Discretionary spending is defined as “The amount or portion of a person’s expenditures used for spending on non-essential items; the portion of one’s expenditures which one may make as one sees fit.” It’s the amount that we have available to spend after we pay taxes, purchase food, buy clothing, and make arrangements for shelter. Since 1985, consumer discretionary spending has steadily increased at a 3.4 percent real rate (adjusted for inflation).
Today, in the midst of a global economic slowdown, many consumers have no choice but to become thrifty and frugal. There simply is no discretionary income to spend on discretionary items. But others, who still have discretionary income, are making conscious decisions to find a balance between frugality and spending.
This discretionary thrift is a relatively new trend amongst consumers and possibly signals that many are tired of the excessive consumption that dominated our lives over the last 25 years. People are setting up their emergency fund, recycling, buying used goods, teaching traditional values and skills to their children, and learning to handle their finances more like their great-grandparents rather then their parents. They’re making a budget, clipping coupons, comparison shopping, planting gardens, brown-bagging lunches, cooking at home more often, and even planning more frugal birthday parties, weddings, and vacations.
Find yourself in this same boat? Many people don’t like to admit their frugality. Somehow it seems boring and a bit old fashioned. However, the current recession has made discretionary thrift and frugality much more acceptable. Witness the increase in blogs dedicated to personal finance, simplicity, making things at home, and teaching people how to make extra money.
Another part of this new discretionary thrift is what economists call Mercurial Consumption. During the pre-recession boom, I personally found myself much more skilled at finding alternatives to my preferred brands because of the information I was able to find on the Internet. These different products or services met my needs as well or better as my former choices and many times they were cheaper! As a result, companies are finding that consumers like me will quickly abandon any choices that fall short of expectations. If a product is only 10 percent better but costs twice as much, I will quickly make the switch!
What you and I buy may change and evolve when the economy recovers, but what won’t change is our ability to find options, nor will our willingness to switch to another brand if it still meets our needs.
The Bottom Line
Those with money aren’t spending it like there’s no tomorrow anymore. Even when the economy DOES recover, there’s a pretty good chance that we won’t start down that path again either. Couple that with our dissolving allegiance to branded items which don’t meet our expectations and you have a recipe for disaster for the cheap junk that’s been foisted on us by retailers and manufacturers during the last few years. The potential result? Better products, higher quality, greater service, and fatter savings accounts.
Sounds like a silver lining to me!