Frugal is the new cool
The recession is causing people to talk more openly about money. It's also helping people be more frugal. Kai Ryssdal speaks with behavioral economist Dan Ariely about why it's a good thing people are saving.
Dan Ariely, author of "Predictably Irrational" (Dan Ariely)
More on Spending, America's Financial Crisis
TEXT OF INTERVIEW
Kai Ryssdal: How many times in the past couple of months have you found yourself talking about money? Not just within your family or to your accountant, but at dinner parties or at the office? What used to be taboo is now acceptable because the economy is everywhere and bank accounts have become conversation starters. Behavioral economist Dan Ariely tracks those kinds of social swings.
Hey Dan, Good to talk to you again.
DAN ARIELY: Same here.
Kai Ryssdal: I want to start this time with you by saying that I'm not a cheap guy to begin with, but I'm watching my pennies. But more importantly, I'm talking about it a lot of more. I mean, I'm not one to talk about money, but I think we all are talking about money more now, aren't we?
ARIELY: Yes, not only are we talking about money, we're talking about money in different ways these days.
Ryssdal: Well, how so? So what are we doing?
ARIELY: We're sharing with people our financial difficulties, right? We're telling people, I'm hurting, I'm thinking about not spending. I heard discussions from parents in my kid's school that are saying, you know, I'm thinking about not having a birthday party, a big birthday party for my kid, and I think the interesting thing is that all of the sudden it's okay to be stingy. Like, scrooge is back, and he's back with less social stigma against him.
Ryssdal: Move with me up the economic food chain though. So we've been talking generally about consumers. What about businesses? I mean, in business you really sort have to spend money to make money, you to need to make capital outlays, you to build your inventory and advertising. Are businesses embracing this new frugality and if so, at what cost?
ARIELY: The thing I'm seeing is real concern in businesses. So they seem to be shrinking and holding on and trying not to do too much. Particularly nobody is investing much more in IT, all kinds of things. And if you think about it, both for consumers and for companies, this is the time to spend.
Right, if you have a job this is the time where vacations are much cheaper, if you're a business and you want to invest in IT, this is the time that IT is much cheaper, or even consultants are cheaper, I mean everything is cheaper. But it looks to me that that's not what companies are doing, it looks like they're bracing for an impact and they're trying to hold on to the reserves and not actually spend any money. And I think that's the place where we could actually have a long-term negative effect.
Ryssdal: I wanted to ask you about this idea that we are talking about that everybody is talking more about being frugal and about how bad the economy is. You know, we get a lot of letters in our inbox from listeners who say stop being so negative on the program, you're being too negative, you're making the economy worse, because you're just scaring us all. Since you're an expert in this field of behavioral economics, I mean, what's your take on it?
ARIELY: So, first of all, I think it's true. That if you close your eyes and ignore the news completely, you would not be as depressed about what's going on because it's very hard to figure out. But in fact I think the real key is to try to understand what is going on. Not to bury completely our head in the sand, maybe bury it slightly, but try to spend effort on understanding what are the causes of this. Gain some sense of understanding, sense of control, figure out how do we make sure that we don't get into this mess again.
But finally, if you want some good news I'll tell you one.
Ryssdal: Sure.
ARIELY: It's good news for me.
Ryssdal: Well, OK, by all means, do share.
ARIELY: I don't know if this helps you, but you know, for many years, I did research on irrationality and nobody really listened to me. People would say, "Ah, yes, you're doing all these little experiments and you show that people are irrational here, they're irrational there, they're doing this little mistake and that little mistake, but surely when it will come to professional people making decisions with a lot of money, clearly all these irrationalities will go away." And so when Greenspan when in front of Congress and basically said "Oops, this whole thing doesn't seem to be working as we expected," it was very good news for my field.
Ryssdal: Well, Alan Greenspan doing what he can to help out Dan Ariely.
ARIELY: And I appreciate it.
Ryssdal: I'm sure you do.
ARIELY: Dan teaches behavioral economics at Duke University. His book is called "Predictably Irrational."
Ryssdal: Dan, thanks a lot.
ARIELY: My pleasure.
Comments
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03/04/2009
Well, why did people spend all that money back when they didn't have it--but did have credit instead--to spend?
They were trying to buy coolness, without knowing what made the things they bought, cool. Had they known, they could have been cool by shopping around, buying the tools of life or business they needed, and at a cheaper price.
Instead, they bought to impress. Whether it was to impress friends or clients, the result was the same--they spent to create image, not to create result.
If THAT can be taught, then the consumer will learn how to spend wisely. It would eventually help the economy over the long run, to avoid the big rises and big falls.
From Denver, CO, 03/02/2009
This is so true. I'm not made fun of anymore for going to lunch on the cheap (cue soundtrack to "Fistful of Coupons"). A friend of mine who formerly worked in financial services recently created a blog called Desperate in Denver (http://desolateindenver.blogspot.com/) which is a great resource for finding fun and frugal deals.
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