By: Roshawn Watson

You are responsible with your money. You plan your purchases to be within your family’s means. You don’t deprive yourself of fun nor manipulate others to obtain good deals. You are simply looking for value. This is my strategy along with millions of other Americans. It is a solid path towards prosperity and will contribute to overall economic growth, but that doesn’t get the press. Instead of admiration (or even understanding), these efforts garner contempt as the frugal once again get the blame for dismal economic activity.

Economic recovery falls to thrifty consumers

In his article entitled Economic Recovery Falls to Thrifty Consumers, Martin Crutsinger recently wrote:



“For the economic recovery to gain strength — and the unemployment rate to come down in any meaningful way — consumers will need to become less frugal.”

This statement caused me to ponder whether we even understand frugality.

halt spending. To be clear, frugality is not our culprit for a dismal economy. Frugality concerns itself with value not cheapness. Thus, in some cases, your purchases may technically be more expensive than someone else shopping for the same types of products. The difference is that you have done due diligence and know that you are not being wasteful with your money. You are focused on obtaining quality for your dollars. In the Thrift Paradox – Is Frugality Hurting Economy? , I argue that “frugality…allows families to put aside money for investments and for purchases, which both help fuel economic growth.” In no way does frugalityspending. To be clear, frugality is not our culprit for a dismal economy.

Moreover, families have recently increased purchases on several items including: cars, electronics, and consumer staples like razors and shampoo. General Motors, Chrysler, and Procter and Gamble have all increased revenues recently. These gains were achieved by catering to more savvy shoppers. General Motors and Chrysler posted higher U.S. sales in July through summer promotions and easier credit plans. P and G also cut its prices, offered discounts and created lower-priced versions of some brands to hold onto customers. Interestingly, Crutsinger failed to discuss our increased spending on technology perhaps because it doesn’t support his point.

Regardless, our spending is up, even for big ticket items like cars, but that’s not good enough. Economists want consumers to become more wasteful by increasing our spending on items with lesser value just so retailers can increase their profit margins all in the name of patriotism . That’s just ignorant unwise. Pardon the expression, but what are they smoking?

Fix Your Business Model Instead Of Criticizing Mine

It’s the retailers’ economic models that are broken not mine. The real problem is that some businesses and financial institutions want to continue to fund economic growth on the backs of ill-informed and overstretched consumers. It is a bit naive to believe that consumers will indefinitely be able or willing to fund the economic prosperity by staying ridiculously financially over-extended long-term.

It is beholden to businesses that want to survive in this climate to innovate instead of trying to coerce consumers into wasting money on purchases that are out of their means. As I mentioned, businesses aggressively deleveraged (dumped debt and removed financial risk) all in the name of remaining financially viable, but consumers are criticized for the same behavior. That is totally unbalanced.

The aforementioned companies achieved higher revenues through adaptation to consumer purchasing preferences. Sure, it can be rough chasing those consumer dollars, but fixing the business models so that they are not so dependent on consumers spending money that they don’t have for products and purchases they don’t need is key for long-term economic growth.

We Are Not That Thrifty Anyway

Lastly, it is completely disputable that we are frugal anyway.

During the first quarter of this year, the US savings rate had a steep decline to 3.1% from last year’s 12-year high of 5.4% during the same quarter. If our annualized savings now stands at 6.4 percent, as Crutsinger suggests, the change is to be lauded not criticized. We still have a way to go.

the defaulters accounted for the whole decline , while the rest of consumers had actually been building up more debt straight through the worst financial crisis and recession in decades. Additionally, in The Real Reason Why that Debt is Decreasing , I wrote about a surprisingly sad analysis performed by the WSJ on our decreasing debt burden. The average household debt to income decreased from a staggering 131 to 122% in May. Thus, on the surface, it appeared as if frugality and austerity had finally repenetrated our societal fabric. However, what the insightful analysis ultimately revealed was that debt to income ratios were decreasing because debts were going into defaults. Instead of paying down our debts, we elected to default. In fact,straight through the worst financial crisis and recession in decades.

In aggregate, we have increased debt, increased our spending, and decreased our savings rate.That’s a far cry from the generational imprinting of frugality so many pundits claim the recession to have induced. The point is that innovative and adaptive companies can still get consumers to spend big bucks. Don’t blame frugality for faulty business models. Frugality is the cure not the problem.

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