Americans being pushed to thrift

For more than half a century, Americans have proved staggeringly resourceful at finding new ways to spend money.

In the 1950s and '60s as credit cards grew in popularity, many began dining out when the mood struck or buying new television sets on time rather than waiting for payday. By the 1980s, millions of Americans were entrusting their savings to the booming stock market, using the winnings to spend in excess of their income. In recent years, millions more exuberantly borrowed against the value of their homes.

But now the freewheeling days of credit and risk may have run their course -- at least for a while and perhaps much longer -- as a period of involuntary thrift unfolds in many households. With jobs shrinking, housing prices plummeting and debt levels swelling, the same nation that pioneered the no-money-down mortgage suddenly confronts an unfamiliar imperative: More Americans must live within their means.

"We don't use our credit cards anymore," said Lisa Merhaut, a professional at a telecommunications company who lives in Leesburg, Va., and whose family last year ran up credit card debt they could not handle.

Today, Merhaut, 44, manages her money the way her father did: Despite a household income reaching six figures, she uses cash for every purchase. "What we have is what we have," Merhaut said. "We have to rely on the money that we're bringing in."

The shift under way feels to some analysts like a cultural inflection point, one with huge implications for an economy driven overwhelmingly by consumer spending.

Though some experts question whether most Americans, particularly baby boomers, will ever give up their buy-now/pay-later way of life, the unraveling of the real estate market appears to have left millions of families with little choice, yanking fresh credit from their grasp.

"The long collapse in the United States savings rate is over," said Ethan S. Harris, chief U.S. economist for Lehman Bros. "People are going to start saving the old-fashioned way, rather than letting the stock market and rising homes values do it for them."

In 1984, Americans were still saving more than one-tenth of their income, according to government data. A decade later, the rate was down by half. Now, the savings rate is slightly negative, suggesting that, on average, Americans have been spending more than their disposable income.

Though the savings rate does not account for the increased value of stock and property or the gains on retirement accounts, many economists still view it as the most useful gauge of the degree to which Americans are making provisions for the future.

For the 34 million households that took money out of their homes over the past four years by refinancing or borrowing against their equity -- about one-third of the nation -- the savings rate was running at a negative 13 percent in the middle of 2006, meaning they were borrowing heavily against their assets to finance their day-to-day lives, according to Moody's Economy.com.

By late last year, the savings rate for this group had improved, but just to negative 7 percent and mostly because tightened standards made loans harder to get.

"For them, that game is over," said Mark Zandi, chief economist at Economy.com. "They have been spending well beyond their incomes, and now they are seeing the limits of credit."

Many times before, of course, Americans have found innovative ways to finance spending, even when austerity seemed unavoidable. It could happen again.

The "Me Decade" was declared dead in the recession of the early 1980s, only to yield to the "Age of Greed" and later the Internet boom of the 1990s. And over the longer term, the economy should keep growing at a pace that reflects steadily improving productivity and population gains.