Savings is topic of ‘the talk’
Lee Rousseau is drilling his 12-year-old daughter on the importance of saving -- in a bowling alley in northwest Michigan.
Every Saturday, after Rachael finishes her three league games, Rousseau sits down with the seventh-grader and calculates her allowance based on her scores. He adds dollars and cents for strikes and spares, and deducts for gutter balls. And the rule is, she must sock half of it away.
“I want her to understand money and finances,” the 48-year-old said.
As he ruefully acknowledges, those are subjects Rousseau himself came to understand almost too late. He’s mired in debt: $25,000 in credit card balances, first and second mortgages on the family home and a $12,000 loan for a travel trailer. But he’s determined that his daughter will do as he says, not as he’s done.
“I’m from the school of hard knocks,” he said.
Across America, the deep recession has taught harsh lessons to millions of families. In some, it has stirred a passionate determination in parents to see that their children don’t make the mistakes they made and learn what they wish they’d learned as kids: how to manage spending and to save.
If those impulses persist and have their intended effect, the result could be a watershed moment with profound implications for the nation’s future.
“It may be a harbinger of a kind of cultural shift,” said Eugene Steuerle, a senior fellow at the Urban Institute, a social and economic research institution. And for many families, he said, the change may be unavoidable: “It will be harder for households to borrow, so it will increase their savings rate.”
In the short term, concern over debt and job insecurities have slowed consumer spending and contributed to the still-anemic recovery from the recession.
But longer term, economists said, less spending and more savings will be a key requirement for a return of the enduring prosperity that Americans such as Lee Rouseau had grown up considering a birthright.
Besides increasing financial security, greater savings generate more private investment and help soften the damage from the government’s huge budget deficits.
“There were things we wanted now, so we bought on credit,” said Lisa Lanham, a Huntington Beach homemaker who has three boys, ages 4, 11 and 19, and balances on six credit cards, five of which she has cut up.
Lanham is teaching her 11-year-old about what things cost, explaining even the sales tax rate in Orange County (currently 8.75%) so he can take it into account as he saves for the next big toy.
“I tell him, you have to pay taxes on it,” she said. “He thinks it’s stupid.”
When she can afford to give them allowances, Lanham said, she insists they set aside two-thirds of the money, split equally between church offerings and savings.
“I pray every day that they can do better,” she said.
As consumers such as Lanham have tightened their belts and pared down their debts, the U.S. personal savings rate -- or the share of after-tax income that isn’t spent -- has risen sharply in the last couple of years.
After falling to near zero during the housing bubble in the last decade, the figure has been hovering at about 4% to 5% in recent months.
But it hasn’t climbed to near double digits, as some economists had expected. And one big reason is that many families can barely make their monthly expenses and interest payments on debt.
“There’s nothing to save with bills the way they are,” said Lanham, who is planning to return to the workforce. Her husband works for the local school district, and she said his job wasn’t secure. “We live paycheck to paycheck.”
Faced with economic setbacks and worries about financial security, many families have been drawing down their savings to get through the winter. But many others, adults and children alike, have found a new appreciation for the old and forgotten adage of saving for a rainy day. Like those who lived through the Great Depression, the generation of children who experienced the Great Recession may be the wiser for it.
Studies suggest that most parents don’t teach their children much about money management. And just how much the recession has changed that isn’t clear.
A survey last summer by Credit One Bank found that 80% of parents had not worked out a budget with their teenage children for back-to-school shopping. In 2005, that figure was 91%.
In a more recent poll for American Express, 71% of parents said their children, ages 6 to 16, understood that the country was in a recession. And about half the respondents said they were seizing the opportunity to teach their children about finances, debt and good credit card use.
“We think there’s going to be a lot of money talks taking place at the kitchen table this year,” said Pamela Codispoti, a senior vice president at American Express.
Like many bank-card firms, American Express has been pushing the higher savings trend by reducing credit limits and the number of accounts.
One of the survey respondents was Kevin Beese. He has had many such discussions with his three children in their home in Glen Ellyn, Ill., a suburb of Chicago.
“In early 2009, we really started to look at finances and buckle down,” said the 47-year-old, who last year left an unstable job that he had with a media company and launched an online editing business. The family cut back drastically. When Beese’s father died last fall, instead of flying, the family drove to Florida in its 6-year-old minivan.
Beese has told his oldest daughter, 19, that she’ll have to be responsible for college loan bills. He collects $25 a month from his 16-year-old son for cellphone charges.
And after doling out small lessons on spending and saving to the youngest, who is 13, Beese said he’ll soon have a “come-to-Jesus kind of talk” with her about managing money.
“I think going through this financial downturn, I think they’re old enough to understand,” he said. “My wife and I did OK, but looking in hindsight, we didn’t save anywhere near that we should have. Eating out three or four times a week. We could have really used that money now.
“We don’t want them to rely on credit cards,” he said. “I really want them to understand savings.”
