The Upside of the Down Economy

Financial news has been brutal. Stocks are down, unemployment is up, banks are failing and the housing market is still smoldering after the crash. In the past two years, those who continued to play by the old fiscal rules -- buying a home instead of renting, investing in the stock market for growth and fixed income for a safe haven -- are now left feeling as if they're wandering in the desert without a map. The old laws don't seem to apply anymore, and guidelines for a shifting economy remain teasingly mirage-like.


Is there any upside to this recession? It may not seem like it if you've been laid off, lost your home or are living paycheck to paycheck, but there are some encouraging trends that could prove more sustainable than the credit-fueled house of economic cards we indulged in before the recession. Mostly they involve the ever-popular concepts of financial prudence and budgeting.

Save more
If you're looking for a silver lining in the recession, consider that Americans' savings rate has increased in the past couple of years.

In 2005, the savings rate dropped into negative numbers for the first time since the Depression, meaning Americans spent more than they earned and relied on leverage to make up the difference.

But the latest statistics from the U.S. Bureau of Economic Analysis indicate that savings increased to nearly 3 percent by the end of 2008. While some economists dispute whether the numbers factor in all forms of income, the upward trend seems to suggest that we're moving in the right direction, at least.

Get Ready For the New Economy:


If you're not in the habit of saving, how can you get started? Ronald T. Wilcox, professor of business administration at the University of Virginia and author of "Whatever Happened to Thrift?" says that if you ask the average person if he can save more, the answer is typically no. But one way that has proven effective, according to Wilcox, is to immediately channel a pay raise (assuming you get one) into your 401(k).

People will generally stick with that tactic, Wilcox says, because they never see the money. It's a psychological trick, to be sure, but one that works. This, of course, is also a good idea if you've never saved at all. Immediately sign up for your company retirement plan so you never actually get the money in hand. You'll sock away a nest egg without even thinking about it.

Wilcox also sees a sustainable lesson for the future in this exercise: If people save and learn to live within their means from this recession, we'll be in a much more stable situation and less reliant on credit when the economy improves.

"Lack of savings made for very fragile consumption," he says. The down ticks in the economy are more severe when people are overleveraged. "Once we're back in reasonable economic times, it won't be quite as frail," says Wilcox.

Learn to rely on less more