Underspending is probably one of the most difficult financial behaviors to understand as problematic. After all, frugality and saving for the future are essential components of financial wellness and building wealth. How can underspending be a problem?
Yes, it’s true that accumulating wealth requires us to live on less than we earn. Yes, frugality is important. And no, underspending is not the same thing as being frugal. It is frugality on steroids, taken to the point of being harmful.
One of the classic examples of underspending is Ebenezer Scrooge from Charles Dickens’s A Christmas Carol. Despite having great wealth at his disposal, he lived without adequate food, heat, or furnishings. He chose an impoverished lifestyle that put his health at risk.
Most real-life underspenders are probably much more personable than Scrooge. Yet their excess frugality, like his, may well harm their health and wellbeing. They typically refuse to get adequate medical care, eat a healthy diet, maintain their homes, or obtain help or support that could make their lives easier and safer.
Let me give you an example based on a couple I knew; I’ll call them Martin and Eleanor. They worked all their lives, saved, and had two million dollars in investments when they retired. They started withdrawing a very conservative 3%, which gave them $60,000 a year from their portfolio to live on in addition to the $30,000 they received from Social Security.
After a year, they decided $60,000 was too much money, so they reduced their withdrawal to $10,000, giving them an annual income of $40,000. They assured me they could get along on that amount. After a couple of years, I began to see problems. Both of them were neglecting their health. They saw their doctor for annual checkups that were covered by Medicare. Yet neither of them had seen a dentist for several years. Eleanor needed hearing aids but would tell me they “just cost way too much money.” Martin’s eyesight was beginning to fail and driving at night was difficult, but they still insist on driving thousands of miles to visit their children because “airline fares are just outrageous.” Not only did they fail to spend money to make their home more accessible and comfortable, but the house itself was in poor repair almost to the point of being unsafe.
Remember, Eleanor and Martin had ample means to take care of all these issues without having to worry about running out of money. This behavior is what I mean by problematic underspending.
What is the cure? Simply telling someone like this they could or should spend more is not the answer. This is not a problem that can be solved logically. The issue goes much deeper. As with most problematic money behaviors, the cause is some type of emotional trauma. For example, the emotional impact of a childhood filled with chronic worry or fear around money could result in great fear around spending. So might childhood poverty, chronic financial uncertainty, or a sudden loss of financial security like a business failure or bankruptcy. Being shamed for having money could also lead to problematic underspending.
In adulthood, when someone has the means to provide for themselves and make things safe, an inner protective part may decide the best way to be safe is not to spend money. This may work well in early adulthood, when a person typically has a lower income. But the behavior continues long past the point when someone has the means to spend more.
How do you know if you are practicing sensible frugality or are an underspender? Ask yourself these questions:
1. Do you avoid spending money on yourself or others?
2. Do you have a lot of money saved but you refuse to spend it out of fear?
3. Do you routinely refuse to spend money on things you could easily afford that would make your life safer or more comfortable?
4. Do you deny yourself basic medical care?
5. Do you avoid participating in activities you could afford and would enjoy that would add to your quality of life?
6. Do you frequently respond to suggested activities or purchases with, “I can’t afford it”?
7. Do you have a financial planner, or someone else who really knows, assuring you that you have more than enough money, but you still feel poor and fearful?
If you see yourself in this, how can you begin to change? First, please do not shame yourself for being ungrateful or ungenerous or a “Scrooge.” Underspenders can be wonderful, kind people and still not be taking care of themselves.
Then, the crucial step is to realize that this is an emotional issue that is not going to be solved by forcing yourself to spend more. The factors driving the underspending need to be worked through, with support. It really starts with looking at the wounded parts of yourself that are so frugal, so shame-based, and so fearful. I think the best way to do that, of course, is with financial therapy.
Check out The Financial Therapy Podcast by Rick Kahler concerning this topic.