Is the New Frugality Here to Stay? -- Ellie on FOX NEWS - Neil Cavuto

A new study by research firm AlixPartners indicates that when a new normal sets in after this recession is over, Americans will spend at about 86 percent of their pre-downturn level. Today, I was on Neil Cavuto to discuss with guest host, Stuart Varney, whether this new frugality is lasting or just a passing fancy.

I believe it's here to stay for several reasons. I think that the hard-earned, hard-learned lessons of the recession are not likely to fade as soon as our economy shows its first two quarters of growth. Some of those lessons came through job loss, foreclosures and underemployment and if you weren't directly impacted--you know someone who was.

Secondly, I think that we're not going back to those pre-recession spending levels because there will be what I call a forced frugality. While there will always be spenders out there, it’s going to be harder to spend because:

· NO MORE EASY CREDIT the days of easy credit won’t be so easy as lenders continue to scale back on available lines of credit. One of the reasons Americans could spend beyond their means was because of the ready availability of easy credit.
· NO EQUITY - there’s not going to be the equity in your home to leverage in order to pay for consumables. The people who used home equity to pay for vacations, get out of consumer debt or add a new kitchen are now wishing they had the equity instead. Some of these people are even upsidedown in their homes because of leveraged equity.
· EMPLOYMENT ISSUES – Because spending is down, more job sectors are going to continue to be impacted. As people spend less, more folks lose jobs and unemployment may continue to rise even after the recession if officially over. It’s going to take a while for the job market to bounce back—unemployment and underemployment are going to be continued problems.

Thus, the need to adopt the new frugality as a classic style rather than a passing fad. People like me, who have been preaching the gospel of living within your means, paying cash, paying down consumer debt and letting your kids go to a college you can afford---are now in high fashion.

I hope this kind of fiscal sensibility never goes out of style!

Ellie Kay
America's Family Financial Expert (R)
http://www.elliekay.com/