My never-ending love affair with the St Louis Federal Reserve’s website continues with another post inspired by their wonderful chart creation engine.

frugality is dead

My favorite thing to do on Weakonomics is come up with ideas that no one else is thinking about.  Or if they’re thinking about it, they don’t get any media coverage because they’re freaking crazy and don’t know what they’re talking about (like me).

So let’s talk about frugality for a minute.  The personal finance blogosphere worships at the alter of frugality.  Whether it’s clipping coupons or growing your own tomatoes, they friggin love it.  I friggin hate it.  It’s nothing personal against them, I’m just the kind of person that values his time more than the savings generated by the effort necessary to pinch the pennies.

Being frugal is about taking steps to reduce overall consumption.  I consider myself to be cheap.  I avoid big purchases and look for deals on when I have to make them.  But I don’t sweat the small purchases, mostly because I save money by purchasing generic products or just not buying something at all.  The link above goes into more detail about being cheap vs frugal.  But what I really want to talk about is the chart.

The green line is a commonly cited personal finance statistic known as the Personal Savings Rate.  It’s currently around 2.8% but you shouldn’t consider that the average people actually save.  It’s just an economic calculation and the upward or downward trend of savings is much more important (especially to the personal finance community.  So the analysis here is that in the recession savings really shot up, but lately it’s coming back down.  Why is that?

The answer to that question goes beyond this post and this chart, but basically people are buying more stuff and are dipping into savings to do it.  Back to this post, let’s now look at the blue line.  The blue line is showing a calculation of Personal Consumption which more or less you can consider to be the spending of individuals.  Personal savings is measured as a percentage of income, while personal consumption is displayed here as the percentage increase in spending from the same month last year.  While playing around with charts I’ve come up with an idea of the Frugality Inflection Point (FIP).

The FIP is the point at which it becomes “cool” to be frugal.  The FIP- is when it goes back to being uncool again.  The FIP is the point at which the personal savings rate grows to a rate higher than the growth in personal consumption.  The FIP- is when the two lines cross again and personal consumption grows faster than the savings rate.  As you can see in mid 2009 the FIP occurred and just into 2010 the FIP- occurred.  When this happened, frugality died.  Frugal blogs with their loyal following will keep doing what they do, but the idea that frugality is mainstream is dead.  Sorry, but this recession just wasn’t bad enough to create serious changes in how we spend money.

What else does the FIP tell us?  I dunno.  If the FIP is a real thing then this should be a sign of increased consumer confidence and a prolonged rebound in the economy.  We shall see.  What do you think about the FIP?  Could this be a real thing or am I spending too much time on the St Louis Fed site?

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categories: business, economics, personal finance