Frugal is a grandmotherly type word. More properly, it is a restrained means of acquiring goods and services. It doesn’t mean cheap but rather cautious, thrifty and usually wise, you know, like Grandma herself. The term is getting some play within our new economy, as in the “new frugality”. Chris Farrell’s excellent book under the same title is worth a read and Associated Press recent posting on frugality among consumers really caught our attention.
The article’s premise is even as the economy moves slowly ahead; there has been a behavioral change towards a new frugality in spending. This equates to intentional quality-based spending versus impulsive, quantity-based purchases, regardless of the household’s financial circumstances An Associated Press survey of 44 leading economists revealed that two-thirds believed that a new frugality is going to outlive the recession. As our economy is largely based on spending, this may lead to a longer economic pullout. This also means that drunken sailor spending binges of the past will likely go the way of the dodo bird.
This new frugality behavior is an interesting indicator and perhaps a driver for a more realistic economic perspective. For example, in the relocation space, when an individual uses one of those nifty mortgage calculators to determine how much of a home they can afford, the new frugal thinking may kick in. Debt ratios on real estate have evolved, but what a lending institution finds reasonable and what the new frugal consumer finds doable may be a bit of a gap. Prior to the recession, the behavior was to maximize the numbers and possibly exceed them with a now-unmentionable mortgage strategy. The new frugal (read: recession-tested and smarter) consumer would handle this differently. Or so we hope. Now whether this behavior is reactionary or a true indicator of change is yet to be determined. But the idea of living frugally is a reset and an important contributor to thriving in the new economy.