts and saving more, many people have repaired their personal finances. Americans have slashed their credit card debt to 2002 levels, according to the Federal Reserve Bank of New York. In the U.K., personal bank loans, not including mortgages, are no larger than they were in 1999, according to the British Bankers' Association. People have recouped some losses from the crisis, too. In France, the value of financial assets held by households is 15 percent above its previous peak, according to the OECD. And the value of homes, the biggest asset for most families, is rising again in some countries. Now that people feel richer, will they borrow and spend more? And, if so, how much more? Will "animal spirits"
-- what economists call a surge of optimism that can jolt economies to faster growth
-- come back? Maybe, if there are more people like 63-year-old Sahoko Tanabe of Tokyo, a new buyer of stocks, and an unlikely one. Like many Japanese, she last loaded up on stocks in the late 1980s, right before the country's main stock index began a two-decade swoon to a fifth of its value. She's feeling more optimistic now. "Abenomics," a mix of fiscal and monetary stimulus named for Japan's new prime minister, has ignited the Japanese stock market, and Tanabe has discovered a new appetite for risk. "You're bound to fail if you have a pessimistic attitude," she says. But for every Tanabe, there seem to be more people like Madeleine Bosco, the Californian who sold her stocks and ditched many of her credit cards. "All of a sudden you look at all these things you're buying that you don't need," she says. Attitudes like Bosco's will make for a better economy eventually -- safer and more stable
-- but won't trigger the jobs and wage gains that are needed to make economies healthy now. "The further you get away from the carnage in '08-'09, the memories fade," says Stephen Roach, former chief economist at investment bank Morgan Stanley, who now teaches at Yale. "But does it return to the leverage and consumer demand we had in the past and make things hunky dory? The answer is no." ___ Results of the AP/GfK poll can be seen online at
http://www.ap-gfkpoll.com/.
[Associated
Press;
Copyright 2013 The Associated
Press. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.