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Updated from 4:05 p.m. EST U.S. stocks were stuck near the flat line for another session Tuesday as investors failed to find any catalysts to drive the action. The Dow Jones Industrial Average was up 4.57 points, or 0.04%, at 12,666.31, and the S&P 500 rose 1.01 points, or 0.07%, to 1448. The Nasdaq Composite added 0.89 point, or 0.04%, to 2471.49. The market also struggled for traction on Monday, and the Dow tacked on just 8.25 points, or 0.07%, to 12,661.74, while the Nasdaq slipped...

Learning to reach lower for happiness

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“If you know how to spend less than you get, you have the philosopher's stone.”
- Benjamin Franklin
In Rambouillet, France, about an hour's drive from Paris, a French executive and his wife have given up their customary weekend evenings in the capital because the price of a show, a restaurant, gasoline for the drive and a babysitter until the wee hours of the morning has become prohibitive.
In a prosperous Long Island suburb, the wife of a fund manager says she has heard gossip that several women in her club have had to borrow to pay their annual dues.
And as far away as Tanzania, a tour provider frets that Americans are cutting back on African safaris.
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Pride prevents many of these well-off people from discussing or even closely examining their downsizing - a phenomenon bound to intensify as financial institutions unravel and bankers at Lehman Brothers and elsewhere lose their hefty paychecks. And of course, most people with moderate incomes would be happy to have these problems.
But to David Rosenberg, chief North American economist at Merrill Lynch, the evidence was clear even before the Wall Street debacle: The downturn in the world economy and the end to a 20-year credit cycle that fueled a consumption boom, means that households at nearly every level are reducing spending.
“It means that fashions are going to change,” Rosenberg wrote in a research report last month. “It means that frugality is going to set in.”
So far, spending by the affluent may be merely fraying around the edges. But Russ Prince, president of Prince & Associates, a market research company that tracks the habits and attitudes of the rich, says that members of a group he calls “middle-class millionaires” - those who have total assets of between $1 million and $5 million - are “freaking out,” worried about cash flow because of high fixed costs like maintaining large houses and sending their children to private school.
But finding one's inner Benjamin Franklin - the American founding father who moralized about the relationship between money and happiness - is not easy. How well people at all income levels cope with the need for frugality depends in large part on how they are wired and how they have been socialized. With the majority of people feeling more out of control about the economy than at any time since the Great Depression, coping may require far more than a family budget and some financial education.
Sharon Danes, an economist and professor at the University of Minnesota who advises family businesses, likens the emotional reaction to a suddenly reduced income to the loss cycle in mourning a death: First denial, then anger and blame, followed by depression with loss of energy; negotiation, in which people want to discuss the problem; and, finally, acceptance and the search for a solution.
The denial phase, Danes said, can mean that although income drops immediately, people “continue their lifestyle as it is until they see things are not going to change.” The result is that spending ratchets down in smaller increments. In fact, it may take a wake-up call, like not being able to pay a tax bill, to stimulate action. “Then the change becomes scary,” she said.
For those whose sense of self depends on money, warned Richard Trachtman, who runs a New York psychological practice specializing in money and relationships, the consequences of concentrating on wealth are often “unhappiness, physical problems, headaches, backaches, suppressed tension, which leads to heart attacks, problems in relationships and problems with sleep.”
Trying to change that orientation may be difficult Trachtman said, “because it is hard to change your personality and the habits of a lifetime.”
Once people are ready to face change, Danes advises them to adopt positive motivations for spending cuts. “Don't call it 'the new frugality,”' she said - that implies a negative outside stimulus. Instead, she said, “Call it 'right-sizing' your life as a family. Or making your life more manageable.”
Many affluent parents believe it essential to keep children in private schools and shelter them from financial worries, but Danes advises families to open up about the need to trim budgets. She advised planning and finding ways to encourage children to make small changes, then assessing how those little savings make a difference. “If you make the goals realistic, the snowball of success will continue, so you can motivate the whole family,” she said. That ensures the process will be sustainable. “If it is too hard, people are going to check out and not do it.”
For some, cutting back may merely mean more discipline and wiser choices; for others it may require tossing out credit cards or even professional help to counter compulsive spending.