Are Americans More Debt-Savvy?

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One of the big unanswered questions about the financial crisis and recovery: Will people hit hard by investment, housing or job losses come out of this thriftier?

Or will they go back to their old free-spending ways?

Recent evidence is intriguing, but mixed.

A poll by the National Foundation of Credit Counselors found 25% of credit card users paying a bigger portion of their balance than they did three months earlier.

Still, only 12% followed the wisest course, paying the entire balance every month. The fact that more are paying more than the minimum required may not be due to a change of heart but to new card regulations that make bigger payments more profitable. Any payments above the minimum now apply to balances with the highest interest rates rather than the lowest.

TD Ameritrade (Stock Quote: AMTD) recently asserted that Americans have become more sensible, citing its own poll showing that 39% define financial success as being debt free.

“These findings show the true impact the past few years have had on Americans and the way they think about money,” Diane Young, the firm’s director of retirement and goal planning, said in a statement.

But the firm’s report offered no comparable figures from before the financial crisis, so it’s hard to conclude there has been any change in attitude. And even if there has been, it’s far from certain it won’t change when people have less to worry about.

An analysis by DismalScientist, a publication of Moody’s Economy.com (Stock Quote: MCO) offers the tantalizing conclusion that “consumers are not returning to their old free-spending ways,” but then points out it’s too soon to know if habits have changed for the long term.

Analyst Scott Hoyt notes that savings rates “dropped sharply” in March to 2.7%, compared to 4% for 2009, defying the apparent logic of saving more after a financial wake-up call. The fall in savings rate reflects a rise in spending. Personal savings is a percentage of disposable income.

But, says Hoyt, “the increase in consumption may be a one-time reaction.”

“During the depths of the recession, consumers tightened their belts hard,” he says. “Now that it’s over, even though things are still not great, they may feel comfortable by comparison. They’re not spending at pre-recession rates, but this behavior shift would temporarily increase spending growth.”

Much of the cash consumers are using for this increased spending is the result of lower debt payments, Hoyt says, citing Federal Reserve estimates that minimum required debt payments have fallen to 12.6% of disposable income compared to nearly 14% in late 2007 and early 2008.

In addition, some homeowners may be spending more because they’ve stopped making mortgage payments. About 6 million homeowners are likely to do this because they owe more than their homes are worth, he estimates. Since they may also be skipping property tax and homeowner’s insurance payments, these homeowners may have an extra $100 million to spend in other ways.

“Though some of this money is undoubtedly being used to pay off credit card and auto loans, especially delinquent ones, and some is being saved for future housing costs, a good portion is likely being spent.”

These various reasons for increased spending may well be temporary, he says, masking a growing impulse to save more. Noting that savings-rate data is often revised later, Hoyt says he does believe consumers will become more diligent savers.

But no one can be certain how big those savings will be, or how long the habit would last.

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