Archive for the ‘Saving’ Category

Goal Setting: Ending up where you want to go

January 18, 2013


Written by: Joan Reid, Family & Consumer Sciences Extension Agent, Granville County, North Carolina Cooperative Extension, North Carolina State University

Do you remember the following passage from Lewis Carroll ‘s “Alice in Wonderland”?  Alice came to the fork in the road. “Which road do I take?”, she asked.  “Where do you want to go?”, responded the Cheshire cat. “I don’t know” Alice answered.  “Then,” said the cat, “it doesn’t matter”.


What do you dream of having and doing? People of all ages dream about how they would like to live, what they’d like to buy and what they will do when they are retired. Smaller, near-term wants are often easier to attain, while, somehow, it seems more difficult to do the planning to reach long-term goals. If we remember that a goal is a dream with a deadline, we might be more inclined to invest the time needed to plan how we will realize at least some of those dreams.

Getting Financially Fit Is A Journey
Being financially fit is a complex process. It’s a journey that takes twists and turns. It takes constant attention to the road, making course corrections, as needed. Think of Dorothy’s goal to see the Wizard of Oz. Oz was her destination, but she didn’t take a magic carpet to immediately arrive. She was counseled to follow the yellow brick road. While following that road, she met with unexpected experiences and derailments. However, she stayed the course, learning along the way, on her journey to her final destination.

Getting Financially Fit Through Goal Setting
Goal setting helps individuals and families become financially fit. While goal setting is an easy enough process to understand, figuring out what stands in the way of getting it done might be the first step to successful goal setting. Of course, that is different for each one of us. How do these factors affect your ability to successfully set and monitor your goals? Are there other factors that get in the way?

• Long ago learned messages about money and spending.
• Your values about money.
• Lack of (or perceived) time.
• Not good with money.
• Don’t know how to set goals.
• Can’t stick to goals once they are set.
• Can’t resist the urge to spend.
• Just want to have some fun now.
• Don’t have enough extra money to make a difference.
• Can’t agree with others in the household.
• Will worry about it later.
• Stuff happens!

Once you have decided what you’d like to be able to do with your money and you are willing to work on it, you can use the goal-setting process to get there.

Luke Erickson, University of Idaho Extension educator, described the process of financial goal prioritization this way:   “Think of budgeting as building and maintaining a boat, something that keeps you afloat. Think of written, prioritized financial goals as a motor you add to your boat to provide motivation, direction, and ‘horsepower’ to get somewhere worthwhile.

Getting Started on Your Journey
How do you get started? You might start with your long-held dreams, like owning your own house, having children or starting a business. You might select goals around life events: children’s needs (education/expected marriages), your own further education, or retirement. Adding items from your “bucket list” (things you want to do before you ‘kick the bucket’) will give you plenty of ideas for possible inclusion.

It’s often easiest to categorize goals as short-term (within one year), intermediate (one to two years) or long-term (three to five years). Beyond financial goals you may include educational, social/relationship, health/physical, and recreational desires. Those goals may or may not require money to accomplish. Before continuing, you, likely, will want to prioritize your goals.

SMART Goals Prevent Derailment
Here’s where we distinguish goals from dreams. In order to keep it real, you’ll need to determine how your goals fit into your budget. If you don’t have a budget, you can use the “Your Financial Action Plan” fact sheet from University of Florida Extension. It contains a goal-setting page, also. Using the worksheets, you will need to identify your monthly income and all of your monthly expenses, organizing them into categories.

Now you are ready to plug some of your high priority goals into your budget. Writing SMART Goals will make them more attainable.

SMART Goals are:

S – Specific – You know exactly what you want
M – Measurable – What is the cost and how much will you need to save each month?
A – Actionable – What actions will you need to take to reach this goal?
R – Reachable/Realistic – Is this something you can realistically reach without getting frustrated and giving up?
T – Time – Achieve by what date?

For example, an ineffective goal:  I want to buy a house.
SMART Goal:  I want to buy a house in my current city with a mortgage of not more than $80,000 within 6 years. I will save $20,000 for a down payment and closing costs by saving at least $277 a month.

Now you can work the monthly amount required to save into your budget. Repeat the process with other goals. What if there isn’t enough money in your budget to set aside for your goals? If money is tight, you’ll need to identify spending leaks (unnecessary expenses). Rework your budget to find ways to reduce current spending to be redirected towards the goals. For example, if you buy lunch out everyday, you might want to carry your lunch most days instead. Calculate how much you will save and divert it to your goals.

How about:
•A cup of coffee purchased each morning on your way to work? Are you willing to make it at home instead?
•Fast food breakfast every morning? Breakfast at home is much cheaper.
•The candy bars/snack foods/soda you routinely purchase from a work vending machine? Can you bring snacks (healthy ones) from    home? Are you willing to drink water?
•Lottery tickets?
•Non-nutritious foods purchased at the grocery store?
•Your other impulse purchases? Beware of the effect of “chain purchases.”

One important goal is to save money from every paycheck, even if it is a small amount. The habit of regularly saving is more important and beneficial than the amount saved. You can always increase savings once the habit is started. Many successful savers follow the Pay Yourself First philosophy. They contribute to savings before paying the bills.

One barrier to saving is peer pressure from family, friends, and the media to spend. Remembering this quote, “If there is to be any peace, it will come through being, not having” (Henry Miller), can help us focus on what is important.

You’ll need to be vested in your goals to resist the enormous pressure from marketing messages to indulge in fleeting fancies. When you cave in to pressure to spend on items of lesser importance to you, you are giving up future needs to satisfy immediate wants. If you know what you want to achieve and treat financial goal savings as a fixed “expense,” you’ll be more likely to achieve success.

If you truly think you don’t have any money to save, try this exercise: Start with putting a penny the first day in a jar. Each day, double the amount so, the second day, you’ll put in the jar $.02, third day, $.04, fourth day, $.08, fifth day, $.16, etc. Now, if you keep doing that, do you know how long it will take to accumulate $1 million? Since most of us can’t put aside that much, stop when it gets too rich for you and start all over again with one penny. Now you have a nice emergency fund started. You can add that to a savings account or if you don’t have one, start a savings account.

It really is all about choices. We all have to make them and we all have to live with them. Not making a deliberate choice is a choice, too! So use focus and purpose to make yours count! Once you have converted your dreams into goals, all you need to do is follow your plan, like Dorothy following the yellow brick road to Oz, checking on your progress periodically.

Oh, by the way, it takes 28 days of saving as above to surpass $1 million. Can you find the National Financial Management Core Competencies in this blog? Leave a comment on the Core Competencies that you found.

National Financial Management Core Competencies in this blog: Spending, Saving

How to cite this article:

Reid, J. (2013, January). Goal setting: Ending up where you want to go. Dollardecisions blog.  Available at:


Taylor, D. (2012, March). Chain Purchasing: The Diderot Effect. Dollardecisions blog.  Available at:

O’Neill, B. (2011, February). The Importance of Financial Goal Setting.  Available at:

Your Financial Action Plan:, 10/09


The Folly of Holiday Stress

December 10, 2012

December 10, 2012

Written by: Deborah McGiffin, Durham County Extension Agent, Family & Consumer Sciences, North Carolina Cooperative Extension, North Carolina State University

No, no, no not ho, ho, ho.  Do you stress over your finances and spending during the holidays? Does holiday jolly seem like holiday folly to you?  Celebrating the holidays and other special occasions can often strain a families’ budget and cause them to expend large amounts of money and other resources. It’s no wonder that celebrating the holidays creates financial tension. Many people seriously underestimate what they will spend each year for holidays and special occasions. Spending can get drastically out of control with gifts, greeting cards, postage, gift wrap, decorations, food, drink, transportation, long distance phone calls, and other purchases during the holidays and can push a family into financial difficulty. The challenge of managing holiday spending is to enjoy the spirit of the season while avoiding the holiday financial hangover – that is, paying for it months or even years later. Keep the holiday spirit in and stay within your budget by using some of the suggestions below to help you plan, make the most of your resources, and avoid overspending.


Look at the Big Picture  Review your current financial situation and determine a holiday spending limit that works with your family budget. The amount of money you spend should align with your family values. However, it is generally unwise to spend more than 1%-3% of your annual take home pay on holiday expenses. Once you know how much you can spend towards the holidays, develop a spending plan.

Develop a budget for gift-giving, food, travel and entertainment expenses. Additional expenses which can increase during the holidays and are often overlooked include gasoline, babysitter fees, special grocery items, and eating out more often.  Use the North Carolina Cooperative Extension’s Holiday Planner to be sure to account for these extra expenses.

Make a List and Check it Twice  Refer to your spending plan and use a planner to list all the people you wish to give gifts to, including family, teachers, babysitters, hair stylist, etc. Also, list other holiday purchases such as decorations, ingredients for holiday cooking, greeting cards, expected travel expenditures and so forth. Using your list, make entries into the planner for spending amounts allocated for each recipient, the amount you actually spend and the gift item purchased per person. Take the planner with you when you shop to help prevent impulse shopping. Save this planner in a “holiday file” for reference for future holiday budgeting and planning.  The information from this year’s planner can be useful in establishing a holiday account for next year.

Shop without Financially Dropping  Consider how you plan to pay for your holiday purchases. If you decide to pay in cash, divide the cash into amounts you plan to spend for each gift, select items within the price range, and stop shopping when all the cash is gone. If you plan to use a debit card, take your check register shopping and record each transaction in it, so you track your spending, maintain a current balance, and avoid overdrafts. Depending on your bank’s automated updates, your balance may not always be accurate and transactions may not be immediately deducted from your account. If you plan to use credit for holiday purchases, evaluate your overall credit before shopping. Charge only an amount you can safely repay in one or two months. As a general rule, never have credit payments that outlast the item bought. Limit charges to one card to facilitate easier bill paying and to have a clear picture of your total spending. Another option to consider: layaway plans. Layaway plans allow you to pay for purchases ahead of time with cash, checks or debit and then take procession of the purchase once the items are paid for.  Though layaway plans enable you to buy over time without debt, you will need to plan ahead to make purchases early enough to take advantage of this purchase method.  If you decide to use store layaway options, be certain to check their return policy and keep track of all payments. Shopping online can save time and gas. Many sites have free shipping deals. If shopping online, look for coupon codes or cash back offers.  Some sites that offer such deals are,,, and A google search for “promotional code” using a retailer’s name might also help you find deals.  Plan holiday shopping trips to stores or malls ahead of time, study store ads, and know exactly who and what you are shopping for prior to entering the store and don’t forget to take along your holiday planner. Impromptu shopping trips and meandering in stores looking for gift ideas can lead to impulse purchases and a derailed budget. Do your window shopping at home from catalogs or online, so that you know exactly what you plan to purchase. Finally, remember that holiday sales can be tempting, so once you are in the store, refer to your planner and holiday list.  Remember to account for each purchase you make in the planner so that you stick to your spending plan.

Don’t be a Scrooge, Just be Creative  The best gifts don’t have to be expensive or even be purchased. The best gifts are fun, useful and chosen with the recipient in mind. Use your talent, skill and love to create meaningful gifts from the kitchen, garden or home.  The gift of time is a precious gift. Give certificates with the promise to fulfill a personal service for special loved ones. General purpose (VISA or MASTERCARD) gift cards are good choices for out-of-town giving because they reduce packaging and shipping expenses.  Instead of buying separate gifts for members of a family, buy one family or household gift everyone will enjoy. Drawing names is a good way to celebrate the holidays while reducing the number of gifts for a large family or group of friends. Giving family treasures or heirlooms is a good way to make the holidays meaningful and institute estate planning goals. Don’t forget about giving practical gifts like smoke detectors or motion lights.  Elder relatives who have “everything” may appreciate these helpful gift choices.  Giving to a charity in someone’s name in lieu of a gift is a way to honor a special person. Pictures of past family or festive events placed in attractive frames make inexpensive yet thoughtful gifts.  Though it may be too late for 2012, shop throughout the year for gifts, as good deals for items can be found during end of season sales.  Set up a special shelf or box to collect and store gifts bought months in advance for holiday or special occasion giving, and don’t forget to write down the name of the intended recipient!

Season’s Greetings  The time and expense of sending out holiday greeting cards can add anxiety to anyone’s schedule.  Look for ways to alleviate this stressful holiday tradition.  Send out cards only to out-of-town family and friends whom you see infrequently. Send holiday postcards instead of regular cards and envelopes to save on postage.  E-cards have become a popular way to save time and money and send holiday greetings to those you care about. Consider sending out “Happy New Year” cards in early January to add more time to your holiday schedule and to accommodate for diverse faiths and beliefs among cherished family and family members.

Deck the Halls  The best time to buy holiday decorations along with wrapping paper and greeting cards is after the holiday season. Try to take advantage of the after holiday sales and store decorations until the next season. Other options include creating decorations using items from around your home, like old ribbons, buttons, and greenery from your yard.  Make children apart of the holiday planning by asking them to make decorations and display their artwork.  Make your own wrapping paper using brown parcel paper or left over paper bags, stickers, stamps, glitter, glue and your imagination.  Let decorating your home be a fun and creative event that promotes family resourcefulness and togetherness.

Home Sweet Home  Family gatherings and holiday parties can add emotional stress and a financial wrinkle to your budget if you feel compelled to host them.  Make social events fun and enjoyable for you and your guests by co-hosting an event with another friend or family member.  For special celebrations, evaluate the need for a meal.  Consider alternatives like hosting a late afternoon party and providing only appetizers or sponsor a potluck dinner that involves others and saves on time, expense and personal stress.

Over the River and Through the Woods   Traveling and visiting family and friends can be the most expensive part of holiday plans.  Shop early for the best deals on airfares and hotel stays. Try to avoid travelling during peak travel times like on weekends or the day prior to a major holiday.  Consider gathering with out-of-town family several days prior or several days after a holiday to avoid heavily congested roads and airports.  Also, think about celebrating family events during other times of the year when travel discounts are more available and traffic less hectic.

Seasonal Giving   Remembering the less fortunate is an important part of many holidays. While a contribution of money is always appreciated, a donation of time is also valuable. A realistic and affordable charitable goal should be included in your holiday spending plan or a donation of time should be part of your holiday schedule. Make your holidays a time for living, laughing, loving, sharing, caring, and learning. These are the things that money can’t buy, but they make for precious, memorable and meaningful holidays.

Remember the Spirits of Holidays Past, Present, and Future   Remember, don’t throw away your holiday budget after the holidays. Keep it along with holiday receipts and credit card statements then make it a New Year’s resolution to develop a 2013 holiday and a special occasion spending plan in January that can be followed throughout the year.  Establish a dedicated holiday or special occasion account without an ATM card at a local financial institution.  This will enable you to set aside funds that can be used not only during holidays but also for other occasions like weddings, birthdays and anniversaries.  You also will have more flexibility if you come across great gift deals that can be purchased at any time during the year and stored away until you wish to give the gift.  Avoid holiday folly.  Put jolly in the seasons to come, and “ho, ho, ho,” holiday stress away.

National Financial Management Core Competencies: Spending, Saving, Borrowing

If using this post, please cite:, 

McGiffin, D. (2012, month). The Folly of Holiday Stress.  Dollardecisions. Retrieved Month, date, year, from


Planning for Retirement

October 10, 2012

by Jayne McBurney, North Carolina Cooperative Extension, FCS Agent Johnston County

There has been much hype and fanfare to welcome baby boomers to retirement, yet we are learning that many of these of retirement age are not happy.  According to the Pew Research Center, 76% of a group of adults (age 65 and older), polled in 2012 were dissatisfied with the direction that the country is going.  Specifically, they noted that their standard of living is lower than their parents, and they are concerned that the standard of living that their children will face will be even lower.

So what caused all this?  Didn’t they prepare for this milestone?  Won’t Social Security take care of them?   They get free health insurance through Medicare, don’t they?  Should we just blame this on the government, mortgage lenders and bad investing?

For many who are approaching retirement age, there seems to be a misconception as to what to expect.  For this reason, it is important to start talking about retirement when one begins their career, if not sooner.  Retirement saving can start as early as the first job, even if it is babysitting for a neighbor or cutting the grass of the old woman down the street.  When applying for full time jobs, prospective employees should ask about retirement plans and 401K opportunities.

The younger one starts a good habit of saving, the more likely the standard of living will be constant into their retirement years.  When I teach, I like to use the example of two women, Penny Wise and Ruby Highlife.  Penny Wise is a frugal woman who learned much from her mother about spending smart and saving.  Starting at age 25 with her first professional job, Penny began investing $2,000 a year into a retirement plan.   She did this for ten years (see chart below).  When she reached age 65, with an average rate of return of 8%, she had $545,344 in her account from just ten years of investing.

Ruby Highlife wanted to live for today and not worry about tomorrow.  She began working right after college, and didn’t start saving for retirement until she was older (see her chart below).  At age 35, Ruby started saving $2,000 a year, and kept saving until she reached age 65.  After thirty years of contributions, she still does not have as much invested as Penny.

While this illustration is very basic, it reminds us of the time value of money.  The longer money is invested; the more that money will grow.   These women were investing less than $40 a week, imagine what would happen if one invested more.  Employees should also maximize matching contributions offered by their employer to build a retirement nest egg.

The website provides a calculator to determine how much an individual will need to retire.  Factors included in the calculation are current income, number of years until retirement, number of years anticipated in retirement, rate of inflation and annual yield balance.  This calculator gives you an idea of what you might need to continue in retirement to live within your current means.  There is also a 401K calculator for individuals to take a look at how contributions can grow over time.  The Ballpark Estimator is another tool to help you estimate how much money you need to save to retire at various percentages of your current income.  It takes into account estimated Social Security income and any current investments you already have.

These calculators are great, if one plans to live on the same earnings as they have now.  Yet many approaching retirement consider international vacations, beach vacations, and perhaps giving back to causes.  These all cost money, as do medical issues that might require hospitalization and rehabilitation.

In addition to saving, workers near the end of their career need to consider what their health insurance needs might be.   Medicare provides for major medical insurance, but it is advisable for an additional plan to be in place for basic medical coverage.  Some might receive the opportunity to purchase insurance from their previous employer through a group plan.  Others might find that purchasing a supplemental plan from their insurance agent would better suit their needs. Many individuals also consider the purchase of a long-term health care policy that will provide the ability to access care in the case that they are unable to care for themselves.

Finally, housing must be considered.  If the 30-year mortgage has been refinanced multiple times as interest rates dropped may not be paid off completely before retirement.  Having a home equity loans may extend the mortgage beyond its original 30-year plan.  For retirees that continue to own a home with a mortgage, housing costs will include the mortgage, homeowners insurance, and maintenance.  Retirees who plan to sell their homes must consider also the cost of selling, moving, and establishing a new place to live.

The bottom line in retirement savings is to start now; it is NEVER too early to start this plan.  If you have earned income, you can open a Roth IRA.  Retirement accounts should never be considered emergency funds, for which one must also budget (link to Leigh Guth’s article on emergency savings).  Individuals should consult with an appropriate financial services provider (e.g., financial planner, tax consultant, lawyer, insurance agent) for professional and detailed advice about their individual situation. It is hoped that by starting early, like Penny Wise, an enjoyable retirement can be achieved.

National Core Competencies: Saving


The Emergency Fund: Borrowing from Yourself Instead of the Bank

September 27, 2012

By Leith Guth, North Carolina Cooperative Extension, FCS Agent, Lincoln County

On the day my husband and I moved out of state for his graduate school, a passing truck threw a rock into our windshield and cracked it.  Thus began our love hate relationship with that car and a brilliant illustration on why everyone needs an emergency fund.

An emergency fund is an accessible account where money is saved for an emergency.   Ideally, an emergency fund would be in a savings vehicle that is earning some interest.   In the past, experts advised one to put enough money to cover three months of expenses into an emergency account.  Today, with unemployment more prevalent and most job searches taking up to six months, advisors suggest having emergency funds to cover six months of expenses.    Emergency funds are for unplanned expenses like car repairs, unemployment, illness or exploding washing machines.  Christmas comes at the same time each year and does not qualify as an emergency!  With an emergency fund, one can pay for unexpected expenses from that fund balance without taking out a loan or incurring credit card debt.  Instead of paying  principal and interest on a loan back to a creditor, one pays the money back to her emergency fund.  One should be able to access her emergency funds within one or two days.  It is not wise for the emergency fund to be accessible by ATM or to serve as the overdraft for a checking account; easy access to these emergency funds can make them disappear easily if you get the spending bug.

Our graduate school car saga demonstrates why I needed an emergency fund.  In those days, we used a credit card as our emergency fund.  In our haste to pay off the credit card, we would pay too much on our credit card, depleting our cash on hand.  Then, another emergency expense would occur, a trip home for a funeral for example.  With no emergency fund and little cash on hand, we would charge tickets on our credit card; it was a vicious circle where interest charges mounted.  With a proper emergency fund of even $500, we would have paid for our car repair from our fund without incurring interest charges.  Then, we would pay back our emergency fund instead of the credit card company.

Nationally known financial gurus insist that everyone make an emergency account a priority in their financial life, before other savings or investments.  Even a small monthly amount deposited into an accessible account that earns interest is a step in the right direction.

National Competencies: Saving, Borrowing

Saving Money on Summer Expenses

May 25, 2012

By Sarah Mammarella, Extension Agent, Richmond County

Summer is a great time to start saving money.  Whether it is to beef up your savings account or stow money away for a special trip event or annual holiday expenses, saving money feels good.  In order to save money we need to look at what summer expenses we can reduce.

Perhaps the most obvious place to start during the hot summer months is with our electric bill.  There are many different things that we can become more mindful about in our home that will help reduce our electric bill.  Here are a few tips that help me save money on my electric bill every month:

  • Shut off all lights and TVs in rooms that are unoccupied: This may seem like a no-brainer but this wasted energy use happens much more than you’d think.
  • Turn your thermostat up in the summer when you are not home: There is no need to cool an empty home; I normally set mine to 79°.  While you are at home, try keeping the thermostat between 76° and 78°, and using ceiling fans to keep cool. Remember to turn fans off in rooms that are unoccupied; their benefit is lost if you’re not underneath or near the fan.
  • Don’t bother turning a thermostat down from 80° to 62° with the intention of cooling your home more quickly; this will only cause your heat pump to overwork and will not bring on cooler temperatures any quicker.
  • Unplug anything that is pulling energy when you are not using it: Items such as cell phone chargers and laptops are constantly pulling energy when plugged in.  You can save a lot of money just by unplugging these items.
  • Use a power strip with an on/off switch for your television, DVD player, and other home entertainment items, and turn the switch off to the power strip when not in use: Much like the chargers, these items can still draw energy while not in use.
  • Don’t forget to unplug televisions, lamps or alarm clocks that seldom get used in guest rooms.
  • Weatherproof your home: Seal cracks around doors and windows where cool air may be escaping.  You can do this with weather stripping or in some instances, caulk.
  • Insulated drapes can help keep cold out during the winter and heat out during the summer. These can lower heating and cooling costs.
  • Make sure that you change your central air filter every month: This can help your central air run more efficiently and even increase the life of the unit.

Another summer savings opportunity is on food and convenience items.  By being mindful of how and when we shop, we can possibly save hundreds every month. Here are a few tips that help me save money on food every month:

  • Collect coupons: You can do this either by buying the Sunday paper and clipping them or going to various websites to print them off of the Internet.
  • Match your coupons to the sale items: Look through sale fliers of your most frequented grocery and drug stores and match your coupons to the sale items so you are getting the best price possible.
  • Find out when your grocery store is doing a double or triple coupon day: Most grocery stores will have specific days or weeks that they will double or triple your coupons.  This may lead to getting many items completely free.
  • Only buy sale or clearance items that you know you will use. Buying on sale is no bargain is you never use it. This can happen when buying clothes with the intention of losing weight or purchasing a kitchen gadget that you simply don’t have time to use.
  • Buy in bulk: Even if you live by yourself, you can save money by buying certain foods in bulk and freezing individual portions in freezer bags.

Although I believe that electricity and food are the easiest places to start, I do other small things to try to leave me more money in my pocket every month.  A few extra tips to save include:

  • Reduce drive time: Gas is expensive; so don’t make unnecessary trips.  Car-pooling is always a great idea.
  • Enjoy outdoor activities: Instead of paying to go enjoy your summer, try getting outside and taking advantage of free activities such as swimming, hiking and tennis. Here is a list of free or very cheap summer activities for children.
  • Get your clothes at second-hand stores: I rarely buy new clothes.  Although it may take some time, you can find used clothes that are in great shape at local Goodwill and consignment shops.

Saving money can be satisfying because it means that we are attaining goals that we have set for ourselves.  Recognizing that there is excess money being spent on such things as electric and groceries can empower us to reduce our spending by using common sense and mindfulness.

What are your favorite money-saving strategies?



National Financial Management Core Competencies discussed in this post: 

Saving, Protecting

Chain Purchasing: The Diderot Effect

March 19, 2012

By Deborah J. Taylor, Extension Agent, Orange County 

The vast majority of Americans are trapped in a “work and spend” cycle. As a society, we have at our disposal an abundance of material goods, which we have to work at an incredible pace to pay for. Many Americans spend more than they earn. Typically when Americans purchase one item, an upgrade of another item is required. This is referred to as the Diderot effect.

The Diderot effect is a social phenomenon related to consumer goods, which results in spiraling consumption (chain purchasing) resulting from dissatisfaction created by a new possession. The term was coined by anthropologist and scholar of consumption patterns, Grant McCracken, in 1988, and is named after the French philosopher Denis Diderot (1713-1784) who first described the effect in an essay. The term has subsequently come to be used, especially in discussion of sustainable consumption or green consumerism, to refer to the process whereby a purchase or gift creates dissatisfaction with existing possessions and environment, provoking a potentially spiraling pattern of consumption with negative environmental, psychological and social impacts.

For example, Jane buys a new couch for $400 for her living room to replace the old, donated one she’d had for the past 10 years. Now that it’s in her home, her living room chair looks shabby and outdated. Jane decides she must also replace this chair to complete her living room’s new look. However, once the new chair, which cost $250, is in place, Jane can’t help but notice how dirty and dingy the carpet looks beside the clean, new furniture upholstery. Jane decides to replace the living room carpet, but finds she’ll get a “better price” if she replaces all the carpet in her home. The total cost for replacing the carpet is $2,300. Jane’s original $400 purchase has now escalated into nearly $3,000.

For the unsuspecting consumer, the Diderot effect can be invisible in the marketplace. With the proliferation of commercials and other marketing strategies being thrust upon consumers around the clock, the insidious side effects can be far-reaching and damaging to individuals and families. Advertisers often look for people who are trendsetters to promote their products and get the ball rolling in influencing the masses to buy certain goods in order to follow suit. In every area of our lives, we are coerced into buying more items to supplement the new items we have purchased. If you buy a new dress, you will need new shoes or a new handbag. If you buy a new couch, you’ll need a new chair. Although some of this need to constantly “add-on” or upgrade” is driven by aesthetics, manufacturers also drive some of it. For example, in the area of electronics, old equipment may not be compatible with new equipment. An example: having to buy a new printer to go with a newly purchased computer because the connections on the old printer are not compatible with the ones on the new computer.

How can consumers avoid falling prey to the Diderot effect or chain purchasing?

  • Control your desire to purchase. Stay away from malls and other places where you may be tempted to spend. When you buy a product, think about how much “more” you’ll need to fulfill that purchase (more games for the game console, more accessories for the redone kitchen, etc.).
  • Create a new consumer symbolism, making it less attractive to be exclusive. Whenever you see a symbol of excessive spending, look at it for what it is: successful marketing. If you desire a certain item, ask yourself if you really need it.
  • Control yourself by placing voluntary restraints on competitive consumption. Not only encourage yourself, but also encourage your friends and associates to put caps on spending. Get involved in making group decisions and suggest spending caps. You’ll often find that others are relieved too
  • Learn to share. Consider sharing expensive purchases (like a lawnmower) with your neighbors. Consider rentals or secondhand items when shopping for sporting equipment and narrow-use items. Use your local libraries for books, DVDs and CDs.
  • Become an educated consumer and deconstruct the commercial system. Deconstruct every ad you see. When you see a product you want, research it and understand it before making the purchase.
  • Avoid “retail therapy”. Spending can be addictive. If a particular mood or event triggers a desire to shop, find other ways to spend time or relieve stress
  • Make time. Look for ways to reduce the time you spend working so you can increase the time doing things that are more valuable to you, and things that potentially can save you money. Choose activities to do with that extra time that don’t involve spending and consumerism.
  • Work toward coordinated intervention. Look for larger societal solutions to this issue. Get involved in organizations that focus on consumer issues and reducing spending. 


Brewer, P. February 27, 2012. Lifestyle Upgrades: Beware of the Diderot Effect.

Manning, L and Mahar, Carla  (2007). Teaching Your Children About Money. G1787, University of Nebrask – Lincoln Extension.

Schor, Juliet B. (1998). The Overspent American: Why We Want What We Don’t Need. New York: Basic Books.

Take Control for Your Future: Telling the Kids: We Need to Spend Less. North Carolina Cooperative Extension – March, 2009.

Core competencies discussed in this post: Spending, saving

My Interest Rate Can Beat Your Inflation Rate!

February 27, 2012

By Leigh Guth, Lincoln County Extension Agent 

There’s a wonderful Extension curriculum, Money Talk for Women, which I use frequently. Throughout the curriculum, the author points out how, in general, women view money differently than men. Women tend to think about money as security for themselves and their children rather than a sign of power or achievement. Because women are concerned about their security, they may be more conservative with their money and investments. Furthermore, we know from research that women are, as a rule, more focused on relationships. So, putting these ideas together, look at the following scenario:

I am a woman making money decisions on my own for my family. I do my banking right down the street from my workplace; I may personally know a banker through my social circles. Based on my comfort level and relationship, I chose to invest my money at that institution in a CD earning 2.25%. I feel confident working with someone I know, and I feel that I can access my money at an institution right down the block. Besides, this is not risky like the stock market – I’m guaranteed a fixed interest rate.

In this situation, by leaning toward security through a fixed-rate CD, the investor will lose money. Yes, the balance will continue to rise as interest is added, but buying-power is decreasing. Inflation is the rate at which buying power decreases. For example, $100 today buys less than it did two years ago.  In 2010, the average inflation rate for the year was 1.5%. In 2011, the annual inflation was 3%. And in January 2012, it was 2.93%. Only in the year 2010 (rate of 1.5%) would this CD offering 2.25% in interest get the owner ahead because the interest rate earned was more than the rate of inflation:

CD Interest rate of           2.25%

Less Inflation                    -1.50%

Net interest gain               0.75%

In 2011 and January 2012, this CD earning 2.25% might be secure, meaning that the investor is not at risk for losing any of the principal and will earn a guaranteed return on the principal.  But it is important to realize that the owner would be losing buying power: 2.25 – 3.00= -.75%.  The money, principal and interest, that is withdrawn at the end of the CD term the money will buy almost one percent less (-0.75%) of goods or services than the investor could have purchased with the principal alone at the beginning of the CD term.

So the next time you are evaluating interest rates on potential investments look for the other rate – the inflation rate. Make sure your interest rate can beat your inflation rate. Other investment options to consider include:

  • Mutual funds, which diversify the money invested over several products in an effort to minimize risk
  • Tax-deferred investments which include retirement accounts such as a 401(k) or an IRA.
  • Savings bonds are US Treasury-backed securities that offer modest returns, but also offer tax benefits.

Leigh Guth will be offering a Money Talk for Women series April 17-20 and 24, from 9 a.m. to noon. To register or learn more contact Leigh at

Extension Agents, have you used Money Talk for Women? Do you think this curriculum’s assumptions about women’s investment habits are accurate?

Core Competencies Discussed: Saving, Protecting.