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The Vanishing Frugal Lifestyle

By Thomas J. Stanley on May 6th, 2010 in Current Events

What is the most often asked question regarding the material contained in my latest book, Stop Acting Rich?  “When the economy improves will people give up the frugal  habits they adopted during the most recent economic meltdown?” Most of the people who ask this believe that frugality is here to stay.  But I am of a different opinion.


In Stop Acting Rich, I stated that: It’s hip to be frugal (temporarily) . . . for the moment.  . . . . Time will tell if society and people have really changed or are simply taking a sick day, if you will. . . .  . . . I am fairly certain that [Americans] will resume their spendthrift ways once outward symptoms of the financial flu have passed.   . . . we have a long history of spending big and often frivolously.


I pointed out that even during the best of economic times, most Americans never came even close to being financially independent.  . . . are we really rich, or have we just been acting the part?  The numbers tell a sobering story.


         * More than $70 trillion in realized or reported income was generated by US households between 1997 and 2006, yet only 3.5 percent of these households were in the millionaire category (i.e., having investments valued at $1 million or more).


         * In 2007, about 2.2 million American seniors passed away.  What did they do with the more than $2 trillion in income they earned during their lifetimes, given that only 2.6 percent left behind a gross estate (all assets included) of $1 million or more, and 75 percent of these estates were valued at under $2.5 million?


         * In America, the proportion of people who owned boats in 2005 exceeded the proportion who left an estate of $1 million or more in 2007 by a ratio of nearly 5 to 1.


         * The ratio between the number of cell phone subscriptions and the number of households with $1 million or more in investments:  nearly 60 to 1.


But then the most recent financial crisis set in.  . . . all of a sudden wallets have slammed shut. . . .  People began saving like they had not in years.


Will this “new frugal lifestyle in America” last?  Or given that our economy seems to be improving will people stop saving and begin to hyperspend once again?  A recent article in The New York Times by Peter Goodman highlights how some Americans are handling the situation.  “The American savings rate climbed during the recession but has recently fallen.  Among households in the top fifth of American incomes-those earning $98,000 a year and up- the savings rate dropped to 2 percent of income in the first half of 2007 and then spiked above 14 percent by the middle of 2008, according to an analysis of Federal Reserve data by Economy.com.  By the end of last year, the savings rate of this group had slipped back to 3.5 percent.”


So much for the impact of The Millionaire Next Door, The Millionaire Mind and Stop Acting Rich on dampening consumption!  Have I been merely preaching to the choir? I have found that most of my readers were already frugal or at least headed in that direction before digesting this material.  Of the more than 200 million adults in America how many bought one or more of my books?  The answer is a small minority.  Only about 2.0 percent.  But in spite of this I will keep on touting the benefits of living below one’s means!


 


 

8 responses to “The Vanishing Frugal Lifestyle”

  1. Kelley says:

    I agree with you. I have seen my friends behave in the manner in which you indicate – one stopped paying his mortgage (although he could afford it), but continued buying televisions, Wiis, etc. during the recession. Another made a big deal about how much she saved, denying the family everything (except the Tai Quon Do lessons, the boat, the personal water crafts, etc.), then bought a second home, nearly twice the price as the first one, and proceeded to remodel it with expensive, high-end appliances, flooring and other amenities. She now lives in a house decked out in much the way you would see one in an ad for Lowes or some home remodeling magazine. Many of my friends have spoken of wanting the recession to end so they can spend again. I don’t think anything has changed.

  2. David Creel says:

    I have read all 3 of those books and LOVE them!! I plan on reading the rest of your works in the near future! Keep up the great work your doing!

  3. Bruce says:

    Before the recession, and before my layoff, I had a challenging time teaching my kids our frugality. It seemed pretty lame trying to explain to them why we should pay attention to cost and buy only what we need when we were in the top 5% income bracket.

    Between all the news of the recession and the fact I’m now unemployed, it is now much easier. My oldest told me to withhold 10% of her allowance until things got better!

    Habits are formed over time. So the great recession not lasting too long, might be bad news. If it lasted longer, we would have more time to build lasting habits. Kind of like they did during the great depression.

    Bruce Benson
    http://PMToolsThatWork.com (my effort to fill the void between jobs)

  4. Liz says:

    I am with Kelley’s observations on this one. I am seeing the same thing. Friends complaining about their house value being upside down as they buy a new car and rent a house on Cape Cod. It is very bizarre.

    Further, I agree that it is vanishing because most people simply don’t see this as a problem that they created. So they feel that as soon as “Wall Street” – whoever they are – gets it act together, they can go back to what they thought was normal. Many people just don’t get that it was a bubble – meaning an anomaly. One of my neighbors and I were talking about the “good times” and he said that people should have bought things in cash – I said no, that people should have saved more because they were earning. You can’t eat a large screen tv that you paid for in cash if you lose your job.

  5. Don Peterson says:

    Thank you for Stop Acting Rich! I was beginning to think that I had lived too long and no one else was thinking this way any more! You present an excellent case for living below your means. My parents taught me that as I grew to adulthood. The older I get, (now 64) the more I realize how right they were!

    I’m going to get your other books, too.

    Thanks again,

    Don

  6. Heather says:

    I think that those of us that have always been frugal will stay frugal. Those that have become frugal during this crisis are more than ready to go back to ‘normal’! So SAD! Life is NOT about how MUCH you spend! My heart breaks for all the families that are falling apart because their focus is on gaining STUFF and not on building MEMORIES and love with each other!!!!

  7. sam says:

    Dr. Stanley….heard your radio discussion in St Louis and saved it….

    Still waiting for you to accept friend request on Facebook!

    Sam Pittsburgh

  8. Angela says:

    I think (I hope) there is a true shift in how my generation thinks about money as a result of the recession. My peers and I are all turning 30 this year. We have a lot of expenses common to those at this age: weddings, new houses, new babies, parents who are beginning to have health problems. The fact that these life changes piled on during a recession has truly changed some of us. The recession has taught us that nothing is guaranteed. We no longer believe that each generation will be better off than the one before. We know we will never receive a social security check when we retire. We know that a stable financial future is up to us… We believe in living frugally and saving aggressively.

    I’m optimistic that many of us will not forget these lessons as the economy improves. My friends and I talk about money all the time. We know each other’s financial goals and we feel comfortable telling each other when we can’t afford to do something. I started a blog about my efforts to live more frugally, and it’s become a kind of support group that encourages an open dialogue about money.

    Dr. Stanley, your books have helped me immensely. I’ve recommended them to friends who have told me that they helped them think about money in a whole new way. You ARE making a difference, and I think a gradual culture shift IS beginning…

    Angela Visintainer
    http://hotfrugal.wordpress.com

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