Americans keeping down with the Jonses: Cutting back is easier when we’re afraid than when we’re aspiring
A piece in the USA Today the other day called “Consumers cut back on small pleasures” reports that more an more we’re passing up Lattes, bottled water and other small luxuries.
Such small luxuries seemed almost necessities in happier economic times. But no more for lots of folks, including those and other USA TODAY readers who described how they’ve changed their habits.
The murky financial outlook and recession fears are factors. Another driver: fear of being out of step with a cultural mind-set that increasingly says less is more. If your best friend and next-door neighbors are cutting back on little luxuries, shouldn’t you be, too?
“For years, we had the opposite. It was all about keeping up with the Joneses. Now, the Joneses are starting to cut back,” says Ellie Kay, author of 12 personal finance books.
The cold, hard numbers on the nation’s economic mood bear out that consumers don’t feel flush.
Consumer confidence plummeted in February to its lowest since February 2003, which was just before the U.S. invaded Iraq. The Conference Board’s much-watched index of consumer confidence fell to 75 from 87.3 in January, the group reports
“There’s a sense that prices are rising — and will continue to rise — but wages will not,” says Ken Goldstein, economist at The Conference Board. “This is squeezing household budgets whether they’re $200 per week or $200,000 per year. Folks are looking closely at anything they don’t have to purchase now.”
Most consumers actually feel more pain from these small cuts than from big ones. You miss your daily java jolt a lot more than, say, a new car you’d only hoped to buy sometime this year.
I can’t see how that comes as a surprise to anyone. What I do find interesting is the motivation behind it.
For years, David Bach of “Automatic Millionaire” fame has been going on about the “Latte Factor.” His notion is that if you, wait for it, cut back on lattes, bottled water, and other small luxuries and put that money to work in an index account or something like that, you’ll sock away a big pile of money a couple of decades down the track.
If I had to guess, I would say that more people are cutting back because of their concerns about the economy than were cutting back with an eye towards retiring rich. In fact, I’ll bet many of those aspirants compounded the problem by spending money on David’s books, tapes, and seminars. Think of how rich they could become if they had put that money into savings instead?
I have nothing against David Bach (duly noted). It is interesting to note, however, that fear is the story here. We are much more motivated by fear of loss than we are love of gain. By orders of magnitude it turns out. Think about that next time you’re looking at a decision.
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Tags: latte, latte factor, finish rich, automatic millionaire, recession, inflation, decision making, decision quality
