John F Gaski Ph.D.

The Eclectic Professor

The Psychology of Thrift: Why Not Frugal Cool?

Even the poor can be rich. Really.

Posted Feb 18, 2011

Why can't the American people learn how to save money? Why is our national saving rate so abysmally low? Because of the wrong public psychology, that's why.

Did you know that you can become a millionaire on minimum wage income? That is true. Here's the deal: Save only $1000 a year, or $83.33 a month, or $2.74 per day; invest it at the long-term average stock market return, and after 40 years you've got over a million dollars. Minimum wage income in the U.S. is now about $15,000 a year. So spend $14k and save one!
Another illustration: Take the low-paid unskilled worker who earns $25k a year-and makes exactly that amount, never getting a raise, over a 40-year career. How much lifetime income is that? Mike Myers as Dr. Evil knows the answer: "one million dollars." If only that worker could save half the considerable money that passes through his or her possession, it would be half a million bucks after 40 years, right? Actually, no, because even if invested at a piddling but compounded savings account or CD yield of about 3%, it would make our low-paid worker a millionaire.

In other words, almost anyone makes enough money to become rich. Being able to save enough is the problem. As we don't want to wait 40 years for wealth, of course, be aware also that this hypothetical worker would be quite secure financially much sooner than that.

If more Americans knew all this, do you think more would improve their fiscal and saving behavior? Because saving translates into investment at the aggregate level, such an adjustment would also improve the health of our national economy. More investment economy-wide transubstantiates into more productivity, more jobs and higher wages, lower inflation, less waste, a smaller trade deficit, a stronger dollar, and more good things like that, all of which makes the world go ‘round-and enhances national prosperity.

But doesn't our economy need more consumer spending? Isn't that what you've always heard? Forget that. We've got plenty of national spending-including at the government level in the extreme. We just need a slight rebalancing at the consumer level. Say the national saving rate is one percent (which is pretty close to our average over recent decades). That means the spending rate is 99%. If we could just increase the saving rate by one percentage point, to 2%, that is a 100% relative increase in saving, but only about a 1% relative decrease in spending. The economy can easily absorb that slight decrement in spending for the reward of drastically improved saving and investment. See what I mean?

But how do we induce the American people to perceive all this, to understand in particular the personal benefits of greater saving? How do we get this message out? From consumer psychology and marketing theory, my field, we know that to evoke an enduring (voluntary) change in human behavior, attitude change should precede. So we need to alter the American public's attitude toward spending and saving. Why is this so hard? This issue actually highlights the failure of personal finance gurus such as Dave Ramsey and Suze Orman.

Don't get me wrong. Those two proselytizers of personal financial responsibility do a great job of transmitting the right kind of basic money-related information that everyone should know. They both deserve an A for effort. But information and knowledge are not sufficient to bring about a major change in human behavior. That is why, despite the valiant labors of Orman, Ramsey, and countless well-meaning personal finance books, articles, and websites, virtually no discernable improvement in the U.S. saving rate has occurred-other than a small, short-term bump provoked by the financial panic of '08-'09.

No, to make a significant change in saving behavior, we need to change attitudes toward saving and spending. To do that, in turn, we need to attach the right values to saving. I would like to see someone with a marketing or psychology background take a crack at that challenge, and that indeed is what I am attempting, and why I raise the issue in this venue.

I have begun a personal crusade, perhaps quixotic, via my recent book, Frugal Cool: How to Get Rich-Without Making Very Much Money (Corby), to change those destructive financial attitudes and reform household financial behavior in the United States. A few details:

The concept. Revolutionize personal finance and consumer welfare, especially for the middle- and underclass, by teaching the public how to save money. My opus is actually a deadly serious work disguised as something light to be accessible to the masses, therefore. To the naked eye, Frugal Cool is to personal finance sort of what Animal House was to frats.

The agenda. Merely to save the country, that's all. An example of the needed mind-set change and benefit: By showing readers that not wasting money is actually more fun than spending, the book may be the one device capable of raising the economic fortunes of the average person. FC is truly a century-and-a-half-later "poor man's" version of Walden, mixing philosophy with personal finance (he said modestly).
Frugal Cool is available at If you have kids/nieces/nephews in their 20s or 30s, a useful gift item. If you are in your 20s/30s, you may need it.

We're on a mission to save our economy. "We're on a mission from God." I hope you will join me in this endeavor. You can start by spending a little less money.