Early in this decade Americans were spending money at about 125% of their income. Credit card debt, low credit score auto loans, and mortgages stretched the average paycheck, but no one bothered to worry about it. Then the recession began. Overtime went out the window and the average household started seeing their income shrink. An income that is overstretched can not shrink without something having to change.
Initially the change came in the form of defaults, repossessions, and bankruptcy. As the dust from this financial cataclysm begins to clear, Americans have changed their ways to some degree. Average household debt is down a little over 8%, while savings is up. Here are few things that have changed since 2005.
In July, 2011 the personal savings rate was 400% higher than it was in 2005. People are seeking shorter term mortgages. Average credit card balances are down and the number of people who pay their entire balance each month is up. The number of Americans who use cash or debit cards only is on the rise.
All of these lifestyle changes are sensible and effective. They are not new concepts. In the past, Americans felt a false sense of accomplishment because their credit cards allowed them to buy what they wanted without really worrying how to pay for it, and subprime auto loans allowed them to drive nearly any car they wanted regardless of negative equity. Their new, lower credit scores will hopefully reinforce the empty logic of that notion.