The end of the Shopaholic Nation?

By U.S. News & World Report

When it comes to longevity, few royals can top America's King Consumer.

For more than four decades, our shopaholic nation has shown an insatiable desire to spend until our credit cards melt. And throughout this era, consumer spending has, well, consumed a greater and greater share of our total economy.

Only twice since 1965, despite half a dozen recessions, have Americans spent less in a year than the previous one. Indeed, it often seems that we have defined ourselves by our ability to buy supersized everything, from McMansions to tricked-out SUVs to 60-inch flat-screen televisions -- all enabled by decades of cheap credit.

On the surface, it may seem that there's nothing wrong with all that conspicuous consumption, especially for the biggest, most productive economy on the planet. After all, our undying love of stuff has helped fuel a global economic boom.

• Talk back: How have you and your family scaled back?

Yet America now finds itself at a once-or-twice-a-century economic tipping point. A sharp slowdown, fluctuating gas prices that have reached record highs, massive consumer debt levels, a plunging real-estate market and the growing green movement all seem to be conspiring to dethrone King Consumer and transform the economy and the American way of life for years to come.

"The process of bringing our wants and our needs into realignment," says Merrill Lynch economist David Rosenberg, "is going to involve years of savings and frugality."

Or, to put it more simply, "there is an anti-bling thing going on," says Marian Salzman, the chief marketing officer of Porter Novelli, a public-relations company.

The party's over

Many consumers, of course, don't have much choice but to scale back. Total credit card debt increased by more than 50% from 2000 to 2008. The average American with a credit file was responsible for more tha $16,600 in debt last year, excluding mortgages, according to Experian, and the personal savings rate has hovered close to zero for the past several years. High gas and food prices are causing real incomes to fall.

Even worse, once the credit crisis on Wall Street has passed, rising inflation will probably cause the Federal Reserve to start jacking up interest rates, tightening credit even further.

"We're shedding jobs, it's much harder to borrow, and what used to be capital gains are now capital losses," says Scott Hoyt, the senior director of consumer economics at Moody's Economy.com. "There's no source of funding for spending." It was our appetite for housing that served as the catalyst for the multidecade consumer boom. Consider this: Consumer spending has risen to just more than 70% of the U.S. economy from a bit more than 60% in 1965. The pace really picked up in the 1970s, when the first baby boomers started buying and furnishing their own homes. But now, Rosenberg says, the median boomer is in his early 50s and looking to unload his fleet of leased SUVs.

To some degree, then, demographics are destiny. Longer term, an aging population will need to spend less and save more for retirement. As that process plays out, consumer spending may become less important in the big economic picture. Moody's Economy.com forecasts that the combination of demographic and financial factors will cause just such a seismic economic shift.

Reversing a four-decade ascent, consumer spending could actually start falling as a percentage of U.S. gross domestic product, slipping to 68% over the next seven years.

Are we shopped out?

This new frugality might actually be OK with many of us. Consumers were "so glutted on everything that they had acquired and all the time that was robbed from them . . . that they almost saw this (downturn) as a great opportunity to stop," says Faith Popcorn, the chief executive of her eponymous consultancy. In a survey conducted during the current downturn, she found that 90% of respondents said they were considering options for "the simpler life," and 84% said they were inclined to buy "less stuff."

Another survey indicated that people rank being in control of their finances and living a green lifestyle higher as signs of success than having money or a luxury car, and view having a paid-off mortgage as more of a status symbol than having a beautiful home.

"We have to convince ourselves that the lifestyle we can afford right now is a desirable one," says Holly Heline Jarrell, a global director at the communications firm Manning Selvage & Lee, which sponsored the survey.

Examples of the mind-set shift abound. Large-vehicle sales declined 5.5% during the first half of 2008, while compact-car sales rose 33%, according to J.D. Power & Associates. Piaggio, the company that makes Vespas, reported in June that scooter sales were up 146% over a year earlier. Even daily lattes have been cut; in July, Starbucks announced that it was closing 600 stores in response to reduced consumer traffic. NPD Group has found that the number of meals made at home has been steadily rising since 2001.

"We're coming back to the home," says Harry Balzer, the vice president of the firm.

For some people, the downscaling has more to do with a changing definition of cool than with budgeting. The blockbuster family movie "Wall-E" depicts a future world where spending and waste have spiraled so out of control that the Earth becomes a giant landfill. Magazines play up how celebrity moms such as Victoria Beckham, aka Posh Spice, and Heidi Klum shop at Target for their kids. A simplification industry has spawned an annual Buy Nothing Day, books and blogs about not purchasing anything for a year, and the magazine Real Simple.

Shaping Generation Y

Consumers in their 20s may be most affected by the shift to simplicity. In focus group research for her upcoming book on Generation Y, consumer psychologist Kit Yarrow has found growing interest in secondhand stores. Young shoppers tell her that it's a "way to get new stuff without creating stuff," she says.

And because consumers often learn their lifetime shopping habits during their developmental years, Mandy Putnam, a vice president at TNS Retail Forward, a market research company, says members of Generation Y may be permanently shaped by today's lessons in austerity, much as their great-grandparents were by the Great Depression.

There's also an environmental component, says personal-finance guru David Bach. "I just sat at the kitchen table with my 5-year-old son talking about 'reduce, reuse, recycle' -- I couldn't have told you that at 5," Bach says. He recently wrote "Go Green, Live Rich," which focuses on how helping the Earth can coincide with smart financial choices, such as avoiding bottled water and starting a vegetable garden.

Continued: 'It's about uncluttering'

Gen Yer Russell Simon embodies that way of thinking. The 26-year-old has furnished his Washington, D.C., apartment with used furniture found on Craigslist, uses a canvas bag to bring home groceries and gave up his 1999 Subaru Impreza Wagon. He fills his time with activities, such as swing-dance lessons, that don't involve buying things.

Though he's glad his anti-consumption ways have a positive effect on the environment, Simon's motivations are more self-serving. "It's about uncluttering my mind, uncluttering my space and allowing me to focus on things that matter," he says.

• Talk back: Are you burdened by 'too much stuff'?

Cindee Mazzanti, a self-employed 57-year-old living in upstate New York, started downsizing in 2001, when the end of the dot-com bubble made her realize the importance of living within one's means. She sold her home and used the equity to pay off her debts and purchase a smaller home without a mortgage. She also traded in her Ford Freestyle SUV for a more thrifty Ford Focus to lower her fuel costs and help reduce America's demand for foreign oil. Her monthly living expenses shrank from $5,600 to $1,200. Without debt, she says, she feels free.

Retailers are doing what they can to woo these new, economy-minded consumers. Last year, Starbucks began offering new rewards on its stored-value cards, including free refills on hot and iced brewed coffee and complimentary syrup and soy milk.

"This was an opportunity . . . to show Starbucks can be a part of people's lives even when budgets are tight," says Brad Stevens, the vice president of Starbucks' customer relationship management.

A drive to spend

But what happens once budgets aren't so tight? Plenty of hardheaded economists say we'll go right back to our prodigal ways.

Alan Blinder, an economics professor at Princeton University and a former Federal Reserve vice chairman, thinks that optimism and the drive to spend are hard-wired parts of America's cultural DNA. Blinder expects that even baby boomers will continue the spending spree that has defined most of their lives, buying medical care and golf vacations instead of new cars and larger homes.

Balanced economy

Even if Americans do curtail their spendthrift habits, in the long run, the result would probably be a healthier and more balanced American economy.

If as a nation we bought a bit less and saved a bit more, economists say, the result would be stronger long-term economic growth. And depending on the kindness of strangers to perpetually finance your lavish spending sure seems risky. If the foreign appetite for U.S. dollar assets abated, says T. Rowe Price chief economist Alan Levenson, the dollar would probably weaken further, reducing Americans' standard of living.

Besides, there is more to the economy than just the consumer. The economic boom of the 1990s was led by business investment, especially in technology, aiding a boost in productivity that continues today. Though many businesses are currently holding back on investment, they are likely to beef it up after our financial criris passes, says Robert Brusca, the chief economist at Fact and Opinion Economics.

And Uncle Sam will have a big role to play, investing stimulus money on upgrading our national infrastructure and advancing alternative energy technologies.

"We're at a critical moment," says Benjamin Barber, the author of "Consumed: How Markets Corrupt Children, Infantilize Adults, and Swallow Citizens Whole." "In two or three years, we might say, 'We had a moment where the banks were broke, credit cards didn't have much credit left, when Americans were beginning to rethink consumerism, when we really could have turned the page,'" Barber says. "Or we might be saying, 'We talked ourselves back into the old fixes,'" such as rebate checks and even telling Americans directly to go out and spend, as President Bush did after 9/11.

With baby boomers' habits well-ingrained, it may instead be members of Generation X and Generation Y who decide to embrace a simpler, less wasteful lifestyle, rebelling against the conspicuous consumption that their parents helped make the American way of life.

This story was reported by Kimberly Palmer for U.S. News & World Report.

Updated March 20, 2009