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Cheapskates set the course to new riches

WHEN Jeff Yeager's book "The Ultimate Cheapskate" came out 18 months ago, he felt like a voice crying in the wilderness telling people to ditch their cell phones, hoard their pennies and pay off the mortgage.

Now the Internet abounds with self-proclaimed penny-pinchers offering tips on living frugally as the recession bites into America's shop-'til-you-drop lifestyle.

The rise of thrift may be bad news for a US economy where in 2006 consumer spending accounted for 70 percent of gross domestic product.

"Cheap is the new cool," said Yeager, who also has a blog called "The Ultimate Cheapskate" offering advice on enjoying life more by spending less. An Internet search for "cheapskate" finds a string of similar blogs.

"When the book came out, it and I were viewed as quaint little novelties, but now it's being taken much more seriously," Yeager said.

When he advised people to focus on paying off their mortgage as soon as possible and stay in their first home forever, Yeager said his publisher warned him to tone down his "radical" ideas.

Now the subprime mortgage crisis has shown the fallacy of acting as if house prices always go up and people are saving like rarely before.

Official data last week showed that US savings jumped to a record annual rate of US$768.8 billion, the highest level since records began in 1959, and the saving rate climbed to a 15-year high of 6.9 percent of income.

Yeager said it was discouraging that hopes of an economic recovery are pinned on consumer spending rather than manufacturing and production.

"Some of the lessons we should be taking away from this - like we can't live on borrowed money, we can't live beyond our means ... part of the solution being put forward for getting out of this mess goes back to that," Yeager said.

It is a paradox that Lauren Weber, a journalist and author of the forthcoming book "In Cheap We Trust," a history of thrift in America, said is part of the national character.

Deeply embedded

Thrift, hard work and simple living were deeply embedded in America's early values, embraced by the Puritans and founding father Benjamin Franklin whose aphorism "a penny saved is a penny earned" is often invoked today.

"We're very confused," Weber said. "We're told that saving money is good for the soul, it's virtuous to save money. On the other hand, we're told it's basically unpatriotic, it's like burning the flag, to cut up your credit cards."

Credit card debt soared 25 percent in the past decade as consumers were flooded with offers of easy money, pushing spending up at rates that far exceeded wage growth.

In the last decade, American households piled on US$8 trillion in debt, an increase of 137 percent, taking total consumer debt to around US$14 trillion by late 2008, including home mortgages, credit and store cards and auto loans.

With the collapse of home prices and stock investments, consumers are changing their ways, at least for now. Every industry from insurance to car makers has changed its marketing to emphasize value, according to Fran Kelly, president of a Boston-based advertising agency.

But "cheap" is still a dirty word for many. Arnold client McDonald's has boosted sales because of its inexpensive Dollar Menu and by adding fancy coffee drinks for much less than chains such as Starbucks.

"With McDonald's we're talking about a better coffee at a great price, but we never say cheap," Kelly said. Price cuts are one way to boost sales, but businesses don't like to do that. Many are finding other ways to attract customers without actually cutting their prices.

"It's hip to get a deal," said Ginger Boyle, co-owner of Beverly Hills beauty salon Planet Salon. She has managed to boost sales by 14 percent through monthly promotions, but she said it's getting tougher as people want more for their money.

Yeager recalled a woman who came to a book signing event and berated him for his insensitivity about the recession, saying that if the economy did not improve she would have to cancel the family's cable television subscription.

"Half the world's population lives on less than US$2 a day, and we're in a funk because we're going to have to give up cable service," he said.


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