The Dollar Stretcher
Dear Dollar Stretcher,
During times of national crisis the general public has a natural tendency to conserve. That is actually the worst thing we can do right now. The economy will take a nosedive from the recent tragedy. If you really want to do something for your country go out and spend $20. Then, next week, spend another $20. Always be sure to buy American made from American businesses. By doing so, the country's economy will bounce back much faster, which helps us all in the long run. Donna, North Carolina
Donna makes an interesting point. Our normal instinct in uncertain times is to conserve our resources and spend less. Yet, after the terrorists' attack, the economy is struggling and could use some stimulus. Consumer spending could be part of that stimulus.
So is going to the mall each week and spending an extra $20 a patriotic thing to do?
When Donna buys that pizza it does help a local merchant. If enough people join Donna, employees work hours won't be reduced. And, the merchant will buy more ingredients. So Donna's spending will have a ripple effect.
But, let's remember that something else happens, too. Donna has either taken money out of savings or borrowed the money. So she has less money than before. And, if she used a credit card she'll repay the loan with interest.
So Donna has taken money out of the investment world (banks, the stock market, etc). That means less money is available for businesses to borrow to help meet payrolls. If they can't pay their workers, they'll need to lay them off.
So spending alone might not be the answer. Then how can Donna make a decision that helps her country? She can do the most good by making 'normal and prudent' purchases.
The terrorists assumed that it would be very hard for business to recover. Fortunately, the capitalist system is resilient. There are many companies that can supply most products or services. If one company is crippled another steps in. The result is that any disruption is pretty quickly fixed.
But, being able to supply the goods and services that people need isn't enough. Americans, and consumers around the world, will need to buy what business has to offer.
The 'nosedive' will be corrected if we just return to our normal spending patterns. That means going about our business and our lives in our usual manner. If we spend the same amount that we did before the terrorist attack the economy will be just as big as it was before.
We really don't need to do any unusual spending. Just go back to doing the same things economically that you did before the attack. If your family goes out for pizza on Tuesday nights, go out this week. If you were going to visit Grandma at Thanksgiving, buy those plane tickets.
Donna's right. In any emergency, our instinct tells us to conserve. That's where the 'prudence' comes in. We know that feeding our families tomorrow is more important than buying non-essentials today.
So, is buying a new car now prudent? It really depends on your situation. Suppose your old car is worn out. You've saved for a newer one, can afford the payments and had planned to make the purchase now. Then you should start shopping for the car.
But if you have a year to go on your present payments and your car is running fine, buying a car to prove your patriotism is foolish.
The reason is simple. You don't create wealth by spending money. Wealth is created by producing something of value. Yes, you'll help keep the car salesman employed. But if you borrow money that you'll struggle to repay, you've actually become a burden to our society.
More debt makes our society weaker. If you have too much debt you can't afford to help others. You'll be in a worse position if something interrupts your income. Then you could end up asking the government to help pay your bills and become a burden.
So what should Donna do? She can ask herself a few questions before making any purchase.
- Do I need this item or service?
- Would I have made this purchase before the attack?
- Can I afford to pay for it?
- Am I using patriotism as an excuse to spend?
- Will American businesses benefit from my purchase?
One final thought. Now is a wonderful time to contribute to charities helping those who have been affected by the attacks. Perhaps Donna could do more good by giving the $20 to a local food bank. The money will be spent and help people keep their jobs like she wants. But instead of another pair of shoes in her closet, Donna's $20 might help replace a pair of holey sneakers for a child who's parents are unemployed.
Do we need Donna and everyone else to help speed up the economy? You bet! But reckless spending will only make it weaker later on. So let's think before we act.
Gary Foreman is a former Certified Financial Planner who currently edits The Dollar Stretcher website. You'll find hundreds of free articles to help you stretch your day and your dollar.