What is the most often asked question regarding the material contained in my latest book, Stop Acting Rich? “When the economy improves will people give up the frugal habits they adopted during the most recent economic meltdown?” Most of the people who ask this believe that frugality is here to stay. But I am of a different opinion.
In Stop Acting Rich, I stated that: It’s hip to be frugal (temporarily) . . . for the moment. . . . . Time will tell if society and people have really changed or are simply taking a sick day, if you will. . . . . . . I am fairly certain that [Americans] will resume their spendthrift ways once outward symptoms of the financial flu have passed. . . . we have a long history of spending big and often frivolously.
I pointed out that even during the best of economic times, most Americans never came even close to being financially independent. . . . are we really rich, or have we just been acting the part? The numbers tell a sobering story.
* More than $70 trillion in realized or reported income was generated by US households between 1997 and 2006, yet only 3.5 percent of these households were in the millionaire category (i.e., having investments valued at $1 million or more).
* In 2007, about 2.2 million American seniors passed away. What did they do with the more than $2 trillion in income they earned during their lifetimes, given that only 2.6 percent left behind a gross estate (all assets included) of $1 million or more, and 75 percent of these estates were valued at under $2.5 million?
* In America, the proportion of people who owned boats in 2005 exceeded the proportion who left an estate of $1 million or more in 2007 by a ratio of nearly 5 to 1.
* The ratio between the number of cell phone subscriptions and the number of households with $1 million or more in investments: nearly 60 to 1.
But then the most recent financial crisis set in. . . . all of a sudden wallets have slammed shut. . . . People began saving like they had not in years.
Will this “new frugal lifestyle in America” last? Or given that our economy seems to be improving will people stop saving and begin to hyperspend once again? A recent article in The New York Times by Peter Goodman highlights how some Americans are handling the situation. “The American savings rate climbed during the recession but has recently fallen. Among households in the top fifth of American incomes-those earning $98,000 a year and up- the savings rate dropped to 2 percent of income in the first half of 2007 and then spiked above 14 percent by the middle of 2008, according to an analysis of Federal Reserve data by Economy.com. By the end of last year, the savings rate of this group had slipped back to 3.5 percent.”
So much for the impact of The Millionaire Next Door, The Millionaire Mind and Stop Acting Rich on dampening consumption! Have I been merely preaching to the choir? I have found that most of my readers were already frugal or at least headed in that direction before digesting this material. Of the more than 200 million adults in America how many bought one or more of my books? The answer is a small minority. Only about 2.0 percent. But in spite of this I will keep on touting the benefits of living below one’s means!