Thrifty or cheap? What's the difference between them when it comes to money management

So, there I was, inside a Maserati, being driven by a friend who was in the process of closing a “million-dollar” deal on his hands-free. I almost didn’t notice that he neatly swerved away from Sheikh Zayed Road and took the exit to Al Khail. When I did, I wanted to know why he was taking the “scenic route”.

“Don’t want to pay Salik,” he was nice enough to put the caller — at the other end — on hold. “We’re not in a tearing hurry, are we? Yes, we may be five minutes late, but I’d have saved the Dh4.”

“You just closed an obscene deal!” I sputtered.

“Right, but that doesn’t mean I should spend on something I don’t need to spend on,” he countered gamely, and went back to his phone conversation.

Now, here’s the thing. This friend is one of the most generous people I know. Ever ready to go out of his way to help, always insisting (adamant even) on paying the bill at restaurants, being a financial enabler in many ways… and yet he’s awfully careful when it comes to stuff like Salik… he likes living in an apartment which is rent-controlled… he seeks out hole-in-the-wall-type places “as long as the food is great” in favour of swanky five-star curations.

I have realised now that my friend falls in the “thrifty” category — a word that’s often, mistakenly, a surrogate for “being cheap”. He’s a living example of how one can be generous — not cheap — and thrifty at the same time.

Dubai-based entrepreneur Nitin Shukla says he doesn’t like the sound of the word ‘thrifty’. “I think ‘being financially prudent’ describes the state of being money-wise better…”

He gives an example. “For instance, if a bottle of milk at the grocery store near my building is Dh5, and the one at a store a kilometre away is Dh4.50, I will go that extra mile — yes, just to save 50 fils. I would describe myself as someone who understands the value of money… I don’t mind spending money, but I want to pay the right amount.”

Nitin calls it fiscal discipline.

He also points out that while he has no problems spending money on others, he does have a problem “spending money on myself”. “I don’t want to get spoilt, therefore I am more regimented, almost military-like.” It has to do with him being an entrepreneur and a self-starter, he feels. “I came from the 40 per cent, and am now in the top 1 per cent — but, I may lose it all… so I don’t want to spoil myself, and I don’t want to forget the value of money… you see, it’s a matter of principle…”

The psychology of being thrifty

“When I was young, I used to wonder why people who work so hard couldn’t spend money on themselves,” says master life coach and rapid transformational therapist Anita Raina. Her parents’ generation — for whom money problems were real — “prioritised education and a government job in order to create a sense of security. They had a belief that money is scarce and if they spent it, then they won’t have any.” Later, she understood this issue at a deeper level. “I learned that our interpretation of events determines the course of our lives, not the actual events themselves. So, if parents went through difficult times and now believe that money is not available to them, then they are likely to pass on this belief to their child. Or, if children grow up hearing their parents complain about not having enough money, or when asking for something are told there isn’t enough money... all of these contribute to the child believing that money is scarce.”

According to Dr Tara Wyne, clinical director and clinical psychologist at The LightHouse Arabia, thrifting very much depends on mindset. “The person who is thrifty feels that they achieved abundance because they used their time, judgement and effort to get the best deal at a fair and just price. With this abundance mindset, you don’t necessarily covet the newest, shiniest, top-of-the-range specification on everything because you don’t feel you missed out.” Thrifty people feel satisfied and content with the bargains they have struck. They often feel they’ve hit the jackpot, because they got something of value without denting their savings. “They often transform the seemingly ordinary into the best and classiest version of itself,” Dr Tara continues. “They value quality, but are willing to get something average and up-level it.” What’s more, while thrifty people are often more psychologically flexible and regularly buy sensibly, they also occasionally get something absolutely new but still in a sensible price range.

Dr Louise Lambert, associate professor, Canadian University Dubai, does another deep dive into the psychological perspective. “Being thrifty is good money management. It’s about still getting what you need and, on occasion, merely like, but calculating its cost, value, time and use.” Basically, it’s about being adult enough to know the difference between “needs” and “wants” and taking the middle line of living a good life within one’s financial parameters so you can sleep well at night as well as enjoy your days.

Mind you, “they don’t mind spending when the math makes sense, but also don’t hesitate to say no, that’s a bad deal or a nonsensical reason to spend when you can get the same for less money and the same quality without much more time involved. It would be the equivalent of being conscious of healthy food choices, cooking one’s meals and watching one’s weight, but not being obsessive over counting calories and being miserable or unhealthy because of it and having fries now and again to enjoy life.”

It’s about maximising money.

Being a cheapskate vs being thrifty

The biggest difference between thrift and cheapness is that being cheap often comes at the expense of other people, points out Dr Mercedes Sheen, associate professor and Academic Head of Psychology at Edinburgh Business School, Heriot-Watt University Dubai. “For example, someone who is cheap will depend on their friends and family to pay for their basic needs, and they often won’t pay their fair share of things like food and transportation.”

She argues that, often, trying to save money or displaying the unwillingness to spend on things that are not necessary can be viewed as cheap rather than just being thrifty or frugal. “But, on the other hand, spending money wisely, especially on big-ticket items, can be very wise and is not the same as being cheap.”

Another important differentiator is the reason for being thrifty. People who are cheap take price as the most important factor, whereas people who are thrifty see the value in what they buy. “Something that affects your everyday life — for example, healthcare — is worth spending on rather than saving a few dirhams,” says Dr Mercedes. “However, if there is value in a lower-priced item over another that costs twice as much, then buying the lower-priced item is the better option.”

Dr Tara says cheapness pays no heed to quality, it’s a drive towards paying the least amount, obtaining the best bargain ever — “the hunt is to accomplish the lowest cost deal possible. It’s cheating the odds on price, even if what you buy or acquire makes no sense in terms of your taste or your need”.

Being cheap is about spending less, avers Dr Mercedes, whereas being thrifty is about prioritising your spending so that you can have more of the things you need for yourself and the people you care about.

“Cheapness” has a negative connotation for a reason, feels Dr Louise. A person who is “cheap” might have money but hoard it, or deny themselves even small pleasures that would make them, their relationships and life more enjoyable. “However, it is often less about money and more about the infringement on social norms that bothers other people about it. Imagine a husband keeping an Excel spreadsheet on all household spending — not a bad idea to see where money goes and where it could be better managed — but it becomes destructive when every dirham needs to be accounted for in the name of saving money [and there is some to spend within reason], plus everyone suffers for it materially as well as psychologically because it becomes a form of control and rigidity everyone else is forced to follow.” Being cheap often also comes at one’s own expense and detriment — i.e., buying coffee one does not even like because it is the cheapest grocery store brand, but feeling satisfied because 75 fils were saved in the short-term.

But cheapness should not to be confused with living on a budget or tightening one’s belt over the summer to pay for tuition in the fall or save for a car. “This is a temporary means of managing money in order to meet a goal,” explains Dr Louise. “Being cheap is a lifestyle of denying one’s self joy but feeling sanctified that one has saved doing it.”