Chris Farrell is drawing big crowds as he tours the U.S. to promote his new book, The New Frugality, which paints a picture of a seismic shift in our society away from unfettered spending, toward healthier financial habits. He explains why changing your attitude toward money can also help you live a good life that reflects your personal values and may help you find your true calling – in, perhaps, your encore career.

Marc Freedman, founder of Civic Ventures, calls Farrell’s book “a roadmap to a better life and a better future.” Freedman recently heard Farrell address a crowd in Northern California. “Speaking in front of a roaring fire,” says Freedman, “Farrell laid out his vision for the great changes, already under way, that will produce a more sustainable lifestyle in America over the coming decades.”

His perspective, articulated much more fully in the interview below, has profound implications for encore careers. It is a reminder that shifting to an encore vocation is about much more than work; it is often the signal of an approach to the world rooted in sustainability. “Many people I meet are downshifting to gain the freedom to work in areas of greater significance, and reducing their consumption equally as a way to limit their footprint,” says Farrell, “They are both ‘doing’ encore–and ‘being’ encore.” Here’s an abbreviated version of our conversation:

Q: Despite all the pain and hardship around debt, your visits to bankruptcy court and your talks with folks who’ve lost their homes, your book is optimistic, and you say that most Americans won’t go back to borrowing as usual. How are you so sure?

A: There are several reasons why. It’s going to take a long time for the banks to repair their balance sheets. Banks have learned the hard way that consumers are much riskier than they thought. And the regulators are horribly embarrassed and will ensure a certain conservatism among the banks. Another factor is it that because the recession was so severe, people realize how financially vulnerable they are.

It’s easy to say people were crazy, borrowed too much and went wild. But if you look back from the ’70s and ’80s up until 2002, the economy was growing and it was reasonable to say, ‘I’m going to borrow more because I’m going to make more money.

This is the first time that wage increases aren’t coming and at the same time we’re seeing double-digit unemployment and a rise in the number of temp workers and contract workers. Who really believes they can walk into the boss’s office and say I’m leaving? A taboo was broken during the great recession and that is pay cuts. When a company gets into trouble, they will now cut pay. And I think people have learned this and will factor it in. We feel more financially vulnerable, so we won’t borrow as much.

Q: Every financial expert recommends a cushion for unemployment or medical catastrophes, and often that number is about six months of living expense. You make those recommendations, too. How realistic is that for the majority of Americans?

A: Anecdotally, I see people trying to save more and borrow less. But it’s also showing up in the numbers. The way it’s playing out is that people are borrowing less and paying down debt. And, by the way, a lot of credit card companies are assisting them by closing accounts and slashing lines of credit. For eight to nine months in a row, credit card debt has decreased. That’s pretty stunning.

Q: Even if people don’t get into trouble with debt, does that necessarily mean that they will embrace frugality and sustainability after the recession passes?

A: We have all learned that being green and being frugal matter. Being green is an optimistic act; it means that you believe that the way you approach your environment and community matters. Part of why this will be sustained is that sustainability has moved from the tributaries to the mainstream. Kids are taught in school. Even Walmart has a sustainability index for all its suppliers. It now requires suppliers to give information about sustainable business practices. Suppliers are given time to measure up, but if they don’t, Walmart will find different suppliers.

Q: So, basically, are we becoming like my 95-year-old grandmother, who lived through the Great Depression and to this day recycles the wax paper from the inside of her cereal boxes?

A: Like with your grandmother, there are a lot of habits that developed because the Great Depression was so devastating. But what’s different now is that you’ll be saving not because it’s not wasteful, but because you want to make a smaller footprint on the planet. That’s the difference between you and your grandmother.

After every previous downturn, we were all going to embrace frugality. And then the good times came, and it all went by the wayside. What’s going to be different this time, is that we’ve finally learned that there’s a big difference between frugality and cheapness. In previous downturns, it was how big a bag of rice you could get for how little. Being frugal means you want to be really conscious of what you’re spending. But you still want to be generous; you still want to feed your friends a good meal with good wine. And being frugal is self-reinforcing.

Q: Do you think the new frugality is happening to folks of all ages and life stages?

A: Yes. Young people usually don’t have much room to cut as they are already living pretty lean. The real wage for people between the ages of 24 and 35 has gone down 11 percent, adjusted for inflation, since 2000. So young people are being forced to be frugal. But for a lot of them, depending where they live, recycling and public transportation are pretty much reflexive habits. And taking sustainable actions is natural. For people my age (56), it’s much more of a learned response. I’ve been reading about this, concerned about the planet, reading about climate change, thinking about policy, but also thinking about this on the level of everyday life. This feeds into another trend. Since we can’t afford everything we want, we’re spending differently. People are saying, “Why do I own this? Why did I buy this?”? Yet they still want to date, go out, have experiences.

Q: The current thinking on financial planning is largely centered on investing and saving money for retirement and sending children to college. But you suggest that people start thinking differently about saving and investing.

A: At least since the mid-’80s we’ve been giving the wrong message, which is all about retirement. My message about savings is that you should be able to fund a lifetime of opportunity. When you’re young, you experiment, try things out. When you’re in your 50s, the thinking is that you’re in the midst of your career and you’ll ride it out until retirement. But what if being in your 50s were not much different from your 30s? That’s why we need to move the emphasis on savings away from retirement.

The reason we save should be to have freedom of choice in our careers. And the encore message resonates because it’s about that. It recognizes that you may want to leave your mid-level management job at some point. And you might decide that you want to do something else. You might want to work really hard for some number of years, and then you might want to work a lot less for a different period of time, like when your kids are younger. But it’s hard to do those things without savings.

I also advocate saving a lot more in taxable accounts. Maybe it’s not tax advantaged, but you can tap into it for any purpose. If you tie up all your money in tax-sheltered accounts, it’s only good for college or retirement. By the way, these kinds of investments don’t make a lot of money for the banks and investment firms, so there really isn’t a lot of incentive for banks to promote these investments.

One other thing: Even though it’s not the largest part of your household finances, there’s a really strong case for making giving the core of your financial plan. When we think about giving, we are very conscious of what we’re doing with our money and what difference we want to make in the world. If you make that the starting point, it will spill into all other corners, and what you’re doing with your money. Why it is that you’re working, and what it is you’re trying to accomplish? If you make giving the core of your household finances, it really will affect everything that you do with your money.

Q: If you care about sustainability and social purpose, chances are you’d like your investment portfolio to reflect your values. You point to some research on so-called ethical or socially responsible funds that shows performance is competitive, but my money manager always tells me that’s not the case. What should I say to him?

A: First of all, I would challenge his belief. Sometimes, socially responsible funds outperform their mutual fund peers that don’t use an ethical investing screen–and sometimes they don’t. The real dividing line is if you want your money to matter, you should be willing to give up a little return.

That said, financial studies suggest that there is little difference between pooling money to make money, and pooling money to make money and express values.More importantly, I would come back to the money manager and say, “I want to invest in a broad-based socially responsible equity index fund.”? Here’s why: Equity index funds based on indexes like the S&P 500, the Russell 3000 and the total market index consistently outperform actively managed equity mutual funds. The evidence is overwhelming. Well, it turns out that low-fee, broad-based socially responsible index funds, such as those based on the Domini 400, the Calvert Social Index and the Dow Jones Sustainability Index, frequently do better over time than their actively managed socially responsible equity mutual funds. That’s why I believe in investing in equity index funds.

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