Advertiser Disclosure
X

Advertiser Disclosure: The credit card offers that appear on this site are from credit card companies from which MoneyCrashers.com may receive compensation. This compensation may impact how and where products appear on this site, including, for example, the order in which they appear on category pages. MoneyCrashers.com does not include all credit card companies or all available credit card offers, although best efforts are made to include a comprehensive list of offers regardless of compensation. Advertiser partners include American Express, Chase, U.S. Bank, and Barclaycard, among others.

By

Dig Deeper

23,375FansLike
17,072FollowersFollow
36,473FollowersFollow

Become a Money Crasher!
Join our community.

Americans Are Becoming More Frugal And Saving More Than Ever Before

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.

Next Up on
Money Crashers

family sitting on the sofa

Top 10 Green Energy Technologies & Solutions for Home Improvement

Between heating and cooling your home, gassing up your car and watering your lawn, energy costs are one of the most significant expenses that...
successful businessman businesswoman

11 High Paying Six-Figure Jobs Without a College Degree

While many aspire to go to college after high school, not everyone can, or should, head straight to university. Family issues, a lack of...

Latest on
Money Crashers

Sign Up For Our Newsletter

See why 218,388 people subscribe to our newsletter.

What Do You Want To Do
With Your Money?

Make
Money

Explore

Manage
Money

Explore

Save
Money

Explore

Borrow
Money

Explore

Protect
Money

Explore

Invest
Money

Explore