Okay, I know that writing about the same thing other bloggers are posting is a form of mob journalism, much to be avoided. But what the heck… Pimp Your Finances is riding one of my favorite hobbyhorses, the argument that saving and frugality are harming the economy. We cheapskates are to be blamed for the fall of civilization as we know it.
No. ‘Fraid not.
As I was harmonizing with PYF’s rant, it occurred to me that there’s a subtle difference between saving and frugality.
Saving means setting some money aside for future use. Generally savings go into bank accounts or into other financial instruments with higher risk and higher potential return.
Frugality means living within your means: spending less (or at least no more) than you earn.
Most people who are frugal are in a position to save money; obviously, if you manage to spend less than you earn, you can take that unspent money and invest it somewhere. But some people who are profligate—who have run up revolving debt or have bought more house than anyone in their right mind could possibly claim to need—also are able to save money, if only through mandatory 401(k) or retirement fund contributions.
My Journey to Millions added a comment to PYF’s post noting that savings do not get locked in a vault somewhere. Banks loan out depositors’ savings (or so they’re supposed to do) to individuals and businesses, and that’s a large cog in the wheel that is our economy. When banks refuse to lend, as they’ve been doing in the present crunch, the economy grinds to a halt. Thus saving not only is not bad for the economy, it’s crucial to any nation’s economic health.
What short-sighted critics are saying is that frugality—which they equate with miserliness—is wrecking the economy. These are the ninnies who suggest that if we would just all hurry to the mall and max out our credit cards on junk we don’t need, everything would be just fine.
Here’s the hitch in this thinking:
When the bank owns your car, your house, your furniture, your clothes, and the dinner you sit down to at a restaurant, you’re renting your whole life and you have nothing. Although you may look affluent, the truth is you’re living in poverty. Living on the cuff creates the illusion of wealth, but it’s only an illusion.
It’s like living in the Land of Oz. Behind the lights and mirrors, our late, great “prosperity” was phony. With everyone spending until their income went mostly to service debt, no one had a REAL nickel or dime to rub together.
When everyone spends and saves responsibly, from the average person on Main Street to the A.I.G.’s of this world, then the economy will be healthy. The economy is healthy when most consumers, businesses, and lenders are financially healthy.
There’s no “paradox of frugality” here. None at all. Just a fake wizard in an Emerald City.