Sandy used to eat lunch out five days a week, indulge in premium cable on-demand and duck regularly into Starbucks for $4 coffees. Then the recession hit, and business at the jewelry boutique she had just opened tanked. By the time she started her YesIAmCheap.com blog in January 2009 as a way to make herself more accountable for her spending, her business had failed and she was $105,665.31 in debt. Today, the 33-year-old New Yorker owes $85,605.73. She packs her lunch, limits movie nights to $1 Redbox videos and mostly opts for coffee from Dunkin’ Donuts — with the occasional splurge for a Starbucks pumpkin spice latte. “They’re small changes but they add up over time,” notes Sandy, who will not divulge her last name but shares the details of her finances online.

Moreover, she says she doesn’t plan to change her spending habits when the economy improves because she has “embraced the cheap.” Although she used to prefer the word “frugal” because she thought it sounded French, “it’s not as negative as it [once was] to be called cheap. It’s almost a badge of honor.”

After more than three years of belt-tightening, the word “cheap” is losing its stigma. Experts at Wharton and elsewhere say the recession has shifted priorities for consumers, who are now more willing to trade quality for a lower price. While some argue that consumers will go back to spending freely as good times return, others say Americans have permanently embraced a cheapskate philosophy, and are unlikely to go back to their spendthrift ways anytime soon.

For those who have lost jobs or savings in the ongoing economic turmoil, learning how to live “cheap” has not been a choice — it has been a necessity. U.S. Census Bureau figures show 15.1% of Americans now live in poverty. Unemployment stands at 9.1%, and markets gyrate on worries of continued global financial strain.

At a time when everyone is trying to save, being “cheap” could be considered an asset, according to Barbara E. Kahn, director of Wharton’s Jay H. Baker Retailing Center. Consumers have started thinking differently about their purchases, paying only for attributes they really want in a product and sacrificing other elements. Retailers who figure out a way to “design it up and price it down” appeal to consumers looking for “something fun that’s cheap,” Kahn says. “I think that’s the hot spot — how to pay a low price and still have fun, still get something.”

Furniture maker IKEA, for example, is able to offer style at low prices, in part because shoppers must put the furniture together themselves. Customers of fashion retailer Zara may accept cheaper fabrics or simple construction as long as clothing reflects the latest styles. “There’s a reason you got it cheap,” Kahn explains. “You gave something up that you didn’t think was as important.”

That shift in mindset may partially explain why business at resale, consignment and thrift stores is growing. As a rule of thumb, resale stores offer customers products at about one-third the cost they would have been new. From 2008 to 2009, when most of retail saw a 7.3% drop in overall sales, resale shops witnessed net sales growth of 12.7%, according to a 2010 survey from NARTS, the Association of Resale Professionals (formerly known as the National Association of Resale & Thrift Shops).

New resale shops are now opening across the country at a rate of about 7% per year, according to Adele R. Meyer, executive director of NARTS. The recession has “made everyone think twice about their consumption habits,” she says. Resale gives consumers “a lot more merchandise for their money.” Still, she would never use the word “cheap” to describe the resale industry or its customers. “I just don’t think that word is used in our industry. You don’t know how our customers are going to interpret it,” she adds. “We’re about more value for the dollar.”

Wharton marketing professor Robert Meyer is skeptical that Americans have truly changed their views about buying cheap. One study he conducted before the onset of the recession showed people would pay more for extra features in a product even when they knew they wouldn’t use them. Another study showed that people would much rather buy a new product than repair the one they had, even when repair was cheaper. “I think this comes from the mindset that defines our culture,” he notes. “You always want to have something new, something top of the line, something that displays luxury.”

So rather than dampening the nation’s yen for high-end goods, it is more likely that people with limited resources are doing “mental tricks” to make themselves feel better about low-budget purchases, Meyer says. “It could be that they do whatever they can to give themselves the illusion that they are buying the extra bells and whistles, but they’re just spending less for it. People don’t like to think of themselves as buying lower-end anything.”

In order for values to change, Meyer argues, “there has to be more than a short-term economic hit.” Buying decisions “are very much influenced by signals you get through media, through advertising and so forth … that have built up for 60 or 70 years. It’s something that’s going to be very difficult to change in a recession that is just three or four years old.”

Meanwhile, the average consumer did more to boost spending on luxury fashion during the first half of 2011 than traditional high-end spenders, according to a recent study from American Express Business Insights, 2011 Spend Sights Special Report: Global Luxury Fashion Spending. The report found that “average consumers,” defined as those who do not make up the top 5% of fashion spending, increased online spending on full-price luxury items by 33% in the first half of 2011 compared to the same period in 2010. The increase for “fashion enthusiasts,” or those in the top 5%, was 21%. But that doesn’t mean that the average consumer wasn’t also searching for bargains — they also spent 48% more than last year on luxury fashion offered on sale or through a “flash sale,” i.e., time-limited offers of high discounts.

From Wasteful to Wary

A joint study from Deloitte and the Harrison Group also indicates that, like blogger Sandy, consumers are “embracing the cheap.” The 2010 American Pantry Study surveyed 2,000 shoppers, finding that 92% of respondents had made some change to their pantry-shopping habits, such as buying items on sale or trading down to store brands. The study included anything that people regularly buy in a grocery store, from canned food to laundry detergent to toothpaste.Preliminary findings from the 2011 study, to be out this fall, show continuing shopper retrenchment. “Previous recessions left a bruise where people made short-term sacrifices … but [then] returned to old habits” when the economy rebounded, according to Pat Conroy, vice chairman and U.S. products leader at New York-based Deloitte. The past recession, however, “really left a scar.” Consumers reported “tremendous feelings of guilt and remorse about how they used to shop…. They told us they felt guilty because they were wasteful.”

Far from regretting their new shopping habits, the majority of shoppers in the study reported feeling “emboldened and somewhat happier” about their newfound thrift, and don’t plan to go back to their old ways, Conroy says. “Based on what we found, they’re not equating ‘cheap’ with ‘bad’ or ‘poor quality.'” After shopping around and experimenting with different products, nearly 88% of survey respondents found certain store brands were “as good as or better than what they used to buy … so they don’t feel like they’re sacrificing.”

Shoppers also realized that if they wait long enough, manufacturers put the name brands they want on sale. Consumers are in a stare down with manufacturers, saying essentially, “I know you’ll blink first.” The recession, Conroy notes, “turned shopping in some ways into a sport where [consumers are] competing for the margin that manufacturers used to try to grab. They’re getting a high out of winning.”

Many people are also getting back to basics, rethinking what matters in life, and concluding that expensive products may not be worth the cost. Wharton marketing professor Cassie Mogilner, who studies the relationship between time, money and happiness, has found that time is a more “personally meaningful resource” than money for most people. “It’s more reflective of who you are,” she notes. Consumers with limited resources, therefore, are more willing to spend time rather than money to get what they want. Whether it means building a bookshelf from IKEA, cooking for a party instead of catering, or mixing one’s own makeup, it’s not simply the low cost that appeals to consumers; the time investment also reflects their preferences and values.

“If you know enough to invest your time and be creative in that way, it almost says more than if you went out and bought that product,” she says. In today’s economy, “it’s okay to buy something that’s cheap. It doesn’t say you’re a bad person…. If, however, you’re forced to spend your time in less valuable ways, then that can have a more disastrous impact on your sense of self and well-being.”

A study by Wharton marketing professor Stephen Hoch finds that shopping for bargains isn’t just personally satisfying; it can be a cost-effective use of time. Hoch examined whether penny-conscious consumers who went from one grocery store to another for low prices were really saving money or just wasting time and gas. He found that, based on the time spent, they saved more money than the average hourly wage. “In my study, it wasn’t irrational at all,” he notes.

A self-described cheapskate himself, Hoch says that part of buying cheap is just thinking differently about quality. “You’re not looking for something to last forever,” Hoch notes. “Do you want your computer to last forever? I don’t. Do you want your cell phone to last forever? Do I want a sports coat to last for 20 years? No. People want it to work, but durability is less important than other aspects of quality,” he says. Being cheap “… means that you’re smart. Why would you be so stupid as to spend more money than you actually need to?” Hoch believes cheap is here to stay — at least for a while. “The longer we remain in this kind of rocky economic place, ‘cheap’ is going to continue to be not a bad word, and it will take people a while to move away from that.”