Flashback to 2000: I am in my first year of college and riding high. Having just moved to New York City, I’m soaking in sights and sounds, and spending very little time in class. Unfortunately, I don’t realize I’m also spending a great deal of money while I’m gallivanting about. Slowly, the $3,000 in pocket money I had so diligently saved during my four years of summer jobs starts dwindling away. It is not until a day in late October, when my ATM alarmingly announces “insufficient funds,” do I realize how detrimental my lack of financial awareness has been. I have just spent $3,000 in less than three months and have no idea how. What am I going to do?  

Like many others of my generation, I was the typical American consumer—flush with cash, buoyed by materialism, and loath to save. A little history might be helpful in understanding how we got to this current economic state, and what we can do to help. Our grandparents’ generation was incentivized to save by growing up during the Great Depression; the personal savings rate hovered between 8 and 10 percent from the late 1940s until the mid-1980s.

 

Our parents’ generation, the baby boomers, were implored by their parents to continue this savings trend, but as the dot-com bubble grew, and disposable income increased, spending replaced saving. Exactly why this trend reversed is still up for debate, but many theories point to the “wealth effect,” in which consumption is stimulated by increasingly higher incomes. (Think about it: If you won the lottery tomorrow, would you spend more money first, or save more money?)

 

For the last quarter of a century, savings rates have gone into precipitous decline, hitting bottom in 2005, with a savings rate in the negative. Simultaneously, personal wealth also took a dip, as the dot-com bubble burst. However, instead of adjusting spending habits to be in line with a revised income level, Americans have had to borrow ever-increasing amounts of money to fund their spending in order to keep up with the lifestyles they had become accustomed to previously. With our reserves so low, credit was constantly needed to keep the wheels of the economy spinning.

 

So why couldn’t this just continue? To make a long story short, the combination of poor financial education, lax government policies, and a culture of unaccountability on Wall Street caused our credit system to “freeze” up, or, in layman’s terms, people who had money to lend stopped giving out loans. While this may seem like small potatoes if you’re not asking for a loan, a credit freeze can be really debilitating to an economy like ours. Since we’re so used to easy access to other people’s money, we get scared and stop spending when we lose that access. And in the free-market, consumer-driven, capitalistic country we live in, when people stop spending money, things get BAD. With no demand, companies are forced to cut down on supply and thus GDP (gross domestic product; to be explained further in upcoming issues) shrinks, consumer confidence tanks, unemployment increases, and we officially enter a recession. The milk and honey in the land of plenty starts running out.

When I ran out of money that cold October morning in 2000, I realized that up until that point, all I had been taught about money from the world was that I should spend it. As part of the most marketed-to demographic of young consumers, money was promised as the route to social success, and I internalized all those messages, unconsciously creating an identity that equated money with happiness, and initiating myself into the cult of rampant materialism. I also realized that the market’s desire for my money meant it was a source of power and agency I didn’t realize I had.

Women have traditionally been left behind by the world of finance. We earn only 80 percent of what our male counterparts earn, occupy a mere 5 percent of executive positions, and have traditionally received little to no financial education. And yet, we outlive men by fifteen years on average, are more likely to head a single-parent household, and are typically responsible for managing our families’ budget.

Young women have it especially hard. As the most heavily targeted demographic for marketing, we are constantly bombarded with reasons to spend. And in light of all these roadblocks, we don’t realize that we can be in control of our money and wield it with knowledge and power as a tool for social change. After all, economic boycotts, like the Montgomery bus boycott (where a ton of people who used public transportation boycotted it, thus causing profit deficits for the public transit authorities), can be some of the most effective ways to get your opinion across.

Let’s take this time of economic downturn to take back the reins of our money, and attempt, maybe for the first time in our lives, that age-old wisdom of our grandparents—to live within our means. Let’s not be scared by finance, but instead, interested and informed. Let’s make the virtues of frugality, fiscal responsibility, and prudence “cool” again. Let’s use our money in ways we understand, and make informed decisions about how to spend it. And most importantly, let’s take seriously the words of our new (and best!) president to “usher in a new—a new era of American responsibility.”

What can you do?
—Be informed about financial news. For more information about the subprime mortgage crisis and the subsequent economic meltdown, listen to the award-winning podcast “The Giant Pool of Money” on NPR’s This American Life. For daily updates, listen to NPR’s Planet Money. And, for information about the collapse of the banking system, check out Bad Bank. You can also read the Wall Street Journal, or the New York Times Business section.

—Be more aware of HOW you spend your money. Start tracking your expenses, either with an Excel spreadsheet, or with one of the many online money management software program available, like Mint, Wesabe, PearBudget, or Quicken Online. One word of caution though: You shouldn’t have to pay to manage your money if you have less than five or six accounts.

—Be more aware of WHERE you spend your money. Giving someone your money is giving your implicit support. If you care about a cause, put your money behind it. Research the products you buy in order to make informed decisions. Even buying organic produce and fair-trade goods is a great way to get started.

—Be more aware of WHY you spend your money. Pay more attention to how advertising affects you. Paco Underhill’s Why We Buy notes, “People’s stated and actual reasons for purchasing something differ tremendously. [Shopping] is a method of becoming a newer, perhaps even slightly improved person.”

—Pay yourself first. Make saving just as important as any of your other bills. Set aside at least three months of living expenses for emergencies, and then start stocking away money for your dreams. Here’s a tip for spenders like me: Put your savings account in a different bank than your checking, so you’re not tempted to take money out of it every time you go to the ATM.

—Ask questions if you don’t understand something. Don’t ever forget that it is your money and you are in control. Make sure you feel informed and knowledgeable about any financial product before you invest, buy, or sell. You should be able to get all your questions answered, and if you feel resistance from a banker, go somewhere else. There are many websites to help women learn about finance, but Suze Orman is a good start, and she’s pretty hilarious too!

—Develop financial goals. You may not know it, but you have financial goals. They are those dreams you have about taking a trip around the world, opening up a small bakery, or remodeling an old farmhouse. Develop a plan to get yourself to your goals, and don’t worry about what everyone else is doing with their money!