A new frugality: Americans are borrowing less, saving more

Gone for a generation, thrift is back.

Worried about their jobs and the economy, many Americans are cutting back on borrowing and trying to build up their nest eggs by cutting expenses and saving as much as they can.

After years of being negative or near zero, the household savings rate -- what's left after we spend our after-tax income -- rose to 6.9 percent in May, the highest level in 15 years. And consumer borrowing dropped nearly $16 billion in April.

Tom and Keely Teynor personify the trend.

With two young children and a home office, the Teynors have outgrown their 1,950-square-foot house in Maple Grove.

They could afford a bigger home, but they're staying put. And their drive to save has led them to drop a gym membership and buy a more fuel-efficient car. They boosted their savings once before as the economy went bad, but now they want to sock away more.

"The hardest thing has been putting off a dream that we've had for a while of getting into a larger house," said Tom Teynor, who works in marketing for Wolters Kluwer Financial Services. "We're definitely trading security for immediate satisfaction."

"The dramatic and speedy manner in which the economy has deteriorated has had some real shock value for consumers," said Michael Houston, a marketing professor at the University of Minnesota's Carlson School of Management who specializes in consumer behavior. "In part, there's some contingency planning going on in the event they lose their jobs, are subject to pay cuts, furloughs and the like."

The new sensitivity extends even to those who remain confident about their future. Those going on a big vacation are often almost apologetic, saying it had been long planned. Going to a friend's for dinner? Skip the hostess gift and bring a dish to share. Eating out with a big group? Separate checks, please.

"They're avoiding the guilty pleasures, if you will," Houston said. "They're sympathetic with people who have been seriously affected and are probably less inclined to continue with the pattern of consumption they've been used to."

With 70 percent of the economy dependent on consumer spending, some economists say this isn't the best time for all Americans to become tightwads. Their point is that while it's good to save money as individuals, it can prolong the economy's troubles when everyone is doing it at the same time.

Economist Art Rolnick, director of research with the Federal Reserve Bank of Minneapolis, disagrees. He noted that people who are saving may not be helping Best Buy, but the money is still being invested by the banks, which can use customer savings to lend to others. Overall bank deposits grew 1.7 percent in May, the ninth-biggest monthly rise since 1973. The rise looks even more dramatic when taking into account the historically low rates being offered on many savings accounts.

Deposits at Bremer grew 17 percent from June 2008 until last month, she said. Deposits are up in the three core areas: direct-deposit accounts, savings accounts and money-market accounts. "Interest rates are not through the roof, but they're reliable," she said.

In addition, Bremer has seen more people putting money into longer-term CDs than in the past.

Making do with less

Bremer customer Jennifer Hoefer, a paramedic who lives with her husband and two young children in Blaine, said she has been motivated to ratchet up savings -- using CDs and money-market accounts -- because she wants to retire early, given the back-breaking nature of her work. The family has shortened its vacations and tries to stay with relatives, buys items on sale and rides bikes for fun whenever they can.

"I know that I cannot keep doing this until I am 65," she said. "I want to be able to retire and not feel like we are working, working, working all the time, especially as the kids get older and need us around even more."

They've been diligent about putting money into their 401(k) and Roth IRAs, and they have socked away much of their savings in money-market accounts or savings accounts so it's on hand in case something happens to Tom's job.

Keely Teynor, a stay-at-home mom, says she and her husband realize they are in a good position because they are young enough to make adjustments now so they can ensure a solid future for their children and help them pay for college.

"We feel very fortunate -- Tom still has his job and we are able to save," she said. "We know we need to weather the storm."