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Samuel Fresman and Heidi Clingen: Are consumers spending enough?


Posted: July 22, 2010 8:11 p.m.
Updated: July 23, 2010 4:55 a.m.

Dear Smarties: I’ve been feeling kind of guilty that I’ve been cutting back on my spending, as far as the economy is concerned. After 9/11, we thought it was our patriotic duty to go out and spend. We probably overdid it. But what about now, that the economy is sluggish? I read that economists are upset that consumers aren’t spending enough. — Guilty in Glendale

Heidi: Economists cannot simply say if people slow their spending, the economy slows, too. Consider, for example, the fact when the economy slows, prices go down and stimulates sales. People who can buy get the best deals. Also, if people are saving and putting money into a bank instead of into stores, it helps the banks lend money, which helps create new businesses, which help stimulate the economy.

Sam: What Heidi says is true. But some people may still be waiting on the sidelines before they start spending, even with falling prices. Others cannot take advantage of falling prices if they have lost their jobs or are concerned about losing them. Also, her reasoning assumes banks are lending money. If the bank is hoarding money just to prop up the balance sheet, it is not lending to businesses that need the funds to create jobs, etc. Banks lost major net worth with all the mortgage defaults and have set up new and stricter requirements for credit, due to lessons learned in this recession. As far as the economy is concerned (if that is your first priority), if you are not putting money in a bank, just hoarding it in your vault, it is not stimulating anything in the economy. As far as your own personal economy is concerned (and that should be your first priority in our opinion), if you’ve got extra money, pay down all your debts and then make investments to support your financial independence rather than increase spending.

Dear Smarties: A lot of financial advice seems to apply to people who have money to invest in Roth IRAs, etc.
I live very frugally on my Social Security benefits, barely covering my food and rent. What about those of us who are on benefits programs? We need financial advice, too. — Frugal in Fontana

We believe everyone needs to save, regardless of the size of income. Even though you are covering your food and rent with little to spare, there are other ways to save you may not have not thought of yet. Go to the library and read books on saving, including our book. If you make tradeoffs, you can create a buffer fund to give you some security.

Also, figure out ways to make more money. Can you do babysitting, house sitting, plant sitting, dog walking, or be a part-time companion or personal assistant?

Dear Smarties: I used to think people who lost their jobs obviously were not trying hard enough. However, that is not true.
I see how people treat my friend who just lost his job. Some are supportive, but others avoid him. — Faithful in Fallbrook

Job loss is hard and it takes courage, creativity, and initiative to find a replacement in a recession like the one we are experiencing. Be helpful and supportive, as you would hope your friend would be for you if you were laid off.

Here is a phrase my mother taught me when I was young: “There, but for the grace of God, go I.” It is never a good idea to look down on someone, no matter how confident you are “that will never happen to me.” Sometimes life has some surprising twists and turns, as we are all starting to see these days.

Heidi Clingen is a long-time resident of Stevenson Ranch. She and Samuel K. Freshman are authors of “The Smartest Way to Save, Why You Can’t Hang on to Money and What to Do About It.” They offer only their opinion, which does not constitute professional, financial, or legal advice. To receive a copy of The Principles of Financial Independence or submit questions, e-mail


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