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Is Frugality Still Here?

Yesterday, American Express reported its fourth quarter income, and the company had much to cheer about. The company’s net income during the last three months of 2010 was an impressive $1.1 billion, up 48 percent over the fourth quarter of 2009. It gets better than that. If you isolate just American Express’s card business in the United States, the increase from 2009 to 2010 was 70 percent. That’s a significant comeback reflecting a better economy, even if the portion of the economy reflected in the unemployment numbers hasn’t bounced back yet. American Express says that their revenues “reflect higher cardmember spending.”

For this to be mentioned in the press release announcing the company’s financials, it must be a significant increase. It is enough for American Express to cite as a major contributor to their success last year.

In the midst of the recession, mainstream press offered article after article about the New Frugality. Like the Great Depression defined a generation of savers, the Great Recession would change the attitude of millions of people, leaving spending on credit behind in favor of spending no more than what someone could afford. The young people whose attitudes were defined by the recession, those hit hardest by unemployment like recent college graduates, would forever have an approach towards money that mimicked their great grandparents.

I was skeptical. Life moves at a different pace than it did eighty years ago. Attitudes, fads, and philosophies change from television season to television season — even from the Emmys to May Sweeps. I had no reason to believe that once the credit card offers started appearing in the mail again (they have), and businesses have access to loans again (they are starting to), that the country won’t quickly remember the benefits of leverage and using other people’s money. If the American Express financial report is to be believed, it looks like this is happening now.

Here is what the CEO has to say:

“Continued investments in the business helped to generate higher consumer, small business and corporate card spending while expanding the use of our products online,” said Kenneth I. Chenault, chairman and chief executive officer. “With cardmember spending up 15 percent this period, we reached all-time records for the quarter and the full year.”

2010, the year barely out of the most severe economic recession since the Great Depression, set all-time highs for consumer spending on American Express cards. While the numbers are looking good, keep in mind that American Express wants the economy to improve. The more positive financial news the company produces, the more other companies in the industry will need to produce to remain competitive, and in an interesting feedback loop, all this good news helps increase investor confidence, companies will perform even better, and consumer confidence will continue to improve. American Express has a strong business reason to believe that consumers are spending more because that is how the company will continue to survive.

The findings by American Express may not reflect the average consumer. Are you still being as frugal as you were last year or the year before? Have your spending patterns or attitudes changed recently?

I think it won’t be long before the new-found frugality becomes a thing of the past, with easy consumer credit and the desire to make up for some lost time.

American Express Reports Fourth Quarter EPS of $0.88, up 47% From a Year Ago; Cardmember Spending at Record Levels and Credit Quality Continues to Improve
Photo: neoliminal

Updated June 23, 2014 and originally published January 25, 2011.

About the author

Luke Landes is the founder of shizennougyou. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 37 comments… read them below or add one }

avatar 1 Anonymous

The answer is obviously no for the majority of people who were just waiting for the media to declare the recession over so that they could continue to overspend just like before. I think most in the know believe we are in for another round of hurt once the fake recovery from all the stimulus money thrown at the issue subsides and no real recovery has been had.

Sad to see that the majority of our country have learned nothing and will continue to drag the rest of us down with them as they over indulge and leave the responsible ones with the bill.

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avatar 2 Anonymous

I’ve been saying all along that there wasn’t any sort of major shift in thinking because of the recession. Now that the economy is coming out of it, most people are going to be back to “business as usual.”

That said, my personal recession is alive and well!

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avatar 3 Anonymous

I think that most people that were hurt by the recession, like the unemployed and about 50% of the people that had/will have their house foreclosed on, will change. But the majority of the country wasn’t really affected strongly enough by the recession to create a change in them. Other than minor benefit cuts and small raises there wasn’t really much that brought people down.

I’ll even argue that most people only stopped spending because they became worried that something bad was going to happen to their life. But now that the worst *seems* over they are going back to spending.

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avatar 4 Anonymous

“I think that most people that were hurt by the recession, like the unemployed and about 50% of the people that had/will have their house foreclosed on, will change”

I think most of them haven’t changed at all. Circumstances changed what they were allowed to do. If circumstances return to them the chance to spend on debt again, I will gladly wager most of them will return to their old ways like pavlov’s dog.

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avatar 5 Sarah

Though some people may stick to their new frugal ways, I think the majority of people are going to drift into their old habits. Without the threat of financial ruin hanging over them, people just aren’t going to be as disciplined with their money.

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avatar 6 Donna Freedman

I agree that many people will just drift back into spending or overspending. It’s as though they’re emerging from a frugal time-out: You were bad, go sit in the corner, no more spending for you!
Some people may change the way they look at money. I’d be willing to bet that some people will never learn. They like the buy-now-pay-later lifestyle because it doesn’t require accountability.
People who have needed to be frugal all along just to keep the books balanced will probably keep doing so — but American Express doesn’t care about them because they’re not the kind of people who could ever get an AmEx card anyway.

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avatar 7 Anonymous

For the most part AmEx has a different model than lets say visa or discover – Any indication as to their earnings?

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avatar 8 Luke Landes

Visa’s earnings should be coming any day now. MasterCard’s is coming February 3. Discover’s last report was through November 30, so we may not get their earnings that include December for a while.

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avatar 9 rewards

What is the different model?

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avatar 10 Anonymous

Frugality is not limited to one sector of the economy! Anyone can be frugal and its definition changes along with the circumstances. A rich person may be frugal, if they skipped the expensive wine with dinner. A poor person may be frugal because they use public transportation instead of a car.

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avatar 11 Anonymous

My spending habits and attitudes have not changed, because they didn’t change during the downturn.

I was dubious all along of the reports of the “new frugality.” People couldn’t get credit and were out of money, so they were forced to stop spending. This was nothing like the Great Depression. Nobody starved to death; we didn’t need a war to pull us out of it; etc. And so, I wouldn’t expect it to change people as much as the Depression did.

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avatar 12 Anonymous

This recession was not nearly painful enough to create any lasting change.

First it only affected directly in a severe way about 5% of the population (unemployment went from 5% to 10%, that’s only 5% of people who lost their jobs, it was more like 25% in the great depression). Some people got salary freezes or pay cuts but most of those were not dire.

Second of all, we have now extended unemployment benefits to a full 3 years. This does not create hardships. Without hardships, people don’t change. We are surrounded by media. Where are the stories about people starving in the streets (food shelfs are running low or out of food, clearly an indication of increased demand for free food, but that is not a story about a family starving in the streets). Where are the people kicked out of their houses with no place to go and actually living on the streets? People are not inundated with daily stories about the horrors of life as we know it in this recession (because there are no real horrors, just difficulties that are not fun for those experiencing them but pale embarassingly compared to what people in the great depression when through).

There is a lot of talk about how bad this recession is. Statistically that may be true. But it doesn’t hit home for very many people. It’s not scary. Is anyone here scared to death of starving or freezing to death in the next month? I assure you that was a real fear in the great depression. And if you didn’t fear it yourself you feared it for people you knew or that you were one bad break away from that happening to you. Almost no one is fearing that now.

In addition, most of the frugality that occurred was because people had credit cards and lines of credit removed and their housing ATM went broke. They didn’t decide to become frugal, they had frugality, temporarily thrust upon them. Stories about the reduction in debt can be shown to have almost all of the reduction due to foreclosures and credit card bankruptcies. Namely, debt was reduced by defaulting on it, not by paying it down.

Frugality you say? Not if we have any choice in the matter.

Rumors of the demise of our over-spending have been greatly exaggerated.

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avatar 13 lynn

The unemployment numbers can’t be believed as the numbers are askew. It’s estimated that the true numbers are as high as 20%. There’s no way to prove it as these numbers are not calculated or tracked by any agency.

Also it would be counter productive to do an article on starving people and food banks running low on food, when the perception perpetuated is a recovery.

One rule of thumb – if an article says xxx, it’s a safe bet the reality is yyy. Just MHO.

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avatar 14 Anonymous

I seriously don’t think most people are still hurting. They’ve rebounded strong, just like the 80% rebound in the stock markets.

Corporate earnings wi continue to do well, and the biggest fear now is whether there will be enough of the goods you want, sinc demand is coming back with a vengeance.

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avatar 15 tbork84

The really interesting thing will be how people respond once the price of gas and food starts to rise with higher demand. People haven’t really had to cut back or be frugal with the extensions of support from unemployment benefits, but with everyone feeling more comfortable about the state of economy, you are totally right. Demand will come back.

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avatar 16 skylog

i would be interested to see if visa, mastercard and discover have similar thoughts when their earnings come in.

that said, i would love to think that people have changed, truly changed, in at least some small ways, but sadly, i do not think that will be the case. yes, perhaps some people will make some lasting positive change, but i believe society, as a whole, will not.

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avatar 17 Luke Landes

For those talking about unemployment insurance — although it was extended several times, it doesn’t replace someone’s full income. So there is still some cutting back that has to take place when a family loses employment income, because that income is only partially replaced by unemployment insurance.

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avatar 18 Apex

This is true, and I don’t get the impression that people are saying that due to unemployment insurance that people are living on easy street. What it does though is keeps people living without fear. Yes, maybe you can’t get the new iPhone but you can get food and clothes and even probably keep your cell phone and still go to the movies. This is not the type of thing that will cause people to change behavior. People change behavior when something shocks them into a reality check. Why do people quit smoking after a heart attack? Because fear gripped them and they realized this was serious and they could die. They always knew they could die, but it was abstract and the comfort/addiction of smoking was just too powerful to overcome the abstract idea that smoking is bad for your health. But when it hits home and reality sets in and the fear becomes real, that is powerful. That changes behavior. There has been very little fear for most people this recession, unlike the Great Depression. That is my point and I think others, about the unemployment insurance. It keeps people from facing the reality of their behavior and thus they are not going to change it. Once things get better they will be on the same path as before. Why not, there were not really bad consequences to it this time, just a slight cutting back. That’s not very scary. Why should they not think next time will be just fine as well.

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avatar 19 Apex

As a side note, I realize that the way I stated the above comment it sounds like I might be saying everyone who faced financial difficulty in this recession has done so as a result of their own prior poor financial behavior. That is obviously false.

But even for people who did everything right and still found themselves in dire straights, it would make them even more frugal in the future. That happened in the Great Depression. For some people it sadly turned them into misers even if they were multi-millionaires. That is what the fear of something like the Great Depression can do. That is what will not happen this time because there is no fear.

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avatar 20 Anonymous

Frugality is not a fad,lifestyle or whatever but a mindset of not overspending. People who think they are frugal will be for a while and when they have to, but given the opprotunity to get out of there frugal ways they will.They are not trully frugal.

I am frugal but I still have whatever I want because I live below my means instead of above. I dine out when I want, eat what I want and spend what I want but it is with though and purpose as apposed to impulse, depression or whatever else excuse you want to give to spend money.

None of it is on borrowed money. ( credit card)

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avatar 21 Anonymous

We are still being frugal. We were always frugal, but the last two years we really watched the expenditure. I think it will stick.

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avatar 22 eric

I didn’t change much simply because I’ve always been careful with my money. I’m sure people’s wallets will slowly loosen if they feel the economy is picking up.

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avatar 23 stephsk8r

I’ve always been frugal as well. We spent a lot in December, mostly on home projects, but it was money we’d saved for that purpose. Though we spent more than we made in that month, we weren’t living above our means.

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avatar 24 Anonymous

Did I miss something? We are out of the recession? Really?

Home prices TODAY hit an post peak LOW. That means homeprices are still falling.

Foreclosures are INCREASING. They are not slowing down, they are getting worse.

UE is increasing. Not the 9.4 bs manipulated rate you are spoonfed, the UE6. The REAL rate. 16% and rising.

You suckers drinking the koolaid and thinking because the Market is up things must be getting better are a bit off.

And the article siad that credit card spending is up. Doesn’t that mean that people are usine their credit cards to spend. Which menas they are borrowing and many are not paying it allback. When I hear that CC speniding is way up 70%, What I take that to mean is people are putting crap on the card that last year they either didn’t buy orpaid cash for. Either way, bad sign.

We are kicking the can down the road. Extending unemployment benefits. Borrowing money to prop up the economy. The underlying fundamentals, ie job creation, home prices, foreclosures are not improving. Your attention will be garnered soon.

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avatar 25 Luke Landes

The official word is that the recession technically ended in June 2009. The National Bureau of Economic Research makes these decisions, and it’s based on the technical definition of a recession. That doesn’t mean that people are still feeling the effects, particularly in unemployment — the job market is one of the last pieces of the economy to recover after a recession.

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avatar 26 Anonymous

Technically you are correct.

And technically if I refinance my home loan I can claim that I paid off that existing home loan. That may sound good, and even look good, but the hidden numbers tell the real story.

This is a big picture issue, not a micro econ issue. Our society was fueled by debt. It came time to pay the debt back, and instead we refinanced that debt and pushed it further into the future. It is not sustainable. Just like in a personal situation. Interest only mortgage and credit card usage will give the effects of control. Using credit to pay debt causes more debt in the future, which requires more credit.

It is a viscious cycle. In a household is is easy to see. At some point the music stops and the merry go round slows down. When it starts to go down, it starts slow, and then snowballs exponentially. Miss the card payment, them miss a car payment, then the house, charge a bit more, and boom it all falls down.

This is what is happening on a large nationwide scale. Most people, not all, but most live on a debt diet. Many of those will not be able to pay that debt off. Ever. And when it becomes a large part of the population, then banks and local, state, and federal governoments get behind on their bills too. And that is what is happening. Banks are failing. Governments are defaulting. and the failures and defualts are increasing. There will be more in 2011 than in 2010, which had more than 2009, whcih had more than 2008.

As I said in my earlier comment, The keys factors are employment, housing, and govn’t borrowing. The NBER is unimportant in the grand scheme. It is a headline that can be manipulated, and it has been, through…more borrowing.

Housing is the catalyst. As long as housing continues to decline, people will be unable to refinance or sell, and will get foreclosed. What happened first…housing collapsed. Then jobs went. Housing is still dropping, right now in 2011. Foreclosures are still increasisng. They are at an astronomically high number now, and they are still increasing. That will cause prices to drop further, which in turn causes more price drops. This causes unemployment, since houseing and real estate constitiute a very large percent of the employment picture. So, more people will lose jobs, which means more people will default on their loans, whcih causes more foreclosures, which cause more pain. SO people go the credit cards to survive. Cards are like alcohol. They are used in good times, and in bad for the same reason. The difference is now people have no idea how they will pay it back, but many don;t have a choice.

This isn’t over by a long way’s. Pointing to the NBER saying the recession was over in 2009 is disengenious at best, and naieve in reality.

Congrats on the self-employment by the way. I have been all my working life, and it is the only way to go.

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avatar 27 rewards

What is the breakdown of that 70% with respect to paying balances off immediately (i.e. interchange fees) vs carrying the balance (i.e. interest payments)?

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avatar 28 faithfueledbennetts

I am more frugal now than ever oddly enough. Perhaps one of the reasons AMEX’s numbers went up is because in people’s attempts of being frugal, they have been using their card to get the rewards offered? I know this is a stretch, but a small possibility. Honestly, I do not think the economy was ever as bad as the media portrayed it. I know the recession made a substantial dent, but obvisously not one large enough for people to change the way they spend, according to this.

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avatar 29 tigernicole86

Frugality is something that transcends recessions and is still alive and well in certain groups of people. I’m still rather cautious with my money but the purse strings have loosened a bit since my circumstances have become slightly better. I’ve noticed that friends of mine who are lucky enough to be in the IT sector and are finding that there are more jobs. For these people in these sectors, the recession has a little less of a sting. However, frugal is a mind set and way of life as opposed to a manner of temporary fiscal responsibility.

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avatar 30 Anonymous

I think there are two types of frugal people: (1) people who are frugal because it suits their personality and (2) people who are frugal out of necessity. The first type of frugal person will always be frugal—they can’t help it, it is part of who they are (I know because I fit into this group!). The second and far larger type, will revert once the need has passed.

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avatar 31 gotr31

I agree, some people will only be frugal when they have to. Others are frugal because they want to. There will always be spenders and savers in our society.

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avatar 32 Cruxman

Frugality is the most obnoxious thing to me! My mother in law is the most frugal person I know. I’m a stay at home dad in school full time and my wife works two days a week. Let me tell you we spend more money then my wife mom. My mother in laws husband works in China and man he makes some money (he’s a nuclear engineer) I just don’t get why this woman won’t spend money? It’s called CURRENCY for a reason keep it flowing people! Don’t horde you can’t any of this stuff when you die so have a good time.

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avatar 33 Apex

Frugality and Miserly are not the same.

Frugal: economical, avoiding waste.
Miser: a stingy hoarder of money and possessions.

Frugality is not wasting or spending all of your money or more so that you have nothing left. Do you find that obnoxious?

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avatar 34 Cruxman

your statement to me makes no sense. The most common and general understanding of the word and my experience with it yes it is obnoxious.

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avatar 35 Anonymous

This is an interesting discussion. I’m a frugal person but only so I can have more money to spend on the finer things in life and still live within my means and save money for retirement. I guess that puts me kind of in the middle.

Normally I wouldn’t adjust my spending down during a recession very much unless I lost my own job because by living a money conscious life I know that I have planned well enough for the future.

If nobody truly learned to live within their means during this recession though, that would be a dad thing.

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avatar 36 4hendricks

People are probably charging more because they are making less, and everything costs more. I wonder if the charges are at superstores such as Walmart and Target where people can charge groceries and household items, and for gas. Sad when credit card usage tells us how the economy is doing – it’s not.

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avatar 37 shellye

I’m in financial marketing. Not for Amex or any other bank. We are offering a cut-rate deal on balance transfers on our Visa card, and we can’t keep up with the applications. People have ran up their CC balances and now that it’s time to pay the fiddler, consumers are becoming obsessed with getting the lowest interest rate because they often don’t have the money to even make a minimum payment.

The best financial advice I’ve read in recent months is to pay off all consumer credit cards then build savings. It does a person no good to save $10k at .25% when they’re paying 19.99% APR on a CC with a 10K balance.

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