Did the recession improve our financial habits?

By Justin Boyle

The economic ups and downs of recent years have brought plenty of negatives to the personal finance climate: Overall employment has slipped. Investment revenues have been volatile. Market uncertainty has jeopardized the security of pensions and retirement accounts.

As the dust settles, however, it's becoming clear that not all the changes have been negative. A June 2012 report by the Federal Reserve suggests that a fair number of consumers adopted wiser money management behaviors amid the challenging conditions.

First the bad news

The Fed study, which measured conditions between 2007 and 2010, found that median and mean pre-tax incomes fell by 7.7 and 11.1 percent, respectively. Even more striking, median net worth dropped by as much as 50 percent in certain demographics, largely because of the drop in home values in many regions of the country.

The study also indicated that student loan debt rose. The mean balance owed for families with educational debt increased by 14 percent over this period.

Now the good news

Although student loan debt spiked, other forms of borrowing -- many with much higher levels of interest -- leveled off somewhat during the study period. Maybe thanks to the cautionary tales told by economic news at large, many consumers appeared to step up to the plate to take control of their finances.

Credit card balances, for example, became smaller on average. The median credit card balance per household plunged by more than 16 percent between 2007 and 2010, settling at about $2,600 in the final year of the study.

The percentage of households that maintained bank-issued credit cards but carried no outstanding balance went up significantly too, from 41.7 to 47.6 percent. Credit customers who use their cards but pay their balances in full each month also rose, by nearly a full percentage point.

What's more, more than 50 percent of households carried balances in personal savings accounts by the end of 2010, up 3.4 percent from the 2007 figures.

What it means to you

So what does this all mean to the everyday personal finance world? Here are a few potential benefits that have arisen or might arise as the recession's smoke clears:

1. Better credit incentives. As fewer consumers carry outstanding balances on their credit cards, banks and credit companies are already putting together some of the best credit card reward programs in recent history in order to incentivize the use of credit accounts.
2. New debt management options. The overall composition of household debt has shifted as the upheaval and resettling of various markets took shape during the recession. Installment loans and non-mortgage lines of credit became more prominent in the 2007-10 period, and banks continue to innovate in the field of debt solutions.
3. More money in your pocket. The decline in credit balances and rise in savings account holdings show that consumers have begun focusing on liquidity in their finances. The report stopped short of specifying official figures on savings accounts, but online banks have reported increasing customer activity.

Reflections on the positives

While the outcomes of our recent downturn have their upsides, they remain mixed as a whole. The job market has yet to recover fully from the most recent spike in unemployment, and the surging student loan debt numbers suggest that many industries will find themselves faced with more qualified applicants than they have jobs to offer.

I can't imagine anyone expected that we would recover immediately from this recession, and we do still have a ways to go. As the economic ship rights itself, though, we can take some comfort in knowing that these troubles may have instilled a more conscientious attitude toward money in our nation's consumers.