It's all Your Fault

Want to know why we're currently in a recession? Take a look in the mirror, the answer is probably staring you in the face. Now I know that the world economy is way too complex to point the finger at all of you good readers, but there are a few reasons that you should shoulder some of the blame.

First, one of the main reasons for the financial crisis/recession/there will be blood situation that we are currently in is banks lending money to people for houses they couldn't afford. Banks are in the business of lending money and maybe they should have known better than to lend Johnny Poorboy $500,000 when he only makes $50,000 a year. But maybe Johnny Poorboy shouldn't have tried to buy that $500,000 McMansion. Maybe Johnny Poorboy should have settled for a more suitable home for his income, maybe a $200,000 town house or bungalow.

But the banks lent Johnny the money. Johnny couldn't afford the payments. The house isn't worth what the bank though it was and we're all in a mess. Everybody is blaming the banks and while they deserve a lot of the blame, I'm also blaming Johnny Poorboy. He should have chosen a more affordable home, but given the state of the economy at the time, Johnny went out and bought a house beyond his means, which was the way things were done.

We lived through the most prosperous time in, well, ever (note, this is not based on any research, though I do recall reading it in MacLeans at the dentist the other day). During our time of prosperity, we began living high on the hog. Buying $300 blue jeans, $500 ipods, $3,000 TVs, $60,000 cars, $1,000 suits, and who knows how much on shoes that Carrie Bradshaw wore or t-shirts that Johnny Drama wore. Basically, we were accustomed to living beyond our means. Credit was readily available so we used it.

Now, in the current state of affairs, frugal is the new black. Credit is not so readily available. People are finding ways to save money, buying less expensive cuts of meat, taking staycations, shopping at thrift stores, and generally getting a kick out of finding ways to save money. Google "frugal is the new" and you'll find over 1,000,000 hits for ...new black ...new cool ...new chic. What I've been doing all my life is now en vogue. Some people used to call me cheap. My uncle joked that difference between cheap and frugal is that the word cheap is reserved for people you don't like. My definition is that a frugal person will spend money, but spend it wisely, always finding a deal. A cheap person is tight with money. A classic example is tipping. A cheap person is a bad tipper. A frugal person tips well, but doesn't eat out a lot.

Don't get me wrong, I'm happy that you all have joined my frugal-edge lifestyle. But I believe if you had always been frugal, or at least less spendaholicy, this recession wouldn't be so drastic or last as long. I'm not so arrogant to say that if you all lived like me that we wouldn't be in a recession, but one of the main drivers of the economy is consumer spending. If we spend more, the economy does well. If we spend less the economy does worse. This is well known, and best exemplified after those planes hit those buildings and that often mocked president urged Americans to go shopping to beat the terrorists. It sounded kind of silly, but when you boil it down, it was pretty smart and had its basis in sound economics.

When you were all living high on the hog, consumer spending was beyond what it should have been. It created an economy that was over-inflated. Now that we're all being frugal, the economy is probably somewhere below where it should be and is over-deflated (I may include over-deflated in my Me Fail English post). Had we all exercised a bit of restraint and spent only within our means in the past, we'd have more money saved today to even out the spending through the good and bad times. You wouldn't have to be as frugal as you are today. The economy may not have tanked as much as it did and would likely recover faster since consumer spending wouldn't have taken the drastic drop it did.

Some of you may not have changed your spending habits. Good for you. But this recent Globe and Mail article says otherwise of the general populace. Hoarding cash is not a good way combat the recession.

There are others to blame, like the banks and the press for their "the sky is falling" headlines. There actually was an article in the Globe and Mail saying that the recession would end in a civil war. Great job guys, way to keep consumer confidence high.

My advice to all of you is to be frugal, not only now, but in the future as well when times get better. But my guess is that you are being overly frugal now, spend a bit more today and a bit less when things get better. Smooth out your spending habits. You'll do your savings some good and the economy some good at the same time.