On the eve of America's entrance into World War I, the leaders of the nation's major civic organizations began to think about how they could support preparedness efforts for the battle ahead. The Young Men's Christian Association launched National Thrift Week, to be observed every year starting on January 17th, Benjamin Franklin's birthday, to teach children - and adults - habits of saving money and using it wisely. Though it was endorsed at its founding in 1916 by Herbert Lord, the director of the U.S. Bureau of the Budget, the popularity of Thrift Week grew significantly in the years to come.
In the early 1920s, President Calvin Coolidge was seen as the very embodiment of thrift. Both his policies, which included paying off the national debt and reducing tax rates, and his persona, that of a frugal farmer, inspired others to more thrifty behavior.
By 1927, Thrift Week had almost fifty sponsors, including the American Red Cross, the Girl Scouts, and the U.S. Postal Service; and, according to the report of the organizing committee, just under thirty thousand people heard thrift messages in schools, churches, and businesses. Almost eighty thousand pieces of printed matter were distributed, including personal budget books.
Each day of the week was assigned a particular kind of thrifty behavior: Pay Bills Promptly Day, Life Insurance Day, Own Your Own Home Day, Budget Day, Safe Investment and Make a Will Day. These names may sound a little old-fashioned and perhaps a bit too earnest for twenty-first-century Americans, but who can deny the value of these practices seventy-five years later?
Thrift Week not only educated people about how to save up money for themselves and their family. It also expanded their understanding of the very purpose of thrift. In explaining why Share with Others Day was included at the end of this celebration, one of the organizers wrote, "The great majority of us have money enough to spare for the needs of society from our store. A margin is there from which thrifty people can contribute to answer the call of humanity." Bring back Thrift Week.
Loading Up On Loans
In a controversial article in Philadelphia Magazine last year called "The Case Against College," writer Noel Weyrich compared college administrators to the mafia. "Call it La Alma Mater," he suggested. "Cultivated and well-connected, its kingpins are masters of what amounts to a high-stakes protection racket. 'Nice kid you got there,' goes the shakedown. 'What a shame if he ends up flipping burgers without a degree.' That's an offer most parents can't refuse."
Indeed, in order to guarantee that their children will earn more over the course of a lifetime (approximately $1 million more) parents let their kids borrow a whole lot.
The average student borrower amasses almost $30,000 in debt by the time they graduate, more than three and a half times what they borrowed ten years ago, and the percentage of students who took out loans rose to 70 from 46 in the same time. Almost 40 percent of students leave school with "unmanageable amounts of loan debts," (defined as 8 percent of monthly income), according to the National Association of State Public Interest Research Groups.
It's not surprising, then, that paying off this debt is starting to interfere with young people's ability to purchase a house or a car. Perhaps even more problematic is the message that government loans send about personal debt. Students who are already up to their ears in educational loans may not think twice about adding another few thousand in credit-card debt.
So what can be done? As the debate in Congress this past spring has demonstrated, any attempt to limit student loans is met with outrage that someone would dare deny young people a college education. But as the federal government has continued to offer low-interest loans and significant grants to students, colleges have been able to increase their tuition costs much faster than the rate of inflation. As long as there is some way for students to pay the ludicrous costs of a college education (complete with state-of-the-art gyms, gourmet-meal plans, and salaries for professors who teach one course a semester), schools will continue to charge higher tuition rates. More and more young people are drowning in debt and it seems that colleges are providing the cement shoes.
The most successful magazine launch of the present century is a cool, youthful, strenuously hip publication that completely avoids any discussion of sex, food, movies or celebrities. It has the ordinary title of Budget Living, and it is the sensation of the publishing industry.
Named by Advertising Age, AdWeek and Folio: as the Launch of the Year in 2002, Budget Living is the brainchild of Donald Welsh, its publisher, who teamed up with editor Sarah Gray Miller, a then thirty-one-year-old Vassar graduate from Natchez, Mississippi, to bring it to life. The notion behind it was not exactly simple: "It's Oprah meets Martha Stewart Living meets Smart Money meets Elle Decor," says Welsh of his first idea. Circulation was three hundred thousand at launch - the bare minimum for an ambitious magazine. It's now over four hundred fifty thousand. Advertising revenue is "in the seven figures" per issue, according to Welsh, and it won the National Magazine Award for General Excellence after its first year of publication.
Budget Living is designed to lend thrift an air of glamour. Its motto is "Spend Smart. Live Rich." Miller crystallized its ethos for the New York Times: "I buy cheap stuff, because that way I can buy lots and lots of stuff." The aim is to leverage your spending to extract the most pleasure from it - to give backyard barbecues that savor of trips to Central America, to carry plastic handbags with Park Avenue style, to rehab a 1930s fishing camp on a Louisiana lake instead of yearning for a Nantucket showplace.
In its "How Low Can You Go?" section, readers make suggestions about saving money - for example, to use the sesame seeds that fall off Stella D'Oro breadsticks for cooking.
But the idea behind Budget Living is to address the practical spending habits of American women - generally neglected in traditional women's magazines, which are devoted to personal appearance or interior design. The type of business that runs the most ads in Budget Living is not beauty products or fashion - but cars.
Traditional business publications - whose readership is overwhelmingly male - are opening sections at the back of the magazine devoted to luxurious consumption (the Financial Times has a supplement called, with refreshing candor, "How to Spend It"). But as women are reaching the financial heights - with 52 percent of U.S. financial assets now owned by women - it's fascinating to see that a magazine celebrating the private satisfactions of thrift is capturing the attention of Madison Avenue.
Save more tomorrow. Everyone says they want to, but very few actually follow through. That's the sentiment that Richard H. Thaler of the University of Chicago and Shlomo Benartzi of the University of California at Los Angeles hoped to tap into when they developed the SmarT plan, which stands for Save More Tomorrow.
Here's how it works. Employees start out contributing a rather low percentage of their income to their 401(k) plan, and then with each raise or bonus, they increase the percentage. In March, Thaler offered some testimony to the congressional Joint Economic Committee: At one company where the plan was tried, workers had to increase their contributions by three percentage points every time they got a raise. The result? Eighty percent of workers signed up, and in two years their savings rate rose to 13.6 percent of pay from 3.5 percent.
Thaler comes from the ranks of "behavioral economists," a group whose influence has grown significantly in the last few years. How do they differ from other economists? To oversimplify somewhat, behavioral economists manage to incorporate the principles of psychology into their theories in order to show why people do not always act in their best financial self-interest.
Everyone knows it's in his or her self-interest to save more of their income for a rainy day and exercise more thrift in purchasing (buying things on sale, using coupons, or just skipping the extras), but few actually do it. Plans like Thaler's seem to help people along, but are there other ways of helping along people's thrifty behavior? For instance, if television commercials can encourage us to spend, can they also convince us not to?
And what about the famous experiment in behavioral economics of the two tasting booths in an upscale supermarket? Customers who stop by the first booth are offered six different kinds of jam, while those at the second, can choose from twenty-four different ones. In the first case, 30 percent of the customers bought a jar while only 3 percent did in the second. The lesson is that too many options can make a consumer walk away empty handed. Maybe offering more options is the key to instilling thrift. But supermarket owners probably wouldn't go for it.
Samuel Smiles sounds like the name of a huckster. But this Scotsman, who was born in 1812 and died exactly one hundred years ago, wasn't trying to put one over on anyone. His honest and earnest works, which included Self-Help (1859), Character (1871), and Duty (1880), are hardly noticed today but they were best-sellers in their own time.
Thrift, which Smiles published in 1875, is a long but very readable treatise. How could a book on thrift run to almost four hundred pages? Smiles begins by noting, "Some of the finest qualities in human nature are intimately related to the right use of money - such as generosity, honesty, justice, and self denial - as well as the practical virtues of economy and providence."
In Smiles's mind, thrift is both a private virtue that helps to develop the best in human character, and a public virtue. Indeed, he writes, "It is the savings of individuals which compose the wealth - in other words, the well-being - of every nation. On the other hand, it is the wastefulness of individuals which occasions the impoverishment of states. So that every thrifty person may be regarded as a public benefactor, and every thriftless person as public enemy."
Smiles's topics range from the money wasted on "drink," the possibilities of giving to charity if one exercises thrift, and the importance of savings for the education of children, to the promise of building societies in helping people to own their own homes. But one of the book's most compelling parts is a chapter called "Little Things." Today we often associate thrift with miserliness - perhaps a rich man who could afford to spend more but chooses not to - but Smiles reminds readers that thrift is a virtue for those at any economic level and can be practiced on a small scale:
"A man may work hard, and earn high wages; but if he allows the pennies to slip, which are the result of hard work, to slip out of his fingers - some going to the beer shop, some this way, and some that - he will find that his life of hard work is little raised above a life of animal drudgery." But the man who saves his pennies "will find that his attention to small matters will abundantly repay him, in increasing means, in comfort at home, and in a mind comparatively free from fears as to the future." Something to keep in mind on the next trip to Starbucks.
The world is full of explanations of why the lottery acts as a regressive tax, how it hurts the poorest among us, how it destroys instincts of thrift and investment. And then there is the money, billions of dollars, spent by people playing the lottery rather than buying healthy food, clothing and medicine. But more reflection suggests that the lottery may harm the comfortably middle class as well.
Let's say you make a decent living - a living so decent that spending a dollar or ten a week on the lottery is of absolutely no consequence to your health or financial well-being. How can it hurt you?
Test yourself. Do you occasionally fantasize that all your problems would be solved if you won? That your wife would respect you, your children's friends clamor to play with them, men stand up and grin sheepishly when you came into the room, hoping that you will offer to lend them money?
How often have you gone through in your head the depressing calculation that were you to win one of the smaller awards, and pay off your debts and your children's education, you would actually just break even? Do you think of what numbers to play, and make small adjustments: What about the dog's birthday? What about adding your wife's birthday and eliminating that of one of the smaller children?
While lotto fantasy can be harmless enough when times are good, it can be deadly when the sky turns darker. Remember yourself at moments of challenge - when you needed to get that job, to write that article, to make that sale. At such moments you seldom win by a landslide. You require your wits, your confidence, your sense of desperation, and your inspiration. You need to be able to drive yourself to the limit, pummel your poor tired brain, scheme and dream with everything you have in you. And that may, just barely, be enough to get you through.
But simply the act of thinking of the lottery prize that awaits you can be enough to drain you of just that last bit of imagination and courage you need to survive. It's a dreadful tax on the spirit. Particularly if you are a bit dreamy, the idea of a prize awaiting you if you only get the number right is enough to stop you dead in your tracks at the very moment you need to run even harder.
What's expensive about the lottery is not the money you spend, but the feeling you have that by spending it you have done something. In this way the lottery is worse than Casino gambling, which is avowedly entertainment. What you lose in the lottery is not the money, which you may earn back later, but the idea, the fragment of energy, the moment of inspiration - none of which will ever return.
As a child growing up in the 1950s, Mary Hunt was embarrassed that she had to wear hand-me-down clothes. She recalls, "I, the Scarlett O'Hara of the '50s, vowed that I would never be poor and that my children would never wear clothes from the thrift store."
And as a young mother, she followed her dreams, buying not just new clothes for her husband and children, but lots of other things as well - toys, home decorations, gifts - and all on credit. None of the purchases were particularly large, but over the years she accumulated over $100,000 in debt. She was even bouncing checks while her husband was working as a bank officer.
Finally, in 1982, Hunt realized she had a problem and decided to do something about it. She and her husband began to dig themselves out of debt. "Being scared witless," she notes, "was probably the best thing that could have ever happened." Frugality, Hunt remembers, "didn't come naturally by any means. We were shocked at how much we were able to cut back. But the most amazing thing is that no one really noticed - including our kids!"
For the last ten years, Hunt has tried to share her expertise with others through her newsletter, Cheapskate Monthly. The publication's motto - "Bringing dignity to the art of living within ones means," - is illustrated in technical tips on making up a will and sensitive advice on how to navigate financial conflicts with one's spouse. There are also more mundane suggestions like using cheap shampoo instead of expensive cleansers to remove dirt from shower doors or using unsweetened lemonade Kool-Aid to remove lime and soap scum buildup from your dishwasher.
Hunt writes, "A cheapskate, as I define it, is one who has a balanced, honest, and dignified approach to money management." As for the off-putting name for her publication, Hunt tells readers, "Give it time - it will grow on you."
In a 1994 poll that has since become infamous, more of the respondents (aged eighteen to thirty-four) believed they would see a UFO than their social-security benefits. Given their doubts, what are these young people, and everyone else, doing to save for their retirement? The answer is not much.
Half of all American families had less than $25,000 in financial assets in 2001. Even with home equity and other assets, that number rose to $147,000. Sound like a lot of money? Not really when you consider you might live another thirty-five years after retirement. And few people are doing anything about this shortfall. "There's a good reason [for that]," Thomas Dolan, editorial page editor of Barron's, wrote a few months ago: "If they figured the cost of thirty-five years of retirement protected against inflation, they would drop dead now and save themselves a lot of worry."
Dolan offers the frightening calculation that to generate an income of $100,000 per year "after inflation, after taxes, from a low-risk portfolio that preserves the principal for heirs," an investor would need a "nest egg of $7 million or more." Let's hope the Martians are willing to contribute their fair share.