5 life lessons from the recession

By Liz Pulliam Weston

The Great Depression famously shaped, and in some cases warped, the "Greatest Generation."

Many of those who lived through that economic cataclysm developed lifelong habits of thrift. But some became hoarders, unable to shake an overwhelming fear of deprivation that those years instilled.

Many became risk-averse and suspicious of debt. But some became so disillusioned with the financial world that they never invested again and eschewed all debt, including loans that might have helped them get ahead.

This recession will shape you, as well. Rather than give in to fear, paralysis and cynicism, though, I hope you'll learn these important lessons from the economic cycle, which should serve you well in the years ahead.

Among them:

1. Frugal isn't a 4-letter word

I wouldn't say thrift is exactly hip, but suddenly a whole lot more people are focused on how much they can save rather than what they can buy.

In a matter of months, our national savings rate went from fumes to more than 4%. People got the message that living beyond their means isn't smart when those means can be snatched away overnight in a layoff. (See MSN Money's financial-crisis survival guide.)

• Talk back: How has the recession changed you?

Even if you keep your job, the prevalence of pay cuts and furloughs makes it clear that you can't count on an ever-expanding paycheck to make up for careless spending.

Of course, some are frugal now only by necessity and will shed their careful ways as quickly as their circumstances improve. Others have been so traumatized by job losses, foreclosures and collection calls that they may become neurotic about spending even when they can.

But I hope you will learn the better lesson from frugality: Saving and spending smartly can be empowering. You don't have to be in a paycheck-to-paycheck vise for the rest of your life if you're willing to examine your expenses and make different choices.

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You can't dictate what life hands you, but having some savings and control over your spending gives you more options for how to respond.

Besides, it feels a heck of a lot better being content -- dare I say even grateful -- for what you have, rather than constantly focusing on what you want.

2. Lenders are not your friends

You'd think it would be obvious by now, but too many people are still shocked -- shocked! -- when their lenders treat them poorly by slashing credit limits, jacking up interest rates or dragging their heels on loan modifications.

For years, lenders, especially credit card companies, have gotten away with being schoolyard bullies. They picked on the weakest first: those with poor credit and few means. When no one stood up to them, they expanded their turf to the point where no one, not even a loyal customer with great credit, is immune.

Some relief is at hand. The Making Home Affordable program seems to be helping more homeowners get loan modifications and refinances. And a regulatory ban on some of the worst credit card tricks will go into effect next year. But in all your dealings with lenders, you should still keep these lessons in mind:

• Just because a lender approves you for a loan doesn't mean you can afford to pay it back. You have to set your own limits on borrowing. Read my "16 favorite money rules of thumb" for suggestions on what those limits should be.

• Credit card debt is a sucker's game. In responsible hands, credit cards are a great tool, as I explain in "9 reasons to love credit cards." But you should use your cards only if you can pay the balance in full every single month. Carrying balances just makes you vulnerable to the ever-changing whims of credit card companies.

Continued: Everything involves risk

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