Lauren Weber’s father is, to put it bluntly, cheap. When she was growing up in the cold winters of Connecticut, he refused to turn the thermostat above 50 degrees. He washed all the dishes by hand, in cold water, even though the family owned a dishwasher. He even used hand motions to signal a turn while driving so his turn-signal bulbs would last longer.
As a kid, Lauren bristled at her dad’s frugality (and when she wanted an extravagance, like Guess jeans, she went to Mom). She feared that her family was secretly on the verge of bankruptcy. They weren’t—her father was, in fact, a professional economist, teaching at the U.S. Coast Guard Academy. He didn’t lack for money. A lifestyle of extreme thrift simply felt right to him.
Then, when Lauren grew up, a funny thing happened: She realized that she’s now cheap, too. And she noticed something else. Her older sister, like her and her father, is very mindful of money. Her older brother is not. Although Lauren carefully compares the prices of dried beans ($1.49 for twelve servings) and canned beans (79 cents for four servings), her brother thinks nothing of eating out all the time. He doesn’t live beyond his means, but he definitely hasn’t adopted the same tightwad attitude that Lauren did.
This scenario might sound familiar to you: One sibling winds up a saver while another is a spender, despite having been raised in the same household. That this happens is not that unusual. What’s interesting is why.
Since the Great Bust began, we’ve heard a lot of talking about thrift. We are, it seems, a nation of newly converted tightwads. Consumer spending has plummeted, the savings rate is going up, and magazines and newspapers have declared this “The New Frugality” as we collectively embrace “The End of Excess.”
Invariably, this conversation is framed in terms of morality. During the boom years, we were reckless. We spent wildly. We were the grasshoppers (Live for today!) and not the ants (Save for tomorrow!). This moralistic attitude toward thrift has a provenance in America. Our puritanical forefathers, from Cotton Mather onward, preached thrift as a virtue, akin to kindness or temperance—a fortifying concept you should choose to embrace.
But what if thriftiness is not a virtue at all? What if being thrifty is not a question of choosing between good and bad behavior but is instead akin to a character trait, like being shy? What if some people are born thrifty and some are not?
Let’s imagine there are four people in a room. The first person is a classically trained economist. The second is Benjamin Franklin. The third is a behavioral psychologist. The fourth person is you. And you are considering the price tag on an expensive pair of boots.
To the economist, your decision to buy the boots should be purely rational. You should think: Do I have the money to afford these boots? If so, is the pleasure they will give me equal to or greater than the cost? And if I save this money, will it afford me greater pleasure in the future—for example, by contributing to a vacation or simply to an increased sense of security?
To Benjamin Franklin, your decision is a moral one. Couldn’t you go another season with your old boots, maybe if you got them resoled? And by denying yourself this indulgence now, might you not become a better person in the long run?
As for the behavioral psychologist, well, until fairly recently, no one was really sure what he would think. While there have been plenty of studies on why we spend money, there have been relatively few studies on why we don’t.
“The standard economic theory says that when we save, we’re making a trade-off between today’s pleasure and tomorrow’s pleasure,” says George Loewenstein, a professor of economics and psychology at Carnegie Mellon University. Yet most of us recognize that decisions about money are rarely that rational. Loewenstein decided to find out why. So, together with Scott Rick of the University of Pennsylvania and Cynthia Cryder of Carnegie Mellon, he completed a study in 2007 in which a group of people—over 13,000 respondents—were given a questionnaire in which they ranked themselves on a “Spendthrift-Tightwad” scale. Then they were presented with several simple spending decisions; for example, they were asked whether, when buying a DVD, they would be willing to pay an extra $5 fee to have it shipped overnight. According to classic economic theory, such a decision should be made through a series of rational considerations, like whether the cost ($5) was worth the benefit (getting the DVD right away). What Loewenstein discovered, however, is that our decisions about money are often driven not by what’s rational but by a purely emotional response that he came to call the “pain of paying.” Simply put, tightwads find spending money painful. Spendthrifts don’t—even if they’re engaging in detrimental behavior, like running up debt. He also discovered a third group: frugal types who find saving money more enjoyable than spending it.
If you have ever stood considering the price tag of an expensive item—albeit not in the presence of Milton Friedman or Ben Franklin—you’ll intuitively recognize that these findings are correct. Decisions about spending and saving evoke a complex mess of positive associations, negative emotions, and moral quandaries. Often, our sense of self is deeply connected to our attitudes toward money. Lauren Weber has collected many such stories in her new book, In Cheap We Trust: The Story of a Misunderstood American Virtue. She describes a food activist from New York who spotted a necklace during a trip to Italy. She loved the necklace, but it cost $1,000. She didn’t calmly weigh the pleasure of spending versus saving; rather, she described the ordeal as “an existential crisis.” Did she want the necklace? She did. Could she afford the necklace? She could. Did she buy the necklace? She did not—because she ultimately concluded, “Who spends a thousand dollars on a necklace? Not me.”
But if tightwads naturally feel a pain of paying, where does this pain come from? And why do some people feel it and others don’t? Scott Rick explains it this way: “My unverified instinct is that it’s largely something you’re stuck with,” he says in Weber’s book. “It’s genes, parenting, schooling, a combination of influences.” Loewenstein likens our spending tendencies to a behavioral trait like shyness—i.e., something you develop very early and that is subsequently very hard to change. “Studies have shown there are huge differences in shyness in young children,” he told me. “And while you can take a young child who starts out very shy and, given the right environment, move him toward the middle, it’s very unlikely and unusual for a shy child to transform into a real extrovert. I think this is similar.” So just as one sibling might be bashful while another is outgoing, one can become a tightwad while another spends freely. Of course, circumstances can influence your spending decisions—but not as much as you might think. A tightwad who wins the lottery may splurge a little more often, and a spendthrift who gets laid off will tighten his budget by necessity, but neither one is likely to convert into the other. Thus you have another example that Weber collected: a Manhattanite tightwad who walked three hours to work and back every day to avoid paying subway fare—then left $23 million to charity when he died.
Another recent experiment helps explain these irrational decisions. In a study published in 2007, Loewenstein teamed with Drazen Prelec of MIT and psychologists at Stanford to determine exactly which part of our brain makes decisions about spending. To do so, they took MRI brain scans of subjects who were given $40, then presented with a series of items they could purchase with the understanding that they’d keep any cash they didn’t spend. First a subject was shown a photograph (of, say, wireless headphones), then the price. When the team studied the scans, they discovered the subjects were making their spending decisions in an intuitive, even animalistic, manner. When a subject saw an item he wanted, it activated his nucleus accumbens, which is the area of the brain associated with anticipating or experiencing pleasure, such as eating a piece of cake. But when he saw a price he didn’t like, it activated the insula, the portion of the brain that reacts to unpleasant shocks, like a bad smell. So for tightwads, encountering an expensive item was literally unpleasant—like sniffing a carton of spoiled milk.
Of course, the Spendthrift-Tightwad scale might hold true for individuals, but as a nation, we’re irresponsible, rapacious consumers, right? Didn’t Americans just spend the last twenty years blithely racking up charges and running up debt?
Well, yes and no. It’s true that, when you spend more than you can afford—either as an individual or as a country—you will get yourself in trouble. That’s not morality; that’s math. But if Loewenstein’s findings are correct, we’ve been approaching the question of consumption in the wrong way. Because we regard thrift as a virtue, not a trait, our national discussion often echoes the tone of early alcohol-temperance meetings. Spender, repent! Debtors, you can be reformed!
Loewenstein sees it differently. One of the most surprising findings in his tightwads-and-spendthrifts study was that, on average, tightwads outnumbered spendthrifts 3 to 2. This was a small sample, of course, but it suggests that, rather than a nation of spoiled hedonists, we’re naturally inclined to be cheap—we just don’t always act that way. He also found that minor enticements—for example, adding the word small to the proposed $5 delivery fee—made tightwads 20 percent more likely to relent. In other words, if we feel a pain of paying, that pain can also be anesthetized. Loewenstein suggests that many of the now-identified culprits of the bust—easy credit, unsustainable home prices, a falsely robust economy—worked together to ease our collective pain. This is actually good news, because it means that the downturn—with its restrained spending, rising savings, and the disappearance of economic anesthetics like easy credit—isn’t forcing us to resist our natural tendencies. It’s returning us to them.
This shift in thinking on thrifty behavior has led some economists to believe we’ll be best served not by sermons on virtue but by devising ways to help people act in their financial best interest—much as previous conditions “helped” them to act against it. Imaginative economists are already devising ways to help spenders become better savers. In a recent YouTube address, President Obama laid out what he called “common-sense changes that will help families put away money for the future.” One such change would expand the implementation of a program championed by economist Richard Thaler and law professor Cass Sunstein in their book Nudge: Improving Decisions About Health, Wealth, and Happiness. Rather than having workers opt in to their employer’s 401(k) retirement-savings plan, as is commonly the case now, Thaler and Sunstein advocate a system by which employees would automatically be enrolled, with an option to opt out. When one company adopted such a strategy, participation in its 401(k) program went from 65 percent to over 90 percent. These new participants hadn’t been magically convinced that savings were a rational idea or a moral obligation. Instead, they’d been presented the choice in a new way that helped overcome their natural proclivities.
Ironically, Lauren Weber now sees herself as lucky to be cheap: She comes by it naturally. In her book, she extols the values of cheapness, but she also understands that it’s time to put the wagging finger away. “It just doesn’t work to preach at people,” she told me. “Cotton Mather tried it 300 years ago, and where did it get us? We’re now $10 trillion in debt.” Loewenstein suggests that, whether you’re a spender or a saver, you should accept this trait rather than struggle against it—then find a way to live a financially manageable life. “We don’t need to cultivate a different national character,” he says. “We need to work with the existing national character to achieve national goals.” Cheapness may not be a virtue, but it is akin to greatness. Some are born cheap. Some achieve cheapness. And some can hope to have cheapness thrust upon them.