The New Frugality Is A Crock

Ever since the economy started heading downhill, pundits have been announcing the advent of an era characterized by the “new frugality.” I’ve seen a couple of books heralding this alleged new mindset, as well as white papers from some very reputable consulting firms.

I haven’t bought into this from the start. I have strongly believed that as soon as the economy turns back, so will spending. Will it be the “conspicuous consumption” of the past? Maybe not, but today’s frugality isn’t going to last. Or so I maintain.

Problem is, I haven’t had any data to back up my opinions.

Technically speaking, I still don’t have any solid data to rely on, but there are some anecdotal pieces of evidence to support my contentionThe Next Great Generation Blog (how humble) asked participants, “ If you unexpectedly received $100 today, what would you spend it on?

Here are some of the responses (compiled by Carol Phillips on her Millenial Marketing site):

“Rent? Food? My heating bill, so I don’t freeze in cold, snowy Buffalo? Sorry, I’m boring. I’d go spend it on a concert ticket (two, if I’m lucky and buy from the box office to avoid Ticketmaster’s stupid fees!).”

“I haven’t bought shoes in at least a year, so a pair of black Johnston & Murphy Ainsworths.”

“I think I’d buy a sparkly dress and take a handful of over-worked, over-tired, over-caffeinated friends out for an epic adventure in the City of Dreams.”

“Probably booze and cigarettes…”

Maybe it’s me, but concert tickets, Johnston & Murphy shoes, sparkly dresses, and booze and cigarettes don’t sound like the spending habits of a “frugal” consumer.

There a couple of things going against the frugality argument:

First off, there are a lot of market researchers — me being one of them — who will tell you that asking consumers what their future behavior is going to be like is highly unreliable. Most recently, I saw this in research I conducted regarding consumers’ bill pay behavior where the percentage of respondents who said they were likely to change the way they pay their bills in the next two to three years was about 10 times greater than the percentage who said they actually changed their behavior in the past two to three years. We, as consumers, are just not very good at predicting the future — even when it comes to our own behavior.

Second, younger consumers’ perspectives are even more reliable (sorry if I offended you). For many Gen Yers, the recent downturn in the economy is the first one they’ve experienced as working, bill-paying, consuming adults. So they think their newfound frugality is something that will persist because it’s become fashionable to be frugal. But when their car turns 10 years old, and their kids become fashion-conscious teenagers, and…so on…if the economy is healthy and they’re earning money, then they will be spending that money.

I’m putting my stake in the ground now: The so-called new frugality is a crock of

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16 thoughts on “The New Frugality Is A Crock

  1. Great timing! I was just telling a co-worker this last week. Once the story flips from recession to recovery, people will go back to spending. Human nature isn’t that easily changed. Once people get some money in their pocket and the unemployment rate falls, people will be in the mood to treat themselves because of all of the belt tightening they’ve been doing. That will just start the process all over.

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  3. Both. Re: Japan — has the economy really improved? Are the men who apparently “didn’t blink” at spending $200 for a tie able to afford that today but just aren’t? And even that’s not a great example. Every few years sees a change in what the “it”product is. A few years ago, maybe it was $200 ties and $2000 dresses.

    This isn’t an argument or a discussion that can be resolved before an economic recovery takes place in the US. Ironically, if there really is a new “frugality”, that could be a barrier to a recovery taking place, no? It isn’t just about human nature, it’s about our economic system. It’s built on consumption. And if there’s anything the mid term election should have taught us it’s that by and large Americans have had enough of GSEs (Government-driven Socialist Experiments).

    BTW… let me make it clear that I think there’s a difference between frugality and discipline. Discipline means spending within your means. Frugality means spending way below your means (my definitions, feel free to challenge). I think — and hope — that we’ll have more discipline. But I’m not buying the frugality argument.

  4. Well, I think you deny your own premise by attempting to predict what you say can’t be predicted. I recall the way my parents remembered the Great Depression and that certainly formed their behavior, even after the affluence of the ’60’s and ’70’s fell upon them. I suspect the change in behavior depends on the public actually being on a burning platform… In the past two years we’ve just driven by one.

    I did notice this text, which I’m adjusting here,… its quite useful in other guises: “We, as [voters], are just not very good at predicting the future — even when it comes to our own [votes].

  5. Your comment about the difference between frugality and discipline is the key. The media has been sensationalistic with the term “frugal” and I agree with your definition of the two terms completely.

    This is the problem I have with reporting trends. Just because we see a proportion of the population increasing on a certain behavior does not mean everyone is becoming that way. Certainly, a higher proportion of the population decreased their spending over the last several years. Self reported, that number is high, but what would you expect someone to say if asked during a recession about their spending?

    Looking at actual spending over the last two years shows the very understandable pattern that consumer spending declined somewhat at the worst (and is slowly heading back up) and personal saving increased somewhat (and is slowly heading back down). Just compare our current levels to history and we quickly see we’re still spending too much (even during the recession) and still not saving enough (both household cash flow and retirement savings). But to your point – the US economy is based on consumption, so we can’t simply flip the switch. It would be too disruptive.

    The blogs keep getting better and better. Nicely done sir!

  6. Jaunny-come-lately: I didn’t say it was unpredictable, just that it’s unresolvable. Only time will tell. As for voters not being very good at predicting the future, I think last week’s elections pretty much proves your point. If voters knew in 2008 what they know now, the 2008 might have gone very differently.

    Funny, I wasn’t really expecting this blog post to take a political angle.

    Just make sure to mail me my Furthur ticket before I say something that REALLY ticks you off. 🙂

  7. Kent: Thanks for the comment and kind words. I think there’s something else going on w/ the call for frugality. It’s the never-ending quest among consulting types to be the “thought leader”, the one who “called the trend” and saw it coming before everyone else. Seems to me that every day for the past 10 years has been the day that represents the “inflection point” into the future.

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  9. Excellent point Matt. That is why I have such a hard time when people compare what is going on now with the Great Depression, or even somewhat with the recession from the early 1980s. The context is just completely different and what we consider sacrifice today is vastly different that sacrifice then.

  10. Kent: Yep. I’m with you on that one. Damn, I really didn’t expect this to get political, but again, I can’t help but conclude that anyone who talks about the recent recession as “the great recession” is either: 1) politically motivated (feel free to jump in here, Jaundiced Eye), or 2) short-sighted (as in Gen Yers who don’t know what it was like in the late 70s, which with high unemployment, double digit inflation and double digit inflation rates which was — arguably — a helluva lot worse than what we’ve been through in the past two years).

  11. Ron: A great positive for me out of all this has been that my oldest daughter (23) who is trying to find a job in her career of choice actually asks me for advice! For once I can completely understand how she is feeling and what she is going through. I was trying to find a job out of college in ’82 and I can really empathize with college graduates how it feels to graduate and not find work in your profession.

    A big difference I see for college graduates now versus the late 70’s is the safety net they have. In the 80’s my parent’s let me stay at home for a very short time, but expected me to find whatever work I could to move out and pay my own way – even if it took multiple part-time menial jobs. Today’s college graduates have a safety net of moving back home, often for years. I’m thinking through if I think that is a good thing or not.

  12. Ron,

    I would say consumer behavior is driven by emotion, with the strongest being fear. Fear that I won’t be able to make my mortgage payment makes me think I should save for that potential eventuality.

    Fear doesn’t always rule. There are other emotions, such as pride. Why else would one pay $25,000 or more for a vehicle when the functionally is eerily similar to its less expensive counterpart?

    Fear won’t always reign. The household savings rate has increased to past historic levels, and the pendulum will swing back to the norm. I don’t think it will swing back to zero, though. But that’s punditry, and I fashion myself a poor pundit.

    ~ Jeff

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