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Americans Are Becoming More Frugal And Saving More Than Ever Before

By Erik Folgate

I always find it humorous when I read an article that makes it sound like Americans becoming more frugal is a bad thing. This article from McClatchy reveals that Americans are becoming more frugal and saving at an incredible rate amidst the recession. Of course, less spending isn’t good for the retail industry, because they rely on us to spend money on stuff we don’t need. Or as Dave Ramsey would say, “we buy crap we can’t afford, with money we don’t have, to impress people we don’t like.”

Federal Reserve data released Tuesday showed that consumers cut borrowing in July by an annualized 10.4 percent. The dollar amount of the decline, $21.6 billion, was the largest month-over-month decline on record.

This is great news thats Americans are starting to realize that they need to stop borrowing money and stop spending money that they don’t have. What aggravates me the most about the people that write these articles is that they follow up this data with this statement:

A lack of borrowing translates to a lack of spending.

You don’t have to borrow money to spend it! These are the lies that our country has fallen for, because we’ve been brainwashed by banks to think that the only way we can fuel our economy is by borrowing money to spend more than we can afford. If spending were going down and saving wasn’t going up, then I’d be worried, because then we have no idea what’s happening with discretionary income, but that’s not the case.

The survey also found that Americans expect to save on average 14 percent more once the recession is over than they did before it; if that’s true, that means the “new normal” would involve consumer spending at 86 percent of pre-recession levels. That would cut U.S. spending by more than $1 trillion a year.

Now, they are starting to get it. We are re-writing the book for what “normal” is in the United States. The new “normal” doesn’t involve maxed out credit cards, lines of credit against artificial home equity, and car loans that are half the amount of our income. People are starting to wake up and realize that when the economy dips south, they need a safety net to protect themselves. Frugality is becoming a habit and a way of life for many households, and that’s not a bad thing.

But what about the retailers?

I am not worried about the retail industry at all, because their hard times will be temporary. Once we continue to save money, stop putting purchases on credit cards, and live within our means, we will start spending again, but this time it will be with our OWN money.

Retailers are reacting by reducing the products that consumers can choose from and narrowing their choices of colors and styles.

“They are dramatically cutting inventories. We’re going to see stores look like they’ve never looked before, and part of this is to put a floor (under) prices and create a sense of urgency with products,” said Hurlbut, the retail consultant. “We could see fairly long-term changes in spending and habits.”

This is a good thing! Think about how many choices you have just just to buy a damn pencil. Retailers have gotten out of control with inventory and choices, because they knew they could entice buyers to spend more money for features that don’t add any value to the product or service.

When we start spending money at a higher level again, it will be with cash, and retailers will appreciate that, because they’ll spend less money trying to collect unpaid credit card bills, and we will buy more quality products, because we’ll be more interested in the most value for our money.

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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  • http://www.mywellofwealth.com/ Peter Luke

    Time for reality check: Like it or not, frugality is the “in” thing. Thanks for the honest and direct perspective in this article.
    My Well Of wealth

  • Craig

    People are realizing the times are changing and things are only going to be more expensive, taxes will increase, but salaries and job security will stay the same. Trying to prepare for the future.

  • Eugene Krabs

    I don’t know. We Americans aren’t very good at being forced to do something, especially if it’s something we don’t enjoy. Yes, the general public will be more frugal if they have to, but I wonder what percentage of us still remain frugal once this recession is over?

  • Jacquelyn McCoy

    I am not convinced this is a long term change yet. It would be great if it was!

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