Families relying on more money smarts to get by

CHICAGO (AP) ? Americans have been forced to take a crash course in money management, and class is still in session.

Falling home prices and rampant foreclosures. Flat wages and high unemployment. Volatile stocks and no safe refuge for savings. An unforgiving recession and the threat of a sequel.

One economic challenge after another has tested the financial strength of most everyone in recent years, and more hurdles loom ahead as signs of an economic slowdown mount.

Although results are mixed, many families have shown they are up to the task. By necessity, they’ve toughened up and become more disciplined about their finances. They’re saving more, paying down debt and charging less on their credit cards.

For the fourth straight year, on average, individuals are saving more than 5 percent of their after-tax income. Back in 2007, they were setting aside less than half that ? and some nothing at all.

Such changes in behavior may not be permanent. But they’re a noteworthy development following years when so many overspent, overborrowed and were neglectful if not downright oblivious about basic finances.

“Each succeeding generation since the Depression has gotten further and further away from financial discipline,” says financial planner Mark Balasa. “Some (people) are getting religion now ? having it forced upon them.”

Indeed, Balasa says his clients at Itasca, Ill.-based Balasa Dinverno Foltz, which manages about $1 billion in assets, are focusing more than ever on controlling spending, savings and tax liabilities.

But like so many others, they’re also hoping for some improvement in the economy so they can fully apply their lessons and get a chance to flourish.

It won’t be easy. Couples, families and single people are all facing disheartening trends. Among them:

? Median household income has fallen for three straight years, reaching $49,445 in 2010.

? The portion of households living in poverty grew to 15.1 percent last year, encompassing a record 46.2 million people. For a family of four, that meant income of less than $22,314.

? More families are “doubling up” because of the economy. The number of combined households rose this spring to 21.8 million, up from 19.7 million in 2007. In particular, an increasing number of adult children moved back in with their parents or never left home.

? The faltering housing market is squeezing homeowners. On average they have just 38.6 percent equity in their homes, down from 61 percent a decade ago. And home prices aren’t expected to make a healthy recovery until 2015 at the earliest, according to Celia Chen, a housing economist at Moody’s Analytics.

In a weeklong series The Associated Press will examine the financial realities facing families across the country, share lessons learned and offer guidance on how to navigate the ongoing challenges.

Doing the right things financially will help. But it’s no assurance of success, as many have found.

Stacy and Nate Hayon of Sheboygan, Wis., both 35, have embraced frugality and good financial habits since shortly before the recession began in 2007.

Before then, if they saw something they wanted, they simply bought it: a steady stream of new clothes, shoes, toys for their children Owen, 6, and Danica, 4, goodies for themselves and their home, frequent dinners out and other expenses.

But with $8,800 in debt, nonexistent savings and no real plan, their uneasiness was growing. They stopped using credit cards and have been playing it straight ever since.

They’ve been sticking to a budget, building savings, clipping coupons, buying clothes from secondhand shops, and taking staycations. The credit-card debt is gone. But with two kids and a mortgage on their $135,000 three-bedroom house, they know they need to keep being money-smart.

They managed to escape the worst of the economic travails until August when Nate got laid off from the job he’d had for 10 years, selling log homes.

“You get your feet on the ground, and then this happens,” says Stacy, a secretary. “It was a shock.”

Keeping up the savings won’t be possible now while Nate seeks a new job. The discipline gained from recent years should help, however.

“We’re not alone,” Stacy says. “We’ll make it.”

Paying down debt also was essential for Chris Palmer of Buffalo, N.Y.

The single 53-year-old used to put car maintenance and lots of other unplanned expenses on her credit card. She also routinely lent money to family members, without ever getting it back. Eventually the debt reached $18,000 and she could barely afford to pay the monthly charges.

A bank teller, Palmer sought out a credit counselor a few years ago and worked out a plan to pay off her debts. It took getting a second job as on office cleaner; learning to say “no” to relatives; and spending on nothing but necessities ? not even Christmas gifts. But by this year, she finally had all her debt paid off.

Still, there’s a problem. Palmer’s job as a teller was reduced to part-time and then eliminated. She’s only been working part-time so saving is on hold. She has reduced her expectations as well as her lifestyle, figuring she’ll need to work until she’s 70.

“It’s tough for me,” she says, “but I have every confidence things will get better. Once I get another day job, my goal is to be a saver again. Right now, I really can’t be worried about tomorrow.”

For some, learning that they don’t have to be a financial do-it-yourselfer is a critical step toward long-term stability.

A retired banker, Donald Pederson thought he and his wife, Joan, had nothing to worry about financially until three years ago. The Edina, Minn., couple were living off the dividends from financial stocks, such as Wells Fargo, figuring they were ultra-safe.

Then those stocks cratered in the financial crisis, the dividends disappeared and their portfolio shrank by 60 percent within months. “It felt like a whole new life,” he recalls.

Pederson, 74, knew they needed help. The autopilot approach wasn’t working. He sought out a financial planner who diversified the portfolio so it could withstand market plunges while still providing income.

“My life is stabilized because I don’t worry about what I’m going to do any more,” he says. “Life’s a little more serene now.”

When financial stocks tanked again recently, Pederson didn’t fret.

Ted Contag of Thrivent Financial, who works with the Pedersons, says more people are seeking advice because “the world is more complex, more volatile.”

Whether the new discipline sticks remains to be seen. In the past, savings have ebbed and people have abandoned caution about accumulating debt when the economy booms.

But a return to the free-spending, free-charging era of five to 10 years ago seems unlikely any time soon; especially as job growth remains too weak to lower the unemployment rate, and consumer confidence remains near a two-year low.

There is little doubt, though, that Americans will be better off in the long run because of this increased belt-tightening, savings and financial self-scrutiny. All of these steps will help move many away from the potential disaster of living paycheck to paycheck.