Living on Less: The New Frugality

Living on Less: The New Frugality

A few years ago Kelly Hollingsworth could have been described as a woman who had it all. A young money manager living in the U.S. Virgin Islands and then New York City, she was part of a small team that managed a multi-million-dollar hedge fund, pulling down a handsome salary for her efforts. She lived a life of excess seemingly ripped from the script for Sex and the City. "I had this income so I dressed a certain way," she says. "I was taking private Pilates lessons four days a week, private opera lessons three days a week, there were manicures, pedicures, facials, Botox and nutritionists." Even then it all felt a little unreal, says Hollingsworth. "Occasionally I felt like I wanted off the ride."

Then at the end of 2006, the partners closed shop. Out of a job, Hollingsworth packed her things and moved to Coeur d'Alene, the sleepy city in western Idaho where she grew up. If life as a hedge fund manager meant having heaps of money but barely a minute to stop and smell the proverbial roses, her circumstances were now reversed. But as Hollingsworth adjusted to her new, slower lifestyle, she began to appreciate its subtler pleasures. Such as time. What Hollingsworth had wanted to do during her hedge fund days was write. And so she sat down and penned her first novel, Soup in the City, a sort of anti-SATC clarion call for happy, frugal living.

Her timing couldn't have been better: the book, which came out a few months ago, could be a chick-lit anthem for thousands in Hollingsworth's industry who find themselves facing a similar downshift, one they didn't choose. The book follows the life of Avery St. George, a well-paid but aimless Manhattan girl whose pursuit of an A-list lifestyle leads her to splurge and fall heavily into debt. When Avery suddenly loses her lucrative finance job amid the economic slowdown, she's forced to adjust to a simpler life. In so doing she awakens to its joys, much as the book's author did. "One of the happy discoveries of not having people pay me for my time anymore is that I get to do anything I wanted," Hollingsworth says. "You start connecting to the basic things we all find pleasure in, like making homemade soup. When you're making a lot of money, it's almost fiscally irresponsible to waste time doing those things. You say, 'I can't afford to make soup, I make $300 an hour - my time is worth too much.' " It may have been a useful lesson: now even if Hollingsworth wanted to go back to her high-earning, big-spending ways, she couldn't. "There are probably 30,000 people just like me out on the street looking for a job today," she says. "That's a little scary."

The economic crisis that's spreading around the globe like wildfire through a dry forest is scary. Even level-headed economists are scratching their heads and wondering what the long-term fallout will be. "It's historic and it's global," says Sherry Cooper, chief economist of BMO Capital Markets. Banks are not only unwilling to loan money to each other but cutting off even credit-worthy individuals in search of mortgages. "Confidence has been just slashed, no one knows how this will work itself out," says Cooper. There's a growing sense that our lifestyles are about to be dramatically transformed. For the first time in as much as half a century, a new, "frugal future," as some economists have come to call it, seems all but inevitable. "Frugality is now replacing frivolity," declared Merrill Lynch economist David Rosenberg. Households are about to be put on a radical diet; debt is a dirty word again, and living within one's means could soon be a fact of life.

But even beyond a deep economic RECESSION, there are signs that meaningful social change is brewing. As environmental fears push us from Hummers to hybrids, and a younger, tech-savvy generation rebels against the "Bigger is Better" boomer mantra, a long-overdue cultural shift could be in the works, say observers. It may all be culminating in a kind of "perfect storm" that pushes us into a new age of post-materialism, says David Grusky, a sociologist at Stanford University. "People are becoming disillusioned with material excesses spawned by the vast run-up of wealth and income." And therein lies a potential silver lining. This financial crisis may be the equivalent of Buckley's cold medicine - awful tasting, but good for what ails us financially and spiritually. In fact, a simpler, pared-down and debt-free lifestyle just might make us happier and healthier than we've been in years.

Last month, Dan Towbin, the man behind the reality TV show King of Cars, announced he was closing his Las Vegas Hummer dealership, the only one in town and one of the largest in the country. "It's all about bling and it's in the desert," was how he described it in the Wall Street Journal. Las Vegas may have seemed a perfect fit for the behemoth truck. But nowadays even in Sin City people are thinking that driving around in what is effectively a tank may be a little over the top. In what is surely a signal of a cultural shift, Towbin, a rotund John Waters lookalike, now has plans to open a Smart car store.

Signs of people scaling back are everywhere. In Canada, consumer confidence has dropped to lows not seen since the early '80s. In the U.S., it's at historic lows, suggesting people are planning to keep their wallets tucked firmly in their pockets. Spending on the upcoming holiday season is expected to be the weakest in over 15 years, says a report by Deloitte Research. Until recently, sales of LCD televisions seemed to play a disproportionate role in propping up the U.S. ECONOMY. Now, according to the Consumer Electronics Association, spending on televisions, computers, and cellphones is slowing dramatically. Big U.S. automakers have seen double digit declines in sales, and polls show sales of luxury goods dipping to record lows. Even those who might once have bought a fully loaded, $62,000 Cadillac CTS are now opting for the stripped-down $40,000 version or a used model, says Andrew Lennox, director of sales at Roy Foss Motors in Thornhill, Ont. RE/MAX admits there's "cause for concern in the immediate future" in the luxury-home market in Canada.

"Frugal is the new black" is the refrain in fashion circles these days. Aldi, a discount supermarket, recently started selling a $50 two-piece pinstripe suit in the U.K. According to reports, the so-called "credit-crunch suits" are flying off shelves. In L.A. and New York, vanity has taken a hit. A growing number of men and women have opted to forego plastic surgery and $1,600 Botox treatments, according to the American Society for Aesthetic Plastic Surgery. Its poll of members found some had seen as much as a 30 per cent drop in business over the past year. As one witty headline writer put it, "As Economy Sags, So Do Faces."

In the boom times of the past decade or so, people spent freely on everything from bottled waters to $300 jeans and designer sneakers. Sociologist Juliet Schor, in her book The Overspent American, dubbed this a "culture of upscale spending" in which middle-class types were driven to spend as if they were in income brackets three to five times higher than their own. Now, says John Lastovicka, a professor of marketing at Arizona State University, who studies frugality, we're likely to see a return to some long-forgotten virtues: self-restraint, thrift. Never mind brown-bagging lunches, people may reuse everything from gift wrap to zip-lock bags. Libraries are likely to become more popular. "You don't have to belong to Netflix to watch movies. This is your tax dollars at work," says Lastovicka. "A lot of these things aren't necessarily fashionable. And on their own they don't add up to big savings. But someone who does hundreds of these things will see it add up."

The social effects of scaling back could go well beyond our pocketbooks. Divorce lawyers in the United Kingdom say the slowdown in the economy is forcing couples on the outs to muddle through the tough times together. It's not only the lawyers' fees that are making divorces prohibitive for some; splitting up means each side suddenly has to pay full price for bills, rents and mortgage payments.

This kind of downsizing represents a dramatic shift for a culture that has known little but steady progress for the past 50 years. Until recently, each generation since the Second World War was richer than the last. Houses have gone from simple two-bedrooms in the burgeoning suburbs of the '50s to the McMansions of the '90s. Everything from cars to food went "supersized" - and along the way, so did waistlines. Notwithstanding the recession of 1991 or 2001, and minor disasters, like the savings-and-loans crisis of the '80s, for the average person, this has been an age of prosperity - framed not so much by an impetus to keep up with the Joneses but by a full-on acquisition arms race for a higher standard of living.

The "bigger is better" mentality was bred in the bone of the BABY BOOMER generation. Their parents had lived through the dark days of the Great Depression, when frugality wasn't a lifestyle choice but a means of survival. For the young boomers, though, the '50s were a golden time to grow up, says Howard Smead, a history professor at the University of Maryland and author of Don't Trust Anyone Over Thirty: The First Four Decades of the Baby Boom. In the decades to come, cars got bigger, and faster; fuel efficiency levels improved little over the decades - they didn't need to. Incomes rose, and with the advent of easy credit, people could afford not just bigger houses, but more stuff to put in them. It wasn't a surprise to see a typical factory worker with a boat in his driveway, says Smead: "When you grow up in that environment, you think the world owes you a living."

But as early as the 1970s things began to plateau, says Smead. Between 1980 and 2001, the average size of homes in the U.S. ballooned to 2,100 square feet, from 1,600, yet income levels changed little, according to economist Robert Frank. At the same time consumer debt climbed dramatically and the income gap between the richest and poorest grew into a chasm - historically, a sign of a society on the decline (and occasionally a precursor to revolution). As manufacturing and industrial jobs declined, they were replaced by service jobs - and many of those were tied to consumer spending. That's why in the wake of the Sept. 11 terrorist attacks President George W. Bush called on Americans to go shopping, lest the terrorists win. And shop they did. In fact, even earlier this year, when the U.S. government mailed taxpayers rebate cheques as part of an economic stimulus package, it was in hopes of encouraging consumers to spend. This time around, though, consumers are in no mood to shop.

For years, some economists have warned the postwar Age of Excess was unsustainable - built on a vicious cycle of spending and borrowing. The Wall Street crisis, which has ground to a halt that access to easy money, has helped pull back the curtain and show just how right they were. "The growth-for- growth's-sake economy is what we're seeing in the market, which is more like cancer than it is an economy of well-being," says Mark Anielski, head of the Alberta-based consultancy Anielski Management, and author of The Economics of Happiness. Anielski, who also teaches at the University of Alberta, argues it's time to think about economic well-being as more than consumer spending data. The wealth of a community should be measured on a host of indicators, from the environment and infrastructure, to crime, education and affordable housing. "Right now we're measuring progress on what we buy and sell, which we measure by GDP." But, he adds, "how much you spend does not necessarily correspond with happiness."

We may finally be waking up to that reality. "A new generation of households, businesses and banks will now have fresh and vivid memories of a financial crisis," said Dominique Strauss-Kahn, the managing director of the INTERNATIONAL MONETARY FUND in a recent speech. "They will be more cautious and take fewer risks." The result could be a deep and lasting shift away from decades of overindulgence.

While we may be slouching toward the financial equivalent of Armageddon, it's not all bad news. Many people readily embrace the slowdown as an opportunity to take, as Hollingsworth puts it, "a break from being jaded, unsatisfied and disdainful." Some go even further. The new frugality is dovetailing perfectly with a host of grassroots movements that caught fire in recent years, going by such labels as small living, voluntary simplicity and slow food. "There are lots of people who have checked out of the matrix, so to speak," says Anielski.

Jay Shafer is one. His company, the Tumbleweed Tiny House Co., sells small, pre-built houses and plans, and he lives in one of these: a 400-sq.-foot house on wheels parked in an apple orchard in Sebastopol, Calif. His home has a gabled roof, a kitchen, a bedroom, a living room - in style and substance it's every bit the typical American house, only miniaturized. Shafer can't think of anything he lives without. He has an entertainment centre - his laptop - and a surprising number of clothes. Far from being a hardship, living in a mini-home has very big benefits, he says. No mortgage, for starters.

In this time of economic chaos, Shafer's lifestyle isn't just pleasantly curious, it's enviable. And increasingly, it's going from the pages of architecture magazines to the mainstream. Before the slowdown, Shafer sold just one home a year over several years; this year he's sold 50 sets of plans and five completed houses (at a cost of $35,000 to $80,000). A recent promotional trip down the West Coast of Canada and the U.S. drew crowds, he says. That growth is due to "a convergence of ideas and concerns that people are collectively having," says Gregory Paul Johnson, a computer technician at the University of Iowa who heads the Small House Society in Iowa City. "It's concern about the economy, concern about our connection with the environmental crisis and the impact of that on our homes, and then it's just a desire for a more meaningful simple life." And, of course, it saves a lot of money.

For the environmental movement, the new frugality could be a big shot in the arm. In a recent report, Mark Lewis, an analyst with Deutsche Bank, said a recession could cut Europe's industrial carbon dioxide emissions by 100 million tonnes in 2009, compared with 2007. Reduced demand for large vehicles could help cut vehicle emissions, as could the slowdown in air travel. And reduced spending will cut the amount of junk we throw out. The financial crisis is likely to overtake the environment as a major political issue, as happened during the recent Canadian election, but the effects of lower consumption could actually achieve more than all of Al Gore's finger-wagging.

It's not just the planet; it turns out when times are tough and unemployment is on the rise, people actually get healthier too. It sounds counterintuitive, admits Christopher Ruhm, an economics professor at the University of North Carolina-Greensboro, a researcher who has conducted several studies over the last decade into the phenomenon. But his research has found people tend to dramatically overhaul their lifestyles during economic downturns, for the better. "This goes against what people might first think, but my work has found that when an economy weakens people are less obese and exercise more. They drink less, smoke less, and have healthier habits than when times are good." For instance, in a 2000 study Ruhm found that a one per cent rise in unemployment reduces the mortality rate by 0.5 per cent. There are a number of factors at play. For one thing, when an economy booms, smog levels typically rise, leading to an increase in coronary heart disease. Roads get clogged with transport trucks and commuters, and traffic fatalities rise. A downturn slows the economy, but also all of those side effects. It's worth noting that California has seen a significant drop in highway traffic around its major cities as a result of soaring gas prices.

People in the midst of a recession eat out less and generally exercise more, says Ruhm. One explanation is that in uncertain job markets workers feel the need to stay free of illness. Or it could just be that they've got spare time on their hands after getting their pink slips. Ruhm cautions that his research only looks at the physical impact of downturns, and not the mental and emotional consequences. And he says an economic slowdown is no health care substitute for sustained income growth over a long period of time. Even so, research by Ruhm and others is leading many to question long held beliefs about the pitfalls of recessions.

For a younger generation, a shift of this kind may prove more painless. In fact, their values and attitudes toward money, work and the environment may be helping to drive the change. Eric Meerkamper is a partner at the youth research marketing firm Decode in Toronto. More than having a house and a nice car, he argues, young people value having balance in their lives. "They still want more but not in [terms of] accumulating things necessarily," he says. Money is important, yes, but work is seen more as "an enabler to living a full life," he says. Smead, the author of Don't Trust Anyone Over Thirty, believes people in their 20s, have come to realize they won't have the same standard of living as their parents, resulting in lower expectations. In short, he says, "they've got a more realistic view of the world economically."

"I don't think the American Dream of owning the biggest car is contributing to a higher quality of life," says Dominic Mishio, a political science student at the University of Alberta who, at just 23, is a city of Leduc council member. He has a mortgage and sparingly uses a credit card, but thinks of himself as a "conscious consumer" - an attitude that may not be shared by the Alberta oilmen he knows, but among his classmates is a fairly typical view. "What is progress? To make another $1,000 a day or to have another day off?" he asks.

The real losers will be those boomers who never foresaw an end to the prosperity. Many were sold on the promise of a retirement spent in the Caribbean. But with meagre savings tied up in shrinking markets, that's looking like a pipe dream. The current crisis already has the over 50 set on edge. There's a lot of anxiety out there, says Susan Eng, of Canada's Association for the 50 Plus. If the housing market crashes as it has in the U.S. it will spell "big trouble."

But it's not a surprise, really, that some boomers resent the idea they might have to scale down their expectations. "It's hard to tighten your belt when your formative experiences were all about increasing affluence and optimism," says Smead. "The anger at Wall Street today is a boomer phenomenon. It's the people who now have diminished expectations looking for people to blame."

There's plenty to go around. As folks tighten their belts, it's hard to miss the seething backlash against the wealthy (especially bankers, the scapegoats for the world's economic troubles). In the U.S., the crisis is repeatedly framed by politicians as a class war between "Wall Street" and "Main Street." In Britain, "Eat the Rich" has roared back to life as a popular refrain. Much of the blame there is levelled at "City Boys" (the U.K. equivalent of Bay Streeters), who lived large, all the while sowing the seeds of catastrophe. Deutsche Bank recently informed managers it would no longer pay for visits to strip clubs. "Deutsche Bank does not approve of any adult entertainments, and such expenditures will not be reimbursed," said a memo obtained by the German magazine Der Spiegel. "The mood of the super rich is going to change during the next year from 'How To Spend It' to 'How Not To Flaunt It,' " wrote Christopher Wood, an analyst with CLSA, in his newsletter Greed & Fear. "Certain people, particularly the Russians, have not got the point yet. But the backlash is undoubtedly coming."

But the lessons aren't just for the rich. "We have all gone to this temple called money," the British archbishop of York said recently, speaking to the trade group the Worshipful Company of International Bankers. "We have all worshiped at it. No one is guiltless." Perhaps the time has finally come to repent.

See also POVERTY; SOCIAL MOBILITY.

Maclean's November 3, 2008