Lesson 1, Topic 1
In Progress

Cheap vs Frugal

A while back, a couple of friends and I were talking about where we want to travel this year, and one of them said something that surprised me: “You probably wouldn’t approve, but I want to go to Europe.”

Huh? Why wouldn’t I approve?

I stared at him pensively for many moments. Then I figured it out. Apparently, he thought of me as a Finger-Wagging Money Judge, as if I silently disapproved of him for spending his money on something “frivolous.” In other words, someone who cares so much about personal finance is automatically “the guy who tells me I can’t do stuff because it costs too much money.”

Nothing could be further from the truth. Now, I will call your ass out when you make mistakes (like one of my friends who wasn’t worried about his cable bill increasing $5/month, yet complained every time the price of gas went up two cents a gallon). But I’m not the nagging parent who tells you not to spend money on lattes. When I spend money, I never feel guilty. Instead of taking a simplistic “Don’t spend money on expensive things!!!” view, I believe there’s a more nuanced approach to spending.

Let’s first dispense with the idea that saying no to spending on certain things means you’re cheap. If you decide that spending $2.50 on Cokes when you eat out isn’t worth it—and you’d rather save that $15 each week for a movie—that’s not cheap. That’s using frugality to drive conscious spending. Unfortunately, most Americans dismiss frugality because they confuse it with cheapness, thinking that frugality is all-or-nothing: “Frugal people don’t spend money on anything! I’m never going to cut all my spending, so forget it.” Furthermore, our parents never taught us how to be frugal, so not only have we confused frugality with cheapness, but we never really practiced it in the first place. As a country, we spend more than we make each year and virtually nothing seems to change our behavior. Even though we may tighten our wallets during a downturn, we soon return to our usual spending behaviors. And frankly, nobody’s interested in changing the status quo: Consumer spending accounts for about 70 percent of the American economy.

Frugality isn’t just about our own choices, though. There’s also the social influence to spend. Call it the Sex and the City effect, where your friends’ spending directly affects yours. Next time you go to the mall, check out any random group of friends. Chances are, they’re dressed similarly—even though chances are good that they have wildly different incomes. Keeping up with friends is a full-time job. In fact, continuing the parallel between our attitudes toward money and food that I mentioned in the introduction, researchers found in a landmark 2007 study published in the New England Journal of Medicine (“The Spread of Obesity in a Large Social Network over 32 Years”) that friends had a direct influence on one’s likelihood of gaining weight. When a friend became obese, a person increased his or her chances of becoming obese by 57 percent. How do you think your friends’ spending influences yours?


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