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ToSpendortoSave?TrickQuestionIt’syourfault.Partofitis,anyway.You,theAmericanconsumer,spenttoomuchmoney.Youboughttoomuchhouse,tookontoomuchdebtandgenerallylivedbeyondyourmeans.Yourfree-spendingwayshelpedcausetheworstfinancialcrisissincetheGreatDepression.Andnowyou’regoingtohavetodoyourparttoendthecrisis.How?Byspending.Enoughalreadywiththesavingthatmanyofyouhavesuddenlybegundoing.Thisverymoment,CongressandPresidentObamaarepreparingtosendyouataxrebate,toinspireyoutostimulatetheeconomy.Sogooutandstimulate.Spendasifthefutureofyourcountrydependedonit.JohnMaynardKeynes,thegreat20th-centuryeconomist,wouldhaveappreciatedtheapparentabsurdityinthesemixedmessages.Hecoinedaphrase,“theparadoxofthrift,”topointoutthatwhatwasrationalforanindividualduringhardtimes—savingmoney—couldberuinousforanentireeconomy.Eventually,manyofthesaversmayendupoutofworkbecauseeveryoneelseissaving,too.It’senoughtomakeyouwonderwhatexactlyyou’resupposedtodo.AthisnewsconferenceonMondaynight,Mr.Obamawasaskeddirectlywhetherpeopleshouldspendorsavetheirrebatechecks.Heduckedthequestion.Fortunately,though,ithasananswer.Thereareafewwaystohelpbothyourownfinancesandthecountry’s.Thefirstinvolvesfiguringouthowtospendmoneynowtosavemoneylater—whichcanlifttheeconomytodayandhelpindividualhouseholdscopewiththeirbatteredfinancesinthelongrun.ThesecondinvolvesrealizingthatKeynes’sparadoxisn’tironclad.Inafinancialcrisis,whenbanksmayneedcapitalasmuchasretailersorrestaurantsneedbusiness,manypeoplecansavewithoutguilt.Whatfollowsisaguidetospendingandsaving,bothsensiblyandpatriotically.Besidesdevelopingthemostfamousprescriptionforcuringdownturns,Keynescanalsobeconsideredthegodfatherofbehavioraleconomics,asthecolumnistDavidIgnatiusrecentlywrote.Whileothereconomistsobsessedoverstatisticalmodelsthattreatedpeopleashyperrationalautomatons,Keyneswroteabout“animalspirits.”Hehelpedexplainhowpsychologyshapedeconomics.Psychology-tingedeconomics—thatis,behavioraleconomics—hastakenoffoverthelasttwodecades,andoneofitscentralfindingsisthatmostpeopledonotdoagoodjobofplanningforthefuture.Theyaren’tnearlyasnicetotheir“futureself,”aseconomistssay,astotheir“presentself.”Theyeatjustonemoredoughnutandputoffexercisinguntiltomorrowandtomorrowandtomorrow.Theyfailtosetasideenoughforretirement.Againandagain,theychooseabirdinthehand—beitdessert,convenienceoralittleextracash—overthreeorfourinthebush.Thesehabitsendupcausingalotoftrouble.Buttheyalsopresentanopportunityinatimelikethis.Mostpeoplecouldsavethemselvesagoodbitofmoneybygivingproperrespecttotheirfutureself.Theycouldspendalittlenowandsavealotlater.McKinsey&Companyrecentlyanalyzedhouseholdspendingonenergy,forexample,andfoundenormouswaste.Peopleheattheirhomeswhentheyarenotthereand,thankstoleaksintheirwallsandheatingducts,alsoheattheairspaceabovetheirroof.Aprogrammablethermostat,whichadjuststhetemperaturewhenpeopleareoutofthehouseorasleep,cancostaslittleas$50.Forlessthan$1,000,peoplecanbuythethermostat,aswellashireacontractortofixleaksandreplacetheirlightbulbswithmoreefficientones.Ineithercase,thespendingoftenpaysforitselfinjustayearortwo.“Thereisadifferencebetweenconsumingandinvesting,”saysKenOstrowskiofMcKinsey.“Andenergyefficiencyfallsmoreintothecategoryofinvesting.”Iaskedbehavioraleconomistsforsomeotherexamples,andtheyhelpedmecomeupwithanicelittlelist.ParentsofyoungchildrencanjoinCostcoandmakeuptheirmembershipfeewithjustafewmonthsofdiaperpurchases.Driverscaninflatetheirtires,changetheirairandfuelfiltersandstartgettingbettermileage.Frequentbookbuyerswhodon’tmindscreenreadingcanbuythenewKindle.Itcosts$359,butmostnewbooksthencostlessthan$10.Familieswhoshopatrent-to-ownstores,whichchargeridiculousinterestrates,cantemporarilyparebackandthenbuyfurnitureorelectronicsoutright.Peoplewhodoalotoflaserprintingcanpurchaseaprinterthatusesonlyacentortwoofinkperpage.(Manyusefar,farmore.)PurifiedwaterdrinkerscanlayofftheAquafinaandbuyawaterfilter.Seltzerdrinkerscanbuyaseltzermaker.MywifeandInowhaveone,anditisabeautifulthingindeed.Inthesecases—and,nodoubt,manyothers—theinitialinvestmenttendstopayoffquickly,sometimesinmeremonths.That’swhysuchspendingisperfectlysuitedtothemoment.Itwillkeeppeopleemployedorcreatenewjobswhentheeconomyneedsthehelp.Butitwillalsoshoreuphouseholds’finances.Theonebigcaveatisthatsomepeoplewillfeelthattheycan’taffordtolayoutanextra$50or$100rightnow.Millionsofworkershavealreadylosttheirjobs,andmanyotherssimplywanttocutback.InDecember,householdssavedanaverageof3.6percentoftheirdisposableincome,upfromabout1percentinrecentyears.Inanormalrecession,thisnewsavingwouldhavealotmoredownsidethanupside,justasKeynesexplained.Butthisrecessionisdifferent.Ithasbeencausedbyafinancialcrisis.IfAmericansdon’tgettheirfinancesinbettershape—ifmortgagedefaultskeeprisingandcreditcarddelinquenciessoar—bankswillremainafraidtolend,andtherecessionwilllinger.Evenmoreimmediately,banksneedtogettheirownfinancesinorder.That’sthewholeaimofthenewbailoutplanannouncedbytheTreasuryDepartmentonTuesday.Someadditionalpersonalsavingscanonlyhelpthateffort.“Thegovernmentispouringhun