Is Really Frugality Bad for Our Economy

[watsoninc]

I think frugality is getting a bad reputation.

Frugality is generally thought of as good for individuals, families, and the economy. Frugality allows families to accurately assess what they can currently afford and avoid or at least delay purchases that are beyond their means. Frugality also allows families to put aside money for investments and for purchases, which both help fuel economic growth. Although it is unfortunate that it took a down economy to MOTIVATE some of us to be wise with our money, ultimately fiscal responsibility is a good thing.

Nonetheless, everyone becoming frugal simultaneously in an economy largely based on supplying their excesses (expensive cars, McMansions, Jimmy Choo's, jewelery, 60 inch plasma TVs, fine dining, etc) can hurt businesses. Some even blame frugality for exacerbating the recession, but ultimately frugality is merely the natural response to increased awareness of our fragile economic states.

I'll admit it. I am a frugal person, and I am tired of the media blaming people like me for the economy. I don't believe it is our fault that others (individuals and businesses) overleveraged themselves into this financial pickle.

What are your thoughts? Am I off-base, or do you agree ?

[Broken Arrow]

No, frugality is NOT bad for the economy! If anything, it's going to SAVE our economy.

First of all, the lack of frugality is exactly how we got into this economic mess in the first place. Very simply, people lived beyond their means, and borrowed more than they could afford to pay back. And how long could that have lasted anyways?

So, there is no paradox. As far as I am concerned, the only people who are still blaming frugality are those who can not think outside the consumer economy box. A broken box I may add.

[Joan.of.the.Arch]

I do not think "the media" have blamed frugal people at all. We do hear encouragements to spend, but that is not the same thing as blaming frugal people who all along have spent less.

[watsoninc]

Originally Posted by Joan.of.the.Arch

I do not think "the media" have blamed frugal people at all. We do hear encouragements to spend, but that is not the same thing as blaming frugal people who all along have spent less.

I must respectfully disagree. In a recent article Kelly Evans of the Wall Street Journal said the following...

Many "families hope their new found frugality will see them through the economic downturn. But this same thriftiness, embraced by families across the U.S., is also a major reason the downturn may not soon end" (Kelly Evans WSJ).

She essentially is stating that frugality (regardless of whether it is recently embraced or applied over several years) is the reason the economic downturn will be prolonged.

[wnlbutterfly]

IMO: Buying things you can't afford is what got us into the mess the economy is in. Houses people really couldn't afford (whether they knew it or not). Cars/trucks that they couldn't afford and all of those things having to go back to the bank, then the bank is sitting there with items they can't sell for what the loan amount is worth.

I won't get started on credit card companies.

[simpletron]

people who are always frugal are a stablizer on the grow of the ecomony. we slowly and steadily increase our spending as our incomes grow, and provide steady stream of capital for business growth. during booms, we slow down the growth because we aren't increasing our spending as quickly as everyone else. and during recessions, we slow the fall because we don't cut back unlike the overspenders of the previous boom.

it is the people who never learn and switch back and forth from overspending and frugality that are the primary cause of the booms and bust(recessions). frugality in itself is not a bad thing, but a change to a more frugal lifesytle will cause short term ecomonic pain and assuming they keep the lifesytle, a more stable economic future in the long run.

Originally Posted by watsoninc

She essentially is stating that frugality (regardless of whether it is recently embraced or applied over several years) is the reason the economic downturn will be prolonged.

this is true, but it won't be as deep. so which would you prefer a quick crash to rock bottom and then recovery or a slow decline to higher level and then recovery? note: it would take about the same time to recover to previous highs.

[watsoninc]

Frugality is not prolonging the recession overall. Perhaps, newly embraced frugality could temporarily be a problem; however, long-term frugality puts people in a position where they can spend more.

Although I definitely have not reached all of my financial goals, my spending has not decreased during the recession. Instead, I am spending more. Some of the deals for goods and services are just too good to pass up. It's a great buying opportunity. Another example was in the "do you share your financial information" thread. I can't remember who wrote the post, but someone said that when it was time to replace their TV, they just wrote the check for $2000 to buy their new flat-screen. Once again, I think that is a benefit of long-term frugality. It is very possible that someone less frugal would not have been able to make that purchase (at least without financing).

Personally, I think a much greater threat to a prolonged recession is fear (i.e. people who are not spending out of fear). However, fear-induced hoarding/cheapness is distinctly different from frugality.

[Broken Arrow]

If you think about it, frugal people are the ones with the cash available to buy right now. I personally have done quite a bit of buying myself. A new HDTV, Blu-Ray player, Xbox 360, a couple of new business suits, dress clothing, and now I'm sort of looking at new home theater speakers.... But let me also add that almost everything was bought because of a really good deal somehow.

In other words, being frugal does not mean we can't spend any money on anything beyond toilet paper. To me, it means to be financially intelligent and responsible in not just saving, investing, but in spending as well.

Contrast that with people who are currently over-extended because they have been spending too much. Right now, some households may have no choice but to go into survival mode, and stop consumer spending while they are paying back their debts to keep their financial ships afloat.... If that's the case, is it really fair to blame frugality for it? Or does it make more sense to point the fingers at over-spending?

I agree with the others. Even if frugality is causing a temporary withdraw from the consumer spending addiction, it is worth the resulting sobriety in the end.

[maat55]

Originally Posted by watsoninc

Frugality is not prolonging the recession overall. Perhaps, newly embraced frugality could temporarily be a problem; however, long-term frugality puts people in a position where they can spend more.

Although I definitely have not reached all of my financial goals, my spending has not decreased during the recession. Instead, I am spending more. Some of the deals for goods and services are just too good to pass up. It's a great buying opportunity. Another example was in the "do you share your financial information" thread. I can't remember who wrote the post, but someone said that when it was time to replace their TV, they just wrote the check for $2000 to buy their new flat-screen. Once again, I think that is a benefit of long-term frugality. It is very possible that someone less frugal would not have been able to make that purchase (at least without financing).

Personally, I think a much greater threat to a prolonged recession is fear (i.e. people who are not spending out of fear). However, fear-induced hoarding/cheapness is distinctly different from frugality.

I agree, those who are frugal have money and will keep spending as usual plus spend a little more on the bargains that come along. Those with poor spending and savings habits will stop spending in order to save.

[Snodog]

Originally Posted by simpletron

people who are always frugal are a stablizer on the grow of the ecomony. we slowly and steadily increase our spending as our incomes grow, and provide steady stream of capital for business growth. during booms, we slow down the growth because we aren't increasing our spending as quickly as everyone else. and during recessions, we slow the fall because we don't cut back unlike the overspenders of the previous boom.

it is the people who never learn and switch back and forth from overspending and frugality that are the primary cause of the booms and bust(recessions). frugality in itself is not a bad thing, but a change to a more frugal lifesytle will cause short term ecomonic pain and assuming they keep the lifesytle, a more stable economic future in the long run.

Couldn't have said it better myself.

[Gossioii4]

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[Pitman]

Debt is the reason why our economy is in the toilet. Frugal people aren't known to carry huge debt, so I don't see how being frugal is hurting the economy.

My friend and I randomly went to Macy's, it was a bit chilly so my friend says "its cold I need a jacket", me not paying him any mind assumed he was going to run home and grab a coat. But instead, this guy spends $120 in Macy's for a jacket that he doesn't need just because the weather changed from warm to chilly. My face literally turned to . Granted to the employees of Macy's they are happy, but what they don't know is my friend is buried in CC debt, and still owes a considerable amount on his car. My point is, seemingly he's helping the economy, but in fact he's hurting himself.

[EEinNJ]

The economists who are so widely quoted lately call it "the paradox of thrift".
Reduced spending (aka frugality, or simply living within your means) mean reduced demand. So those of you that are bargain shopping (and I do that, too) are actually contributing to deflation. I think these economists are missing that growth based on consumer debt is not sustainable, whereas debt used to finance business is basically investment.
If this "crisis" has lasting value and causes a permanent reduction in debt and spending, we will ultimately have a stabler economy, with more for everyone, without the boom-and-bust cycles.

[pikey412]

I'd like to think that I am a bit frugal. It is good for the individual/family and bad for the business.

Unfortunately, its always the small businesses who suffer the most while the big businesses get by.

Another downside, the workers of these big businesses end up losing their jobs in order for the company to stay afloat.

[Scanner]

I think the people blaming the frugal people were/are in jobs where there was no real support for what they were selling anyway.

Think of all the auto workers.

Did Americans really need all the cars they were producing? Apparently not.

Did Americans really need all the Disney vacations? Apparently not.

Did Americans really need the shiney new grill? Apparently not.

So, if you lost a job related to this, apparently you weren't that needed.

It's a sad commentary, I suppose, but it's true.

But that being said, you will be needed somewhere else as we change from a lending economy to a savings economy.

[parafly]

Perpetual frugality most certainly is a detriment to our economy. Let's face it, the USA is capitalist, and it's economy is primarily built on consumerism.

Being extremely frugal for long periods of time slows the growth our of economy, period. However, not being frugal enough may be even more damaging as people overextend themselves and bring down their net worth. As with most things, the best solution is a happy medium.

[watsoninc]

Originally Posted by parafly

Perpetual frugality most certainly is a detriment to our economy. Let's face it, the USA is capitalist, and it's economy is primarily built on consumerism.

Being extremely frugal for long periods of time slows the growth our of economy, period. However, not being frugal enough may be even more damaging as people overextend themselves and bring down their net worth. As with most things, the best solution is a happy medium.

I don't think there is any conflict between frugality and capitalism per se. Frugality isn't the absence of spending but rather choosing to spend wisely. As indicated earlier by many (including myself), many frugal people are spending a lot more right now because of the abundance of deals. I don't see how this frugality slows the economic growth presently. If anything, those who have been frugal over the long-term are helping because that's who has money right now.

Also, many of those who are "extremely frugal" are likely more miserly and cheap rather than frugal. They are likely to be hoarding money, which could be a threat to capitalism; however, misers and cheapskates are distinctly different from frugal people.

[kork13]

Originally Posted by parafly

Being extremely frugal for long periods of time slows the growth our of economy, period.

In part, you're correct. If the entire nation were to become a nation of saving, frugal individuals (haha), the economy would likely grow at a slower pace than our boom years. However, we would also suffer fewer, and less intense recessions, because families would not necessarily have to cut their spending in a recession. They could simply back off on saving, or live off of their savings. Savers and frugal people lessen the blow of recessions by maintaining a steady baseline of constant spending.

[unsecuredmoneygroup]

I think frugality in the sense of spending wisely is ultimately better. When people reserve their funds for purchase of quality goods and services that have results and products with staying power, manufacturers are pressed to produce quality goods to be able to compete in the market. When an economy is based on large scale production of quality goods and services, it drives innovation and results in a more stable long-term economic model. If you guys are talking about frugality as finding the cheapest and highest quality product, learning to maintain an attitude like that will do us good in the long run.

I think step one is to buy local whenever possible. In these unstable times, relying on our international buying power to get us through is a recipe for disaster. We need to shore up and make domestic production of quality goods a top priority.

[parafly]

Originally Posted by watsoninc

I don't think there is any conflict between frugality and capitalism per se. Frugality isn't the absence of spending but rather choosing to spend wisely. As indicated earlier by many (including myself), many frugal people are spending a lot more right now because of the abundance of deals. I don't see how this frugality slows the economic growth presently. If anything, those who have been frugal over the long-term are helping because that's who has money right now.

Also, many of those who are "extremely frugal" are likely more miserly and cheap rather than frugal. They are likely to be hoarding money, which could be a threat to capitalism; however, misers and cheapskates are distinctly different from frugal people.

Agreed. It all depends on the definition of frugal.

Saving and being wise with money is a good thing that benefits the economy. Hoarding money and being cheap (for long periods of time) restricts growth.