Unemployment is rising. Nest eggs are in tatters. Home values have tanked. And yet surprisingly, Americans are feeling less stress from debt these days.
Chalk it up to the power of positive thinking combined with people saving more, spending less and trimming debt to cope with the recession.
The upshot is that more people are optimistic that they’ll eventually be able to get out from under a mountain of bills, a major factor behind the decline in stress from last year, according to a new Associated Press-GfK poll.
Debt-related stress was 12 percent lower this year than in 2008, according to the poll. “People now have some optimism that the worst is behind them,” said Paul J. Lavrakas, a research psychologist and AP consultant who analyzed the results of the survey.
The recession, the longest since World War II, is prompting Americans to take steps to get their finances in better shape. It’s led to a newfound frugality that some believe will continue long after the recession ends.
“People are doing things that make them feel they are taking charge of their lives again,” said Patricia Drentea, associate professor of sociology at the University of Alabama at Birmingham, who studies debt and stress.
Ironically, some of these changes — notably a more cautious consumer — could add to the national economy’s stress. If Americans were to sharply cut back spending, that could prolong the recession and short-circuit any hopes for a recovery this year. Meanwhile, fallout from the recession and government efforts to lift the country out of it have propelled the federal budget deficit past $1 trillion for the first time, the Treasury Department reported Monday. The exact figure: nearly $1.1 trillion of red ink run up in the nine months of this budget year.
There was a stark break in the poll between Democrats and Republicans.
Democrats reported a big drop in their debt stress, while Republicans registered a sharp rise, a development political scientists attributed to the election of Barack Obama, which put the White House — and economic policy — back in the hands of Democrats following eight years of Republican George W. Bush.
Now 48 percent of those polled say the country is headed in the right direction, compared with just 18 percent who said that in 2008, the poll says.
But that confidence could prove fragile, said Terry Madonna, political scientist at Franklin & Marshall College in Pennsylvania. “At the moment, Obama is personally more popular than his programs. Ultimately, his approval rating will be tied to his performance.”
There’s no doubt the recession, which started in December 2007, has taken a toll on Americans.
It has snatched a net total of 6.5 million jobs, and driven the unemployment rate up to a 26-year high of 9.5 percent in June.
Americans watched their net worth shrink by $1.3 trillion in the first three months of this year, due mainly to declining stocks and home values, the Federal Reserve says.
On the other hand, Americans aren’t dealing with record-high gas prices as they were last summer. Credit and financial problems, which reached a crisis point last fall, have shown some signs of easing. But it’s still hard for many people to get loans.
“I wouldn’t conclude by any stretch that consumers feel safe or comfortable. But I think the uncertainty has mitigated. Some of the big fears people had at least disappeared some,” said James Hamilton, economics professor at the University of California, San Diego.
Last year, 33 percent said they were at least “somewhat concerned” that they would never be able to pay off their debts. That’s dropped to 27 percent this year, the poll shows.
Other encouraging changes: The proportion of people saying they worry all or most of the time about debt fell to 19 percent, from 24 percent last year. And, the share of people who hardly ever fret or don’t worry at all about debt grew to 47 percent, from 41 percent last year.
Chris Norton, 32, of Robbinsdale, Minn., said he’s much less stressed over debt.
“The debt that we have accumulated ... it’s gotten knocked down to a reasonable place, where it doesn’t bring stress any more,” said Norton. “We have the state of mind that if we keep plugging in the right direction it will kind of work out.” Norton, who describes himself as an independent who leans Democrat, works at a shipping company and his wife is a server at a high-end steakhouse.
Nationwide, total household debt — including mortgages, credit cards, autos and other consumer loans — stood at $13.8 trillion in the first three months of this year. That amounts to roughly $124,000 of debt per household. The total debt figure is down only slightly from a peak of $13.9 trillion in the third quarter of 2008, according to the Federal Reserve.
Although households are shedding debt, they aren’t doing it quickly. Consumers’ debt exceeded their after-tax “disposable” income by 28 percent in the first quarter, according to Scott Hoyt, senior director of consumer economics at Moody’s Economy.com. So consumers’ debt was almost a third more than their income. This debt-to-disposable income ratio peaked in the first quarter of 2008, when debt exceeded income by 33 percent.
The savings rate jumped to 6.9 percent in May, the highest since December 1993. The amount of money saved — $768.8 billion — was the most on records that started in January 1959, the government recently reported.
The Nortons, who have two children ages 3 and 1, can be counted among the growing ranks of savers. “We actually do have a savings account that has money in it where we didn’t a year ago,” Norton said.
The AP-GfK poll found that the share of people using their credit cards to buy what they want even if they don’t have the money dropped to 19 percent, down from 25 percent last year.
Retired educator Judith Vostal, 66, of Tinley Park, Ill., feels less stress despite the fact that her investments have tanked. She owes $75,000 on her home mortgage but doesn’t have any other debt. “I’m old enough to know that you deal with what you have and life goes on,” she said.
A Democrat, Vostal is optimistic now that Obama is in the White House. “I believe in the things he says, and I believe that he is going to do the best he can to make the changes he talks about,” she said.
But Jeri Bowman, 37, a teacher in Riverside, Calif., says her stress has gone up even though she and her husband are spending less and are working to trim their debt. They’ve paid off about $2,000 of their credit card debt but still have about $13,000 left. And, they have student loans.
A self-described “conservative” who shuns a Republican label, Bowman said Obama’s economic policies are adding to her stress. “I think we’re heading for a socialist state, and I don’t think that the government needs to be in charge of every waking moment of our lives,” Bowman said.
Democrats give Obama a 92 percent approval rating, while Republicans give him a 26 percent approval rating, according to the AP-GfK poll. Independents give Obama a 61 percent approval rating, the poll says.
The AP-GfK poll involved telephone interviews with 1,000 adults and was conducted May 28 through June 1. The margin of sampling error was plus or minus 3.1 percentage points.
Even if the recession ends this year, the confidence that Democrats and independents have in Obama is likely to be put to the test if the unemployment rate peaks at 11 percent next year as some predict. “There is always a lag between when the recession ends and when voters say it ends,” Madonna, the political scientist, warned.