How Does the Economy Affect Purchasing Decisions?

We’ve all heard jaw-dropping tales of economic adversity from the Great Depression, which get passed down through families from generation to generation. Some of those pearls of wisdom from elderly relatives are invaluable, teaching us how to save money and to live as frugally as possible. On the other hand, the generations that came of age in the 1980s and 90s developed very different, free-spending and heavy-borrowing habits. Will their lessons and habits be passed on too?

Things are particularly hard for recent college graduates, also known as Generation Debt, who are faced with cracking an extremely tough job market.  Are they looking back to Depression-era insights to help them survive in the modern world? Or is this generation set in the consumer habits they observed growing up?

It Pays To Save

Saving was key to people who survived the Depression, even if they could only put tiny amounts aside per month.  Putting aside one-third of your income is often cited as a rule of thumb for anyone looking to save, but recent college grads swimming in debt and faced with meager earnings may find that a difficult target to make. Any amount of savings is better than none, however.

Learning how to save might feel like a daunting proposition, but tech-savvy grads have plenty of free advice just a few mouse clicks away. The rise in popularity of budget-planning websites and apps help keep spending under control. can be used to help prepare for the eventuality of debt prior to graduation, and can continue to be a valuable source long after.

Debt Can Be Deadly

Disproportionate borrowing was a huge factor in both the recent economic collapse and the Great Depression. It’s estimated that the average student currently has around $25,000 of debt upon graduating, and for some it’s much higher.

There’s evidence to suggest that recent grads are taking steps to reduce debts built up by loans, although some are taking extreme measures. Many people entering the workplace for the first time are putting off major life changes in order to focus on paying off loans. Getting married, having kids, and buying a house are all being put on the back burner until debt becomes manageable.

Anyone dismayed at their debt situation can at least take comfort in knowing that they’re in good company. Even Barack Obama has talked about how much debt he and Michelle were in after college, claiming they only got out of it eight or nine years after they were married, with a little help from book sale royalties. The Audacity of Hope was, it seems, appropriately named.

Shop Smart

Many Depression-era survivors got through the period by resisting the temptation to purchase desirable but unnecessary household goods, like a shiny new wireless radio – the 1930s equivalent of the iPad.

Are recent grads cutting back in similar ways? The evidence suggests they are, even though consumer spending is generally on the rise  — increasing 2.9 percent in the first quarter of 2012. With student loan debt at an all-time high, fewer households are being formed due to grads living at home for longer periods of time, meaning there’s been a slump in sales in furniture and other common household items.

When money is scarce, bargain hunting becomes ever more important, and there’s evidence to suggest a large proportion of the population is seeking to cut corners in this way. Just look at the continued popularity of sites like Craigslit, eBay and Etsy, where you can buy and sell just about anything on the planet — often at vastly reduced prices. Even major retailers are tapping into the trend. The Amazon Marketplace remains one of the best places to sniff out a bargain online, and even top-of-the-range tech firms like Apple offer opportunities to purchase refurbished goods and older models of their devices. Maybe you don’t have to forgo that iPad indefinitely after all.

How can this generation recover from the effects of the recession, and how long will it take them? Do you think this generation will be permanently more frugal, or are they still influenced by the free-spending 1980s and 90s? Share your thoughts in the comments.


Want more information about managing your debt? Check out’s Dealing with Debt section.