I noticed an article on yahoo today called 7 Spending Tips From Frugal Billionaires in which the article goes on to talk about how many Billionaires are frugal too. The article was a good one with a good message, which basically states that if billionaires are frugal shouldn’t we non-billionaires be frugal too?
I’m not disputing the message of the article, but I think Billionaires should spend their money instead of being frugal and hoarding their cash like a Scrooge!
When Billionaires act frugal and keep their money tight, that keeps the money from the hands of the middle-class people! This means the money supply is constricted, and then not as many people purchase goods which in turn slows down the economy.
Now you might think that when Billionaires spend money, they buy expensive things like yachts, personal jets, and other such luxuries. And this is true, but even when Billionaires spend money on luxury goods, that money pays workers that build or create those luxury goods. Then those workers spend money on ordinary goods, and once again money flows freely again.
So, while I believe in being frugal, I don’t think it’s such a great idea for a billionaire (or high-end millionaires) to do so. These extremely rich folks should enjoy life a bit more instead of being so frugal.
Recently, Warren Buffett and Bill Gates went around and convinced over 40 Billionaires (and near Billionaires) to give over half of their money to charity. While that’s an admirable goal, I think some of the money would have been better served to help the economy by them spending some of it. Don’t get me wrong, I think it’s great that these billionaires are giving their money away to charity!!! But, I know that during the recession, I actually spend more of my money, and I’m not a millionaire…, yet. Of course, I didn’t go into debt when I was spending more money during the recession.
An outstanding example of a frugal billionaire hurting their local economy would be the richest man in the world, Carlos Slim. Carlos Slim is a Mexican, and very frugal. But if he were to buy more things from Mexican business, wouldn’t that help the Mexican economy? I know that Mexico has complex and not easily solved business issues, but every little bit counts…
What do you think of frugal Billionaires hoarding their money?
MR
Spending money on charity is one of the best ways to get it into circulation again. Poor people and charities are very good at spending money. They spend it on food and other basics that help the economy.
I read an article a while back that actually had data on the multipliers for this stuff. But all I remember is that poor people have bigger multipliers.
I am guessing that there is only so much a billionaire could buy. Of course, I am assuming they already have everything they could already want.
I think with some people, they just can’t spend. (Just like with some others, they can’t stop spending.)
I would love if they spent and were charitable at the same time. Buy a new playset for an inner city school, buy books for a library in need, etc.
@Nicole
Yeah, I remember that from Economics class (I think Micro Economic, but I can’t remember… it might be Macro Economics). I’m okay with billionaires giving to charity (especially good charities vs one’s that generate a feeling of entitlement).
But I think it’s just silly for a billionaire to be frugal! I know it’s probably mostly habit for them (I’m sure most of the frugal billionaires was raised in a middle class family), but still…
If I’m smart enough to spend more when we are in a recession, then so should they! And if they don’t, then they are being just plain greedy!
After all, we don’t need any billionaire misers in society. Such people horde too much cash! The economy need liquidity in markets, elsewise we have an imperfect market place…
@Everyday Tips
You nailed it! That’s exactly how I would like them to spend their money! I know that such an activity takes time, but wouldn’t that be great!
Perhaps you and I should created a company that spends billionaire’s money for them so that it’s the most productive 🙂
What you described is a win-win! The public wins because they still get an asset or function that adds value to their community, and workers win because the kind of spending you described creates and maintains jobs!
Heck, if I were a billionaire, I might even consider recreations centers for poor rural areas and internet hubs so poor people have access to information! And why not create a laptop borrowing center so poor residents could borrow a laptop for a month or more time interval….
These billionaires could shake the foundations of society if they would try! It beats giving money to an abusive charity, where the charity itself eats over have of the money that it collects…
Shoot, why not have those 40 billionaires help create a dynamic transportation infrastructure. Dynamic so that it can quick be converted to accomodate the prevailing technology for refilling/repowering vehicles on the road. Such an activity would jumpstart non-fossil energy consumption, and start to have an impact on our dependency (and drain of money) on foreign countries that dislike us.
I can go on and on. If I were super rich, you can bet I would try to rock the world in a positive way!!! Perhaps that’s why I like google (and their owners) so much. They do exactly that.
You have a point. Though I think it’s admirable of them to be frugal (it’s probably how they made their billion to begin with), they should also see the value of spending money to help the economy as a whole. Perhaps they need to invest in small businesses, that way they could easily justify their spending. My guess, however, is that they are already business owners of potentially multiple businesses. Maybe the push should be towards hiring more employees, which in turn would kick start our economy (the unemployment is making it really sluggish). Either way, spending it on something that would cause some momentum would help!
@Little House
Hmmm, Good points! Warren Buffett is my #2 financial hero after all, partially because of his frugal ways…
I agree it would be nice if they were to hire more employees, or perhaps pay their employees more…
Well these billionaires still invest the money, don’t they? They’d have to pull it out of the companies first to spend it…
If they develop charitable organizations to help poor people increase access to clean water, fair institutions, education, legal help, etc… that would be cool.
@Kevin@InvestItWisely
Actually from what I gather, cash is king with the higher end rich. After all, when you are a billionaire you can afford to take less risk? I plan to if I ever get up to that level (or even a 2oth of that level)
I’m more focused on the fact that some billionaire (and high end millionaires) are being too tight with their money (too frugal). When you are a billionaire, I think it’s not very fair to the middle classes to be frugal! They should stop being miserly, cheap, greedy and spend money to help the economy.
I think giving to charity is fine. But why stop there? Why not help the working and middle classes in the world too? Why just the poor? By being frugal, that exactly what they are doing… One could even argue that if you give enough to the poor and starve the middle and working classes, eventually we’ll all be back in a feudal society. Good times there (not)!
Like it or not, but we (North Americans) are consumption economies. So for a billionaire to be frugal just doesn’t make sense to me. They need to open up their dusty purse strings and help their local communities by spending more.
That said Warren Buffett is still a hero to me, because he is homey, frugal and just like the guy next door… What a paradox for me!
Remember also that Buffett’s cash really helped out a lot of potential financial crashes when things were rocky. Without that cash he wouldn’t have been able to prop up Dow Chemical or Goldman Sachs or whatever it was that they were making a big deal about him buying.
I do hope some billionaire puts light rail in Detroit. That would be awesome.
@Nicole
Yeah, Buffett is great! 🙂
Billionaires (and high-end millionaires) really do hold all the cards. Google founders are investing in long shot solar companies, just to give them a chance. They are called Angel Investors (probably passing it forward like some investor did with them)…
We need that type of action and creativity to be at the top of the economical hill and not fall to the bottom.
They say that some of the best companies come out of the hardest of time. Let’s see what the recession may have whipped up this go around. Perhaps we’ll see some exciting stuff.
I wouldn’t be as frugal if I was a billionaire since I would know I have breathing room, but I also wouldn’t tell others how to spend their money. I’d be ticked off if someone told me how to spend. But boy, I’d have a yacht and a permanent place on a cruise ship and in Vegas in a heart beat, lol.
@Budgeting in the Fun Stuff
I would keep a balanced approach, but even with a balanced approach, when you are a billionaire… the sky is the limit.
Honestly, as Everyday tips states above, they probably can’t buy stuff fast enough. Perhaps I would get tired of continually spending and stop spending too (at some point I would have a lot already)…
I guess what peeved me off, was that during the recession, I went out and spent more, trying to help the economy and I guess I thought the yahoo article was saying certain billionaires were doing the opposite.
Mostly, I probably fell into a trap of reading media sensationalism… I should know better than to believe everything that I read (lol).
I can see your point and I think it’s admirable that you’re doing your part to keep the economy going!
In response to your (and Every Day Tip’s) idea of buying things for their community instead of giving to charity… I think the main reason they prefer to go through an established charity is to prevent lawsuits. Think about it: You’re a billionaire, you start a laptop renting center, someone downloads some adult content on there and a kid checks it out. Next thing you know, just because you’re rich and everyone knows it, you’re being sued for millions. It is, after all, your center. You should’ve had a better system in place to prevent these things from happening! Now, if you donate to a charity and the charity gets sued, you aren’t held liable at all (and you get a nice tax break to boot!).
Angle investors can be awesome and a lot of tech companies wouldn’t exist without them but they can also create bubbles that destabilize the economy when they burst. Remember the .com bubble?
CEO’s are also the company’s unofficial mascot and the frugal “I’m just like you!” could be PR. Would Warren Buffet be as popular and loved if he flaunted his wealth? Frugal-ness makes CEO’s (and therefore, their company) seem more ethical and trustworthy whereas gaudy flashy display of wealth would make them seem like they will do and say anything to make a buck.
I once had an econ professor who taught that the “trickle down economy” doesn’t work. The rich are rich because they know how to be smart (i.e. frugal) with their money and the poor are poor because they don’t. It’s why so many million+ lottery winners end up bankrupt.
As for the billionaires hoarding up money and messing up the money supply… My macro’s a little rusty but… If they loosen up their purse string the there will be more cash which equals high interest rates and inflation. If they hoard all their money in savings it lowers interest rates and curbs inflation. Besides, does it really matter when we have the Federal Reserve monitoring and controlling the money supply?
The way I see it, if their money’s tied up in investments, their money is invested in companies that are using it to grow (and therefore, grow the economy). If it’s tied up in savings in a bank, well than the bank has that money to invest in communities by giving out loans. If it’s converted to gold coins that are housed in a giant building sized vault- Scrooge McDuck style… Well, that’s bad.
@Jin6655321
Good points across the board!
I’m still laughing about the image of Scrooge McDuck 🙂
The lawsuit factor is a great point. It’s said that in our society, the rich are such targets! I definitely wouldn’t want to be rich and famous.
I’m sure Bill Gates and Buffett has a lot of their money in investments. But I know they also have millions in cash (especially Warren).
I do think it was media sensationalism that made a big ado about nothing. I later realized that, but the post was already created by then. And it was fun writing it too 😉
I like Warren Buffett as well. If the billionaires want to be frugal, why not? Spending isn’t necessarily going to help the economy, especially if they spend it on, I don’t know, huge houses or very expensive cars.
Why not encourage them to start productive enterprises with that cash instead?
Haha, although after reading Jin6655321’s comment, I guess they are simply being careful! It’s true; when you have that much money you become an easy target.
@Kevin@InvestItWisely
Yeah, Jin6655321 brought out some truths that I wasn’t thinking of looking thru my rose-colored glasses…
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It’s easy to tell someone else what to do with their money, isn’t it? You think billionaires are HOARDING their money?? This mentality, my friend, is why you will never be a billionaire.
No matter how much money a billionaire, or the consumer public for that matter, spends “stimulating” businesses, it will not cure the market of poorly-run companies. If this were true, all the millions of dollars the government has already thrown at the banking and auto industries would have solved their woes. Instead, we see the money has all gone into a black hole.
Why yes, it is easy to tell billionaires to spend their money, they can afford it. I didn’t say all of it but come on, do you really have to clip coupons if you are a billionaire?
What does a billionaire spending money have to do with curing the market of poorly run companies?
As for the government spending, not only has the economy recovered, the money the government gave the banks has come back and the government has made a profit on that money.
Since I enjoy finances, I understand what stimulates the economy and what makes the economy run. You may want to google what’s happening with the economy…
Oh, and just curious, are you a billionaire?