Wise Bread Picks
Last week on Patt Morrison I heard Chris Farrell talking about "The New Frugality" and the trend towards a sustainable lifestyle. (I actually called in and mentioned Wise Bread -- you can hear me on the segment.) I was stoked that he was familiar with Wise Bread (really, we're on his blog roll!). After the show, I read his new book, The New Frugality: How to Consume Less, Save More, and Live Better, and reached out to Chris about doing an interview.
I felt this topic was extremely relevant for us at Wise Bread. When we started three years ago, frugal was a dirty word. Frugal meant cheap. It meant denying yourself pleasures. It meant sacrifice.
But from the beginning, Wise Bread sought to change this idea. We wanted to show that spending wisely meant getting more. Spending thoughtfully meant adding value and quality to purchases. And being able to get what you want for less meant, well, that was just cool.
Chris Farrell's book goes into this concept of a New Frugality (totally different than the Old one) and shows how it works and why it's here to stay. He emphasizes that we now have a greater focus on community, the environment, and living sustainably. And he explains how the economy will shift to accommodate our new attitude towards spending.
Here is my interview with him. Please check out his book, The New Frugality: How to Consume Less, Save More, and Live Better.
Lynn
What was your inspiration for writing the book?
Chris
It was a couple things. Part of it was just the impact of the Great Recession and the problems that it caused people. But also I just noticed that a lot of people I knew were being frugal and green.
One of the things that always had gotten to me was that the conversation about frugality was always about what we can't do. That had always troubled me. Then I noticed that the new frugal trend was based on sustainability. I realized this could be a big deal. The thing about sustainability is that it's really an optimistic act. You believe that you're going to make a difference. So now frugality isn't you're being cheap or denying yourself, but you're helping your community and at the same time helping your pocketbook.
Lynn
Is this why you call it the New Frugality, because the old frugality is just about saving money for money sake but this is more of a mindful and value added lifestyle?
Chris
Yes, very much so. Thinking about my parents, I used to roll my eyes at my dad who unplugged all the outlets and the hand me down clothes and all that. My parents did that because we didn't have much money. Now, a lot of these things people are just doing because it's going to make the world a better place. So it's a very different mindset, and financially you kind of end up in the same place, but the motivation is very different.
Lynn
You're right. On Wise Bread, we talk about things like how much electricity your electronics are taking when they're plugged in and sewing your own clothes. These are things that our grandparents did, but now we're doing it for completely different reasons. Now, frugality is not just about spending less money. We might buy local and organic which can cost more than conventional, but it's just as frugal as buying used or repairing things instead of replacing them. What is the cause of this shift from cost to value?
Chris
I think there's a number of trends going on. It seems that everyone's had this experience during the recession of sort of looking in the apartment, looking around house and saying, why do I have all this stuff? So in one sense, and this may sound bizarre because we're just coming out this recession with a 10% unemployment rate, we're a really wealthy society. And I think we increasingly value things like education and health, because that's what wealthy societies do. And what downturns do is they often accelerate social trends that were gathering momentum. My sense is that's partially what happened in the Great Recession.
I did an event in Pasadena and a young woman there was saying that among her friends, being frugal was kind of cool. And that there's a little bit of keeping up with the Joneses. I said I think that's true, but you know what, that's a good keeping up with the Joneses. There's a lot of benefit to that. It's sustainable and it's sort of fun. Communities like Wise Bread create a very fun aspect to frugality. It's a community of ideas, and not all of them will work for you -- it depends on your lifestyle, your temperament, stage of your life -- but it's really neat to have all the ideas out there, and to experiment to see which ones are going to work for you.
Lynn
When people started to save more and spend less, there was kind of a backlash against that. People argued that because our economy is based on consumerism, we all were supposed to do our part for the economy.
Chris
It drives me crazy. First, you're not responsible to the economy. You're responsible to your own household finances and your own values and the values that you share with other people in the community. But you're not responsible to this abstract thing called the economy. And so it drives me a little crazy because people were saving more because they needed to. They had borrowed too much and were at risk. And people were losing their jobs.
I think more importantly though, is that the American entrepreneur is endlessly inventive. And if people aren't spending money on certain things, they might spend their money on other things. They'll spend it on experiences or within the community. For example, 20 years ago I tried yoga and failed miserably. There was yoga back then but it wasn't such a big deal. Now yoga's really a career. People really take it seriously. Same thing with massages. 20 years ago there were massages but it tended to be more of a high end thing. Now here at Minnesota public radio, once a week, someone comes in and goes up to the 5th floor and set up a station. If an employee wants to have a massage, he'll go up there and get a massage. This person is making a living off of it. So my sense is that we're spending more money on education, healthcare, spirituality, family gatherings, and so I think that the economy is OK.
What we're spending less money is on things, and we're much more conscious of what we're spending our money on. We are trying to limit our carbon footprint, support local businesses, support the community, be environmentally conscious, and reward companies that are aware of these things. So I just don't see how it damages the economy. I can see how it can damage certain businesses. If you built a business building very big homes, and you were an honest business person, and you did a good job, you know what, that market has dried up. That happens all the time. And you're going to have to shift to something else. But that's what our system does. It's not that the embrace of the new frugality means an economy where people can't have jobs. I don't buy that.
Lynn
In the last 10 years, there was a heavy marketing push of luxury to middle class people. It was crazy. I read about lavish birthday parties with exotic animals for children, thrown by middle class suburban families. There was a mentality that you're entitled to it, that you deserve it, even if you can't afford it. So for the children growing up in the last decade, how do you teach them to embrace this new frugality?
Chris
I think more parents are saying, this is not what we want to spend our money on. We have limited resources, so we're going to spend our money on education. The birthday party is just going to go back down. Things did get crazy, and all that stuff was being paid for with debt. So I think that's really disappeared. Even if people still wanted to do that, people don't have that choice anymore anyway. We're telling our kids, look we got to save more, and we got to be more conscious of what we spend. That's what's been striking me in the conversations. Many people have made that transition, and they engage their kids in it. They explain why they're doing it, but they don't paint it as we're poor or we can't do this, but that this is not what we want to spend our money on. So it's a fairly positive message.
Lynn
While there was certainly this group of people who were living lavishly and overspending outrageously on credit, you also talk about how many Americans fell into trouble because they didn't have a margin of safety. So when they had a job loss or a big financial event, they weren't prepared for it and couldn't manage it. This margin of safety you talk about isn't just building a 12 month emergency fund that financial advisors advise, because it isn't practical. How should people realistically manage their margin of safety.
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Chris
I think the margin of safety is almost a habit that you build up over time. It's recognizing that you're a lot more vulnerable than you thought you were. We give out the advice about saving one year's worth of salary, and that's a nice goal, but it's very very hard to do. I think that the most important message is that you save what you can, automatically. You put the credit card away, you use the debit card, you only borrow when it's something that's really going to matter to your life. That could be your kids' college education. It could be to buy a home if that's what makes financial sense for you. But some things need to get tossed out. For example, the saying that you're not an adult until you own a home. You got to forget that. It's not true.
I think by doing those things, being patient, and making your savings automatic -- and not just saving in a retirement savings plan but saving outside of it so you have money that you can tap into -- over time you will create a margin of safety. It's partially a mental attitude.
Lynn
Spending wisely and investing in things will create a margin of safety. Sounds like a way of life.
Chris
It's a way of life. I also think this is where being green plays a factor. When I was younger and we had our kids, we shared things. We got cribs and baby clothes from friends who didn't need them anymore, and we gave them away when we didn't need them. In the 90s, that started to change. You went out and bought your own stuff. You got your own crib. There was less sharing. I think we're going to go back to a world where when you no longer need something, you're going to get it into the hands of someone who does.
That's where I think sustainability really comes in. It's actually going to make it a lot easier to save. You'll get rid of stuff you don't need and give it to someone who does need it. Maybe you'll do it for free, maybe you'll make a little bit of money off of it. You'll be buying less.
The out of control borrowing wasn't just for the home. As you were saying, it seemed to be everything. The birthday parties got bigger, the weddings got bigger, the car loans got bigger, the student loans got bigger. Everything got bigger. Now we realize it ain't going to work any longer. I think sustainability really makes frugality enjoyable. That's the real difference. And it makes you part of a community.
Lynn
When we're looking at a new house to buy, we can now put things in perspective and say we're not going to buy the largest house we can (barely) afford. We're going to buy the house that we need. What about for colleges where the expenses have gotten so much higher? Student loans used to be a good debt. It was an investment -- you invest this money and you will get that money back by your higher earnings when you get out. But now that expenses have gone up so much and earnings haven't caught up, do students now have to look at colleges in the same way we look at home buying? Do they have to sacrifice going to a school they want because they just can't afford it?
Chris
I think this is where the unfairness of our society kicks. I think we're in a period of transition and therefore there's greater inequality of choices. But I think you are absolutely right. There are two bottom lines. The first bottom line is a college education is the best investment you can make. The second one is that doesn't mean you spend whatever it takes to get a college education. So the finances do matter.
It's asking an awful lot of an 18 year old. I have less sympathy when people go to graduate school and they get into financial trouble. At that point you can go online to all kinds of online sites and find out what kind of salary can you expect when you get out. Then you can decide whether it is a reasonable trade off or not. It's really hard to ask that of an undergraduate, who dream maybe to get an English degree. That's wonderful. But what are you going to do with that? Who knows.
But I still think you cannot assume, just like at one point people assumed you should buy the biggest house you can because it always paid off, that you can borrow whatever it takes to get that college degree and it will pay off. But you get to be much more creative. You might go to a community college for two years and then transfer because your degree is always from the institution that you graduated from. That dramatically cuts your costs. If you were thinking of going to a public university and you're living in California, and you'd really like to go to the University of Arizona, well, you probably should go to University of California because it's probably comparable education. Yeah you're living in a different state and it's kind of fun but you got that additional cost that are going up. So you really do have to be much more conscious of the cost.
One other piece of advice I have is don't assume that you can't afford a private college. Go ahead and apply, and then see what kind of package they offer you. They're feeling a lot of competitive pressure and still offer decent packages. But in the end you have to sit down and see if the numbers add up.
Lynn
You mention in your book that students can negotiate their tuition. I never knew that that was possible.
Chris
Yes, it's definitely possible. You explain your situation. Let's say you apply to several schools and one gave you $10,000 a year. This other one that you want to go to didn't give you anything. So you call up the one that didn't give you anything and say, look, they're offering me $10,000. What can you do for me? The worst they're going to do is say we can't do anything for you. But they have a certain amount of leeway. So it never hurts. It's not necessarily easy to do, but it's a perfectly legitimate thing to do.
Lynn
Is there one take away message you have readers of your book?
Chris
The main message is being frugal is fun, and it's fun over a lifetime. And being green is fun, over a lifetime. And what's wonderful is that the two reinforce one another. We all try, and we don't succeed all the time, but it really is a way of trying to live your values and do well financially at the same time. I think that's a really important message. Before when people were living frugally, it was about sacrifice and not engaging or enjoying life because you don't have the money to. Now it's choosing very carefully what you really enjoy.
Lynn
So, living large on a small budget. Of course it's fun!
