Pinch Penny

The Case Against Frugality

As the recession dragged on, frugality came into vogue, and many commentators believed a new and lasting way of life had begun.  The savings rate went up, people held onto their cars longer, and second hand stores became all the rage.  A year ago, 63 percent of people said the recession had “forever changed” the way they spend and save, according to a Citigroup survey.

That was then.

Today, the savings rate has taken a southward turn, credit card debt is growing again after falling for 26 months, and it’s getting tougher to find a parking place at the mall.  As for all those people who said they were forever changed by the recession, apparently “forever” doesn’t last as long as it used to.  Now, 52 percent of people see themselves that way.

Why are so many people shifting away from their frugal ways? In part, I blame the word “frugality.”

What’s Wrong With Frugality?

To be sure, I know there are many people who think of themselves as frugal, and for them, it’s a good thing.  They simply hate to waste things.  They’re not living by some temporary set of rules brought on by economic tough times.  Frugality is a worldview that shapes their use of money in very positive ways.

However, with apologies to those who do frugal well, I’ve never cared for the term.  For me, it’s always conjured up images of dumpster diving, refusing to tip any more than 15 percent, and dogmatically avoiding coffee shops as if spending a couple of bucks on a good cup of coffee is immoral.  Okay, I’m exaggerating, but not by much.

Mostly, I’ve thought of frugality as not much fun, where the overarching principle is to spend as little as possible.  That, I believe, is the main the reason we’re seeing such a rapid shift away from saving and toward spending.  People just don’t like being frugal.  They’ll do it while they have to, but not a moment longer.

Repositioning Frugality

A better financial path begins with a better term, and the one I prefer is “money-smart.” Money-smart people:

  • Use a cash flow plan
  • Give generously
  • Get their biggest spending decision right, keeping their monthly housing costs to no more than 25 percent of gross income
  • Ditch or avoid all other debt
  • Build and maintain an emergency fund stocked with at least six months worth of living expenses
  • Invest 10-15 percent of monthly gross income for their later years
  • Know how to get great stuff at great prices, all the while realizing that the cheapest option may not actually be the most cost-effective option
  • Are really good at making trade-offs, happily choosing to spend less in one category in order to spend more on something else that’s more important to them

And they do these things all the time, not just in response to a financial crisis.  If everyone took these steps, what a difference it would make!

A Money Plan for All Types of Economic Weather

Some people believe we’re headed toward better times, but no one knows.  In fact, there are plenty of economists who have serious doubts about the financial conditions to come.

We can’t control the economy, but we can control our personal finances.  By following the approach I just described at all times, there will be no need to make major changes when times turn bad.

To my frugal friends – those who wear the word well – carry on.  But for everyone who’s been gritting their teeth through a season of forced frugality, let’s put an end to all the financial binging and purging.  Let’s re-brand ourselves as money-smart and get on a more sustainable and enjoyable path toward financial success.

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8 Responses to The Case Against Frugality

  1. Mitch March 2, 2011 at 10:35 AM #

    While reading your article it reminded about a small change I made years ago that helped my wife.

    I changed the name of our personal budget to “Family Savings & Spending Plan”. I don’t think it was an orignal idea on my part but it has made our personal financial discussions much better. My wife thought budget was a 4 letter word, so I quit using the term.

    Best regards,
    formerly frugal now “Money Smart” Mitch

  2. Matt Bell February 28, 2011 at 11:45 AM #

    Beth – You make some great points. I, too, would vote for quality over cheap because, as you say, cheap often costs more in the long run. And your point about trying to scrimp on this or that when you’ve gotten your big financial decisions wrong, is right on the money. It’s like using a Band-Aid to try to heal a broken arm.

    I love the name of your blog, by the way — a great combination of frugality and money-smart!

  3. Beth February 28, 2011 at 11:28 AM #

    Whether you call it money smart or frugal, I think it is really the same thing. It is unfortunate that frugality has picked up such a negative connotation, so I’m hoping money smart or something similar catches on. To buy the cheapest winter coat rather than a quality one at a good price in my opinion isn’t frugal, it’s cheap (and will probably cost more in the long run). And to focus on saving a few dollars on your grocery bill when you can barely afford your current housing sounds crazy to me – try to fix the housing problem first! Finding ways to save a few extra bucks here and there is great, but you do it after you’ve optimized your major expenses and income.

  4. Matt Bell February 24, 2011 at 10:13 PM #

    That’s hilarious, Jean. I hope those tickets were for the first-class section. You deserved that for all that you went through to earn them!

  5. Jean February 24, 2011 at 7:42 PM #

    I am re-branding myself as money-smart instead of frugal. I wonder what you would say about dumpster diving for free airfare? It’s kind of a funny story. A while back Wendy’s had a promotion for free airfare when you mailed in about 60 stickers from their medium size cups. Bob and I would go and get 2 ice teas, drink them and get a refill – they have to give you a new cup. Then we saw people throwing their cups away, so we went through the garbage and found more. One time (it was lunch time) I was going through the garbage discreetly and some people saw me and asked if I wanted their cups too. Bob also dragged home a large garbage bag from outside and went through it. Do we sound desperate? We were able to get 2 free airfares and probably almost one more for our daughter who was collecting in IN. In all, we spent very little money for a couple free flights. (Hope you’re laughing and not disgusted.)

  6. Matt Bell February 23, 2011 at 9:40 PM #

    Steve – Very cool to hear about the experience in Haiti and about what you’re planning in Burundi. I’d love to hear updates about your work.

    Joshua, thanks for writing. Your book, Consider the Ant, is working its way toward the top of my stack! I’m looking forward to reading it.

  7. Joshua Crhistensen February 23, 2011 at 7:32 PM #

    Thanks for another great article Matt. Living in FRugality brings up negative conotation for me as well. I’ll go with the smart money living verbage from here on out.

    Keep up the great articles and suggestions!

  8. Steve Roblee February 23, 2011 at 5:46 PM #

    Matt, there was a great article in “World” magazine about a ministry in Haiti that was helping people become self-sufficient rather than living on the largess of NGO’s and others. One of the key points made in the article was the increased confidence and feeling of well-being that those working with the ministry received as a result of having savings. As you indicate, they were more generous, happier, and improving financially. If it can work in Haiti, it can work about anywhere. The fact is that I’ve seen it work in Bangladesh and am working to initiate a micro-credit/ micro-enterprise project in Burundi, Africa, which is one of the 5 poorest countries in the world. I’ll let you know how we are doing.