Just on the heals on my previous article regarding the best time of the year to hunt for deals, I’m doing a 180. It’s definitely a hot topic in the personal finance blogosphere. When is enough, enough? Is frugality a fad? Is it helping or hurting the economy?
The economy is in rough shape. Each day, Americans are biting their finger nails waiting to hear President Obama’s next move. Day by day, we watch our retirement funds dwindle. The prospect of losing ones job weighs on our minds. Is my job safe in this environment?
All this uncertainty has caused us Americans to save. All these years of a negative savings rate and reliance on credit, Americans have socked away just about 3% in the second quarter of 2008. Good news, right? Don’t get me wrong, I believe this is an essential first step to getting out of debt. However, given the state of the economy, is this right time to save?
It’s the perfect storm. A vicious cycle if you will. We save because we are afraid of what the future will bring. We think, will our job be there tomorrow? Is my job really that secure? We need to put ourselves first, so we sacrifice our wants to feel a little more secure. It’s nice seeing a balance in our savings for once.
But, if Americans are saving, we aren’t spending. So, if we aren’t spending, companies have to make changes in the given economic environment. Those changes involve laying off employees to the tune of 500,000 jobs in January alone. The fear has set in and it’s real. We don’t know what the future will bring. You can start to see what the problem is here.
So is this really the right time to be frugal? You can take so many angles to answer the question. There really is no wrong answer since everyone has a different interpretation of what being frugal means to them. I guess one thing is certain, frugal is better than being cheap. Frugality at least seizes opportunities.
What are your thoughts? Is this new wave of saving and living frugally doing more harm than good in these hard economic times?
Stupidly Yours,
Matt
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I think everyone is in preservation mode. Being touched by a layoff or facing foreclosure gets you to shore things up pretty quickly. Ultimately, we will need to start spending again. When will that be? Who knows?
People generally need to save while hoping their neighbor spends.
I think that consumers need to show responsibility and adjust their spending to sustainable levels. For most people (myself included), this means we weren’t saving enough. I’m saving more right now, because it’ll help me through hard patches if/when they come up.
I think the other side of the equation that gets overlooked is that many businesses were started and centered around unsustainable spending. It was a poor business model.
Consumers spending more to keep them in business isn’t the answer. It’s actually counterproductive to the economy as a whole in the long run if it only prolongs the collapse of these shaky businesses.
The economy is going to have to correct itself, and some businesses will have to go under. But when businesses go under, it frees resources that can be used in more productive areas.