The danger of thrift

Thrift has taken on a new definition. Through the 1960s ‘thrifty’ people maintained Christmas Club accounts and stores offered ‘layaway’ options; i.e., saving money prior to making a purchase. In recent years ‘thrift’ has been re-oriented to using credit in a way that takes advantage of immediate savings; i.e, buy it now and make payments.
If you are of a certain age you will recall a time when credit was hard to come by. If you did not have money in hand, you did without. Spending discretionary income (anything beyond basic necessities) was thoughtful and deliberate. Hard-working, intelligent, responsible people simply did not contemplate debt.

Over the past fifty years, attitudes toward saving vs. debt have reversed. Rather than strategizing how to save money to make a future purchase, the typical modern American strategizes (often unsuccessfully) how to get out of debt for purchases already made. Average credit card debt in 2012 was $15,950, with interest rates in the mid- to high-teens.

Credit cards entered the marketplace as a convenient means of transacting sales, with the presumption of a single, immediate, payment of the balance in full at the end of each month. It is pointless to blame lenders and merchandizers for the evolution of credit cards. As Pogo noted, “We have met the enemy and he is us.”

The notion of ‘thrift’ has evolved to keep pace with modern life. Rather than save ahead to make a purchase, we now make purchasing decisions based on a purported ‘Sale’ price. If that was true only for necessities it would not be a problem. The problem arises when a discount price is interpreted as too good to pass up, causing one to purchase things of no personal value; rather, simply to participate in a ‘good deal’.

In other words, discounting creates the impression of saving, but it still requires spending money for things you would otherwise NOT purchase. And there are at least two reasons that such purchases turn into a ‘bad deal’.

1) Carrying a balance on a credit card, with interest rates in the mid-teens, means that over time you are paying the bank whatever you did not give the merchandizer.

2) Just in case you think you are old-style thrifty, examine your home for ‘closet fodder’; items stored in closets and drawers that you do not use and are unlikely to use.

2a) If you are new-age thrifty, much of your closet fodder will contain ‘Sale’ stickers.

2b) Give up the notion of being thrifty at all if you rent a storage unit to house your closet fodder. Rental storage began in the 1960s and has grown to 44,000 self-storage facilities (about 1.5 billion square feet).

A third reason to avoid new-age thrift is to prepare for eventual retirement. Thirty-six percent of Americans have not saved for retirement. Two thirds of 18- to 29-year-olds have saved nothing.

If you recognize the perils of the new-age notion of thrift, and desire to regress to a pattern of saving, Dr. Kweethai can help.

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