Chances are, if you’ve spent your life studying how money and economics work, or if you’ve been fairly successful at actually making money and compiling it in a bank account, you’re a cheapskate when it comes to food, wine, cars, homes, clothes, and nearly everything else.
“Economists are often cheapskates,” writes the WSJ. In terms of food, for example, they routinely shop in discount grocery stores and buy cheaper, generic brand foods rather than recognized national brands, according to much anecdotal evidence.
Economists aren’t necessarily cheap in the sense that they never spend money. They are cheap in the sense that they need to be convinced of an item’s value—and be convinced of the fact that there is no cheaper way of getting that item—before paying up. They hate being wasteful, and they take a cold, scientific approach to maximizing efficiency. They’re extremely hardnosed when determining whether it’s worth allocating money toward charity, and they’re constantly looking for an angle, even at something such as a dinner among friends.
Yes, economists are often cheap in the cheap bastard sense.
From the WSJ:
Economists long have studied “free riders,” the sort of people who take more than their fair share of something when circumstances permit. Think of the person who orders the most expensive entree at a restaurant, knowing that the check will be shared equally among companions.
University of Wisconsin sociologists Gerald Marwell and Ruth Ames, in a 1981 paper, found that in experiments, economics students showed a much higher propensity to free ride than other students. In questioning after the experiment, the sociologists found that for many of the economics students, the concept of investing fairly “was somewhat alien.”
Cornell University economist Robert Frank, working with a pair of psychologists, mailed questionnaires to college professors asking them to report the annual amount they gave to charity. Their 1993 paper reported that 9.1% of the economists gave no money at all — more than twice as many holdouts as in any other field.
Getting to the bottom of why economists are so cold-bloodedly cheap is a chicken-egg conversation: Are these kinds of people drawn to the field, or does the research turn them into these kinds of people? Who knows. I think it’s probably some of both. You’re drawn to the game because it makes sense to you, and constantly having money on the brain reinforces the instinct to only spend it when it makes absolute sense.
There is, however, one clearer cause-effect relationship when it comes to being tightfisted with money: Being cheap helps you to become rich. It doesn’t happen by accident. And, as many wealthy, un-flashy people know personally, being cheap helps you to remain comfortably well-off.
Thomas J. Stanley’s new book Stop Acting Rich … And Start Living Like a Millionaire is great at revealing the cheap, dark secrets of the rich—namely that they don’t live like they’re rich.
The book is loaded with research pointing out that it’s the wannabes—the “aspirationals”—who are always drive new cars, wearing designer labels, dropping big bucks on swanky dinners. Often, these folks aren’t rich, though they try so desperately to appear so. They don’t have nearly as much money in the bank compared to the prudent, ascetic Warren Buffett types who have money to a large extent because they don’t spend it.
Take the example of wine. The assumption is that rich folks’ homes are brimming with pricey wine bottles, perhaps entire cellars snobbily full of them. But Stanley’s surveys say that only 7.3% of millionaires own a bottle of wine that sells for more than $100. On the other hand, 75% of millionaires pay less than $19.79 per bottle of wine, and 4 in 10 regularly drink wine that costs $10 or under.
Hmmm … I’m beginning to think that the self-professed cheapskates I talked to in a series of posts, in which they (me too) named the products and services they were actually willing to spend good money on, are all, in fact, millionaires.