The recession will end~Then What?

Ways to thrive after the recession
Have hard times inspired a newfound frugality in you? These steps will help make it last even after the economy improves.

By U.S. News & World Report
Americans have put themselves on a budget. They're spurning Caribbean vacations, $10 cocktails and designer coffees in favor of shoveling more money into savings accounts. In the first quarter of 2009, the personal savings rate hit 4.2%, its highest level since 1998. At the same time, consumer credit card debt fell by 6.5%. And in a recent survey by the National Foundation for Credit Counseling (NFCC), 57% of Americans said they're spending less than they were a year ago.
That moderation, it turns out, could outlast the recession, and most economists and consumer experts say that's a good thing. In the NFCC survey, about half the respondents who had reduced their spending said they would continue to spend less even if their financial situation improved. "The consumer has fundamentally changed," says Margot Bogue, associate director of brand planning for the advertising firm Cramer-Krasselt. The new "evolved consumer," she says, shops with more discipline and focuses on buying products with lasting value rather than just accumulating stuff.
To take advantage of that shift and thrive in the new, post-recession economy, consider making these changes:
1. Rethink your lifestyle. Veronica Neilan, a 25-year-old Brooklynite who recently completed a master's degree in forensic mental-health counseling, is considering moving back to her mother's house in New Hampshire while she looks for a job. She will soon need to start paying back the $113,000 in student loans she has accumulated over the past seven years. She's learned to ask for things such as pasta or gift certificates from relatives who are giving her presents, a move that keeps her food costs down. She rarely buys new clothes unless they are on sale or she can use a gift certificate, and when she needed a new television, she found one online being given away. Neilan says she expects her frugal behavior to stick. "I don't want to be the person who buys a house they can't afford," she says.
Robbie Blinkoff, principal anthropologist at Context-Based Research Group, a consulting firm that recently conducted interviews with consumers, says lifestyle overhauls like Neilan's are easier for younger consumers to adopt. "They're just learning habits about how to consume. It will last into the recovery," he says, just as the Great Depression turned many people who are now in their 80s and 90s into lifelong savers.
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2. Eliminate small expenses that add up. After Deborah Pont, 41, of Stonington, Conn., was laid off from her communications job at a large financial services firm in January, she dramatically reduced her budget: She stopped going out to dinner, shopping, vis iting expensive hair salons and getting her nails done. She also rediscovered grocery store coupons and started buying what's on sale. It was easy, in part because so many of her friends were making similar cutbacks. "Everybody else said, 'Let's not go out, let's not spend too much money,' so somebody would make dinner and we'd go to their house," Pont says.
What she discovered is that it's a relief not to feel pressure to spend so much. She has more time for things she enjoys, such as gardening and home improvement projects, and says she probably won't return to regular spa visits even after finding a new job.
Blinkoff says Pont's discovery is not uncommon. "People have kind of woken up, and they feel the things they consumed don't match who they are and their identity," he says.
3. Downsize -- permanently. Doreen Orion, 49, a psychiatrist and author of the memoir "Queen of the Road," also decided to turn a temporary exercise in minimalism int o a longer-term lifestyle. She initially cringed at the thought of leaving her dream house in Boulder, Colo., and her 200 pairs of shoes to go on a road trip with her husband. But at his insistence, they spent a year living in a 340-square-foot bus, camping throughout the country.
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When the couple returned home to their luxe but hardworking lifestyle, they realized they were much happier with less. They calculated that, even though their 401k's had fallen in value, if they sold their home and lived in their bus while working occasionally, they could support themselves. Such a dramatic change, she says, "put a spark back into our lives. . . . We discovered there can be an upside to downsizing."
4. Get competitive about it. The recession inspired yoga studio owner Annie Mahon, 46, of Washington, D.C., to start a competition with her husband to see who could go longer without buying anything new. (They make exceptions for groceries, medicine and certain items for their four children.) Instead of curling up with catalogs that arrive in the mail, Mahon puts them directly into the recycling bin. "It feels great, because afterward, there's no residual feeling of, 'Oh, I wish I had gotten this.' So far, it doesn't feel like I'm missing anything. It feels like I'm gaining," she says. Wanting or craving things soaked up energy, Mahon adds. She estimated that, six weeks into the competition, she had saved at least $1,000.
5. Take advantage of the way retailers have changed. An advertising campaign touts that "summer costs less at Wal-Mart." One television spot features the simple pleasures of the season, including hot dogs, Popsicles and running through sprinklers. Target's "New Day" ad campaign, which ran from September through May, highlighted ways to save money: cutting hair at home, staying in for a movie night, biking to work.
Lena Michaud, a Target spokeswoman, says the company has seen sales increase for products that let people cut costs by staying home, including nail polish and hair color, single-serve coffee brewers and popcorn poppers. People also are making the most of what they already have. Michaud says Target's sales of scarves and fashion hats have gone up as customers freshen up old outfits with new accessories.
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"We are not bouncing back. The face of retail and consumption has been fundamentally changed," says Paco Underhill, author of "Why We Buy: The Science of Shopping." Even before the recession, there were too many stores, a problem that has started to self-correct through business bankruptcies and closings, such as Circuit City's. What's changed? "People are no longer celebrating how much they spend but how little they spend," says Underhill.
John Quelch, a marketing professor at Harvard Business School, says that although the length of the recession will determine just how long the newfound frugality lasts, up to 10% of consumers will change their behavior on a sustained basis. "Many of those changes will be in favor of reducing consumption and a simplified lifestyle," he says.
Although these consumers are still in the minority, there are enough of them to make retailers take note. "It's a huge shift in buying power," says Quelch. Because consumer spending makes up such a large portion of our economy (about 70% of gross domestic product), 10% of consumers also represents a huge dollar value.