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Cover Story October 9, 2008, 5:00PM EST

The New Age of Frugality

(page 2 of 2)

Ingram, Behre, and family: living within their means Chris Crisman

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A RUDE AWAKENING

Handel's baby-boomer children grew up without psychological scars from the Depression. And the boomers' children have come of age in an era of abundance, easy credit, and a taste for luxury. So it's no wonder that the sudden need for thrift comes as an upsetting shock for many. Some are calling for a massive public education effort on the level of the anti-drunk-driving and anti-smoking campaigns that have been so successful. "We want to build a culture that's more hospitable to thrift, so it's not seen as odd but fostered and nudged along," says Barbara Dafoe Whitehead, co-author of For a New Thrift: Confronting the Debt Culture, a new report from The Institute for American Values, a think tank.

To be sure, there are odd moments on the journey to a thriftier lifestyle. To demonstrate, Bill Behre pulls out a mobile phone and twists it back and forth so the light glints off of rhinestones glued on by daughter Annie before she got a new phone. Behre's own phone was ruined in a rainstorm, so he's using this gaudy hand-me-down until he can get a free replacement in March. "This is the ultimate in frugal," he says.

It was Ingram who got things started. She was raised by a thrifty mother, but by the time she married Behre, mom's influence had worn off and she'd amassed $30,000 in credit-card debt. Controlling spending was hit or miss until the early 2000s, when the family embarked on a shopping spree.

Things nearly spun out of control after they upgraded to a better house. Despite raiding their retirement funds to help with the down payment, they ended up with higher monthly payments. Ingram remembers the day, May 24, 2007, they sold their previous home, and realized her family would take away only $60,000 even though the place had nearly doubled in value, to $490,000. "I was practically nauseated when I realized what our out-of-control spending had done," she says. She and Behre made a pact: They would live more frugally. Then they broke the news to the kids. No more cruises or Disney vacations. They'd get an allowance of $20 a month. And they'd be walking to school, the store, and friends' houses.

The girls were intrigued at first. Then they realized their comfortable, materialistic lives were really changing. Annie, whose shopping-for-pleasure habit had been indulged by her parents, suddenly had to make do at a secondhand store called Plato's Closet. Now the girls are resigned to this new way of life.

Sticking to the program requires vigilance. When Ingram does drive, she calculates the relative costs of traveling a few more miles to get gas for a few cents cheaper. And on the rare occasions they do go out to dinner, she feels guilty. "I want to keep myself accountable," she says. "I don't want to backslide." So far, the plan is working. In the old days, the family overspent their checking account by an average of $300 a month—dipping into the home-equity funds to make up the difference. Now they're in the black by about $800 a month. Since making their big changes, they accelerated payments on a car loan and managed to pay it off.

Ingram has started a blog, The Lean Green Family, where she encourages others to be more frugal. She and Behre say they've learned valuable lessons. One is to be flexible: Give yourself a treat every now and then. Another is to have a goal. They're saving for a new recreation room. "Being frugal is like dieting," says Behre. "It's more sustainable if you have a target you're aiming for."

As joblessness creeps up, many more Americans will receive their own crash course in frugality. It has already happened to Ned Penberthy, 53, a salesman who lives in Pelham, N.Y. He recently got a new job, took a cut in base pay, and has been living the frugal lifestyle ever since. Penberthy says he's in it for the long haul—willing to spend more up front to reap savings over the next several years. He installed expensive but energy-sipping CFL light bulbs in his house, and replaced some of his appliances with more efficient ones. For him, every penny counts. For instance, he switched from shaving cream to a bar of shaving soap. He figures he saves $6 a year that way. "It's not much, but there's a psychological benefit," he says.

Like a lot of boomers, Penberthy has a nest egg, but many people in their 20s and 30s have little to fall back on. To get on track, they have to learn the difference between necessities and discretionary spending. "They need to go back to [psychologist Abraham] Maslow's hierarchy of needs—food, clothing, shelter, and transportation," says Kristine E. Miele, a financial planner. She's offering "Lessons for Life" classes, gradually weaning young people off their spending habits one luxury at a time.

In the past, consumers have gone shopping the moment the sun came out. But this time? Market researchers trying to divine the consumer psyche are picking up signs that attitudes are changing. Booz & Co. recently conducted a survey of nearly 1,000 households. Among other findings, 43% of respondents said they are eating at home more and 25% said they were cutting spending on hobbies and sports activities. In both cases, most said they'd continue doing so even when the economy improves. Much the way pump prices have prompted many Americans to forsake SUVs for small cars, the collapse of home values and 401(k)s will make consumers think twice before hitting the mall.

For more on a new era of frugality in America, watch BusinessWeek TV. To see video clips or find your local station and airtime by Zip Code go to businessweektv.com

With Lauren Young and Burt Helm in New York

Hamm is a senior writer for BusinessWeek in New York and author of the Globespotting blog.

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