People are funny, many time people don’t see beyond the surface on matters. For instance, I have friends that get mad (literally mad) when the see a “supposedly” rich person flaunt their fancy cars, diamonds and whatever else a rich person might own. Not me though, I want rich people to buy things and spend money, and here’s why!
When the rich (or those with high incomes) spend money, it makes the market more liquid and gives people jobs. Yep, their spending might just keep you employed, not that they take that into consideration!
The new fancy car that a rich person buys means that a sale person earned a commission, sales taxes were paid, car factory workers, office workers, the trucker that transported the car to the dealer, and all the peripheral companies that contributed parts to the car (tires, brakes, etc) all pay their workers with that money from that sale, again all of the above is oblivious to most rich people but there nevertheless. You see, when rich people spend money, that means that money is injected back into the economy and people get paid! Obviously (or hopefully) the rich person enjoys his/her spending so much that they keep on spending it (responsibly of course). This is a positive thing folks.
Now let’s consider the miserly rich, those that die with tens of millions in a safe deposit box at the bank or worse still, in a safe at their home.
The money hoarding rich represents a constriction of money in the economy, making it illiquid. They are like a huge money hole where the money gets tied up and a contraction happens because the liquidity of the money supply is reduced. Can you image what would happen if the top 1% decided to save all of their money instead of spending it. Remembering that the top 1% has 40% of the wealth! Shoot, if they were to all, in unison, stop spending money on anything and practiced frugality, our country would be in a Great Recession, and possible a Great Depression. And nobody want something like that to happen!
You think it’s not possible, but there are people like this. Even one of my financial heroes (Warren Buffett) is tight with this money, too tight in fact, in my opinion!
Besides, if you have the money why not spend it to enjoy life at least a little bit? Are you saving it so that when you die someday, you’ll have a coffin full of money? Not me! I’m not saying to go into debt, but a reasonable amount of spending by the rich is a very positive thing, especially during recessions! In fact, even though I’m not rich, I actually tried to spend more money during the “Great Recession”! While my spending alone didn’t make much of an impact, most likely there were others like me that also spent during the “Great Recession”, I’m sure my little extra spending when combined with other like me, had a positive impact! So you guys own me (just kidding)…
Bests,
Don
A lot of people seem to not understand this. I totally agree with you though. If the rich spend it is a good sign for our economy.
Yeah, unfortunately, I think the uncertainty of the country right now is causing the richer folks to hold on tight lately. Not to mention the protests against the rich. I know if I were rich I wouldn’t be out there spending right now… At least not in such an environment…
The problem in America is that the middle class spends like the rich giving everyone a false sense of wealth.
Exactly.
True, I don’t mind as long as the middle class doesn’t go into debt while spending. There is definitely an ideology that spending while you are young has it advantages vs saving money until you are old.
I heard on the radio that the velocity of money was at an all-time low. Assuming this is true, I suppose it is due to the uncertainty of the election and the approaching fiscal cliff. We will be in a recession next year.
I agree exactly (and just commented similarly above to Lance’s comment.
With respect to the recession next year, probably, recession goes in cycles, and we are now officially do for one. Not on the magnitude of the “Great Recession”, but more the typical type I hope.
Now if the European countries somehow fix their issues, a recession might be avoided or at least lessened.
I hope it’s more of a fiscal speedbump instead of a cliff 🙂
I think to make the economy better it is always good for people to buy things and not to hold on to tightly to their money. The only way for this cash deprived economy to get a boost is for people to spend a little bit.
Definitely! The more activity the better, at least from an economy flowing perspective 🙂
The election definitely affects spending. I hope that after the election we can all get back to normal or to a new normal.
Totally agree. It would be nice to see the economy grow again! I think once the European problem gets sorted out, that will help too.
I think if you have money to spend then by all means spend it. It does lead to stimulating the economy. As long as you have insurance and are prepared for the future then it shouldn’t matter how the rich or anyone spend their money.
I want everyone to buy because there are not enough rich people to affect the economy. Remember there are only 1%.
true, I was actually thinking of the top 5% (my top 1% in the article above was just an example). The top 5% holds 50% of the wealth (or pretty close to that number). If they stop spending, it’s obvious that an impact would be felt.
Consumption and it’s effect on the Economy is a tricky balance.
SO true indeed. I’m definitely not part of the 1%, but having lived below the poverty line and now on the other end where I have lots of disposable income, I definitely do more good with money. I buy stuff, I help keep a variety of independent contractors solvent such as daycare people, house-cleaners,handymen, realtors, etc. Plus, I never gave a dime to charity when I was dirt poor and now I give quite a lot of my time and money.
I work in the manufacturing sector, so I’m a big fan of saving up for your purchases vs financing them. I guess in both cases, you are creating jobs, but I’m biased towards funding manufacturing jobs versus bankers.
I totally agree on financing purchase being a less preferred route!
Bankers and the fiscal system is a necessary ingredient unfortunately. But if they spend their money, at least we all benefits. So I’m weird in that I want rich people to spend money, while others look at them negatively. Let the money flow 🙂
I agree that we need the rich/wealthy people to spend money at it just makes to economy work better. I don’t think they should flaunt it but that’s my person opinion. We need more money being pump into the system from people with money and not the government injecting it. More spending from everyone is the key.
I don’t even mind if they flaunt it, just respect others too. As long as they are nice (and there are nice rich people) I don’t mind anymore, and in some ways I’m almost happy for them. almost… 😉
A lot of folks here are talking about “if only people would spend more of their money, that would save the economy.” What the economy actually is needs is more production – more goods, i.e. more real wealth injected into the system in the form of ‘goods produced but not consumed.’ That represents real savings and wealth, compared to paper money, and is the real basis of a thriving economy. Spending by consumers qua consumers is the end of the line, not the source.
Oh, my point of the article was that we shouldn’t be so envious of the rich when they spend money. When the rich spend money it helps the economy, when they hoard money, it create a less liquid environment.
As for the production of good, if nobody is buying the goods, it really doesn’t provide that much benefit to produce them.
Money is just a medium for value exchange, it’s a tool or something to be worshiped or envied.
I totally agree with you. If rich spend their money, there will be more manufactures, more shops and more jobs.
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I just bought a little house in Guatemala and can see it directly with the community next to my house. I am “the rich”. Since I arrived, I have employed a carpenter, a handyman, a mason, bought some hens, eggs, building materials… Half of the community lives in poverty according to the statistics bureau. Without flaunting it, I can see the impact that my money has had on them.
That’s awesome! Spending money is good if you can afford it. People jump to conclusions about rich spending money, but I think it’s great. It creates liquidity. Some rich (like Warren Buffett) hold onto their money to long and then give it to charity later in life. While that’s nice, I think it would have been more beneficial for him to spend his money all along. Personally, I’d rather spend money and give someone a job to do than give it to charity later in life. But that’s me 🙂
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Hi, your post is an Editor’s Pick in this week’s edition of Carnival of Investing: https://www.investeem.com/2012/11/carnival-of-investing-11.html
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