A new emerging attitude towards spending and saving

1. The New Frugal:
The emergence of a new attitude toward spending and saving
Bread & Butter Research & Strategy
The New Frugal
The emergence of a new attitude toward spending and saving
Why organisations need to anticipate the changing attitudes towards essential
and discretionary spending, debt and saving.
By Margo Cashman and Rob Mason
April 2020
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2. The New Frugal:
The emergence of a new attitude toward spending and saving
Bread & Butter Research & Strategy
There has been much speculation as to the impact
that coronavirus will have on defining the ‘new
normal’.
Will coronavirus change people’s fundamental
values and behaviours? Or will we merely ‘snap
back’ to familiar patterns?
Perhaps a combination of both, depending on the
product or service? It’s a watching brief.
There is however a change that was emerging well
before coronavirus, that the current situation has
the potential to dramatically accelerate
- the emergence of the ‘New Frugal’.
The New Frugal is NOT a return to the style of
frugality of the depression era, where people
made an artform of doing without. Neither is it
about being ‘cheap’.
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The New Frugal is a more restrained, discerning
approach to spending. It’s about cutting out the
waste, by making more conscious decisions about
what to spend money on, and what not to.
It’s about looking for smarter ways to take control
of your finances, in order to reduce the
uncomfortable feelings of being under constant
financial pressure.
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What is driving the emergence of the
New Frugal?
With a household debt rate of 125% of GDP,
Australians now have the second highest
household debt to income ratio in the world (only
slightly behind Switzerland).
We have roughly 3 times the personal debt that
we had at the start of 1990’s recession.
At an individual level, this translated to people
feeling under financial pressure. How would they
cope with any rise in these historically low interest
rates, or worse still a job loss?
Before coronavirus, many were already trying to
pay down debt with their tax cuts, and savings
gained from the regular interest rate cuts.
In addition to debt, employment insecurity
(especially casual, part time and self-
employment), combined with wage stagnation,
and the rising cost of the necessities in life
(electricity, health insurance, communication,
petrol, etc.) led to this growing sense of financial
unease.
Despite 27 years of economic prosperity, many
feel they were going backwards.
Coronavirus has exacerbated this unease.
A special survey commissioned by the *ABS
between the first week in March & April 2020
(the first 2-3 weeks of coronavirus) showed 3%
(390,000 people) lost their job, and 6% (780,000
people) were placed on leave, either paid or
unpaid.
Whilst 12% of the working population did have
increased hours - more than 60% suffered a
reduction in hours.
Before coronavirus, people were worried about
what they would do ‘if anything happens’.
That fear is now a reality for many.
45% of households don’t have sufficient savings
to sustain them beyond 2 months.
*ABS Household impacts of Covid-19 Survey
As quoted in SMH, 21st April 2020, P13
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Level of savings of Australians
(NAB Financial Resilience in Australia: 2018)
13% of Australians have no savings to draw on
17% have < 1 month’s income
15% have 1-2 month’s income
15% have 3-6 month’s income
35% have > 6 month’s income
5% don’t know

3. The New Frugal:
The emergence of a new attitude toward spending and saving
Bread & Butter Research & Strategy
It is not surprising that coronavirus has increased
Australians savings aspiration.
A Me Bank Covid-19 Financial Sentiment Snapshot
(13th
April 2020) found that 34% of income-
affected Aussies are saving more than before
Covid, despite having their income reduced. This
figure rose to 48% for those whose income had
not been affected.
This new found interest in saving will impact
spending.
Three characteristics of the New
Frugal attitude to spending
1. Cut out things that DON’T matter
While more impulsive, discretionary purchasing
delivers welcome pleasure in the short term, the
New Frugals are very aware this type of spending
contributes to their financial stress.
They increasingly question whether they need the
latest headphones, when their current ones are
just fine? They ask themselves ‘do I really need
Foxtel, when I can have Netflix?’
However, while spending is being reduced, it is
NOT to the point of sacrifice - the New Frugals are
not that disciplined.
The difference is that they increasingly ‘check
themselves’ – do I really want it?
Often the answer is ‘it’s just not worth it’.
A more considered approach to spending, (even
creating their first household budget!)
is part of this waste minimisation strategy.
2. For the things that DO matter,
– ‘buy clever’
The new frugalism isn’t about cutting back on the
things that contribute to your lifestyle,
but looking for ways to make their lifestyle more
affordable.
They are questioning traditional value norms and
rejecting being ‘sucked in’ by marketing. They
want to make their own judgements, and feel
‘savvy’ about what they spend their money on.
For example,…
Buying work lunch items at the supermarket
rather spending $10+ at the local café
(still can’t be bothered making their lunch)
Buying the $10 bottle of wine, that is rated as
highly as the $20 bottle.
Changing where they shop
(Aldi versus Woolworths.)
Looking for products that look high priced, but
aren’t - Kmart homeware vs homeware shops.
Buying second hand, participating in clothes swaps
and shopping at op shops.
3. BARGAIN for the necessities
While Australians aren’t quite haggling for the
best deal, they are certainly actively checking
prices and deals in categories where prices were
once not questioned.
For example: utilities, insurance, mortgage rates,
credit cards rates, etc.
These changes in spending behaviour were also
reflected in the Me Bank Covid-19 Financial
Sentiment Snapshot (13th
April 2020)
Question: ‘You said your income has decreased,
what have you done to manage this change?’
Cut out unnecessary expenses 72%
Sought assistance from the government
e.g. benefits
29%
Drafted a personal budget 24%
Saved more to create an emergency savings
buffer
19%
Sought assistance from family or friends
e.g. loans or free accommodation
13%
Switched or shopped around service providers
e.g. power, gas, internet etc
11%
Sought assistance from my bank e.g. paused
home loan or credit card repayments
9%
Switched or shopped financial products e.g.
home loan, credit cards, savings accounts
8%
Other 4%
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4. The New Frugal:
The emergence of a new attitude toward spending and saving
Bread & Butter Research & Strategy
Alignment with a sustainability/
environmental agenda
While the desire to live a less financially pressured
life is the core motivation for these three spending
changes…
_____________________________________
A sense of doing the right thing
in terms of sustainability/the environment
is a complementary motivation.
_____________________________________
Using resources well, and reducing waste (both
personally and for the greater good)
is part of this new frugal mindset.
Sustainability, is a socially acceptable way to
frame an alternative perspective versus the more
common ‘overt consumerism’.
Taking into account sustainability/ environmental
considerations communicates a considered choice
- rather than simply not being able to afford it.
What does the ‘New Frugal’ mindset
mean for organisations?
_____________________________________
This desire for greater financial peace of mind will
lead to higher price sensitivity, a focus on
essential items, and a new attitude to saving.
_____________________________________
1. People will seek a greater sense of personal
financial certainty and comfort by spending
less and saving more. They will want a
financial buffer against an increasingly
uncertain world, minimising the
uncomfortable feelings of being under
constant financial pressure.
2. To achieve this peace of mind they will
become more cautious and discerning in their
spending – especially discretionary ‘luxuries’
3. That doesn’t mean they will sacrifice their
lifestyle to do so, rather they will look for
ways to maintain a lifestyle and save money.
Price points & price comparisons
(deal seeking) are likely to become more
important in peoples value perceptions.
A new consumer modus operandi:
Re-use, recycle, save up, shop around
As wages come under increasing pressure in
coming months, people will have less to spend on
themselves and on non-essentials. There will be
more re-using, re-cycling, and making do with
what they have.
Given debt and lack of savings is the root cause of
much of the financial pressure, there will be
greater reluctance to use credit cards and even
Afterpay services to purchase items as a ‘saving
up’ philosophy returns.
On and offline, retailers value credentials will
become even more important.
Customers will seek out lower cost retailers that
still provide an acceptable service experience, e.g.
Chemist Warehouse or Aldi.
Online price hunting will increase as customers
look for easier ways to find the lowest price on an
item. Credible price comparison websites for
services and utilities will become a popular tool.
Online will be elevated to a new level of
importance
Over this period, necessity has built greater
familiarity and confidence - from video
conferencing, to entertainment, to social media
apps to online shopping.
People have developed new skills that will drive
greater online engagement post coronavirus
A #McKinsey Consumer Sentiment Survey in China
(Feb 2020), found that ‘3-6% of online market
share will be ‘sticky’, driven by older generations
who have become more comfortable with digital
channels, and new segments who have overcome
barriers to trial (such as account set up)’.
Customer journeys will encompass more digital
touchpoints as a result of this ramping up of the
online experience.
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#McKnsey & Company: How consumer-goods
companies can prepare for the next normal. April

5. The New Frugal:
The emergence of a new attitude toward spending and saving
Bread & Butter Research & Strategy
____________________________________
There will be new opportunities for companies
that previously haven’t had a strong online
presence.
_____________________________________
For FMCG companies this new level of online
engagement has the potential to open up new
online retail channels. As recent shortages have
encouraged customers to consider new ways to
ensure their supply of essential items (e.g. toilet
paper, cleaning products, tinned food and hand
sanitizer) this opens the way for companies to
work together to provide direct solutions for
common needs (e.g. stocking the bathroom,
kitchen cleaning, the pantry basics, etc)
New opportunities also open up for traditionally
face to face service industries such as gyms or
health care practitioners, which now have
additional online options that offer customers
choice as to how they engage with their service.
This higher level of online engagement also
supports the more cautious spending approach of
the New Frugals. Online research makes it easier
find a better deal, make more considered
purchases, and look for ideas and ways to
repurpose to avoid buying altogether.
What does the ‘New Frugal’ mindset
mean for brands?
This new frugal mindset will have an impact on
what people expect from their brands.
As New Frugals look to be smarter in what they
buy, the quality ~ price equation will come under
greater scrutiny.
It will be a dangerous time for premium brands
that have invested in ‘who’ they are, and ignored
‘what’ they offer.
_____________________________________
New Frugals are going to look for brands that
spend more on producing a quality product than
on ‘marketing’ a sub-par product.
_____________________________________
For categories and products that are important to
them, the New Frugals will be open to paying
more - but what is considered worth paying more
for, will change.
Brands that are worth paying more for are less
likely to be focused on status, and are more likely
to be linked to higher discernible quality.
For example, a greater focus on craftmanship
(long lasting, individually rather than mass
produced, superior materials, etc).
There is also likely to be a greater interest in
‘buying local/Australian’, driven by greater
confidence and certainty in products that are
made as close to home as possible.
For products that matter, part of ‘buying clever’ is
the positive feeling of buying brands that
customers feel align with their values.
_____________________________________
A company’s purpose and values, reflected in their
brands, will continue to grow in importance during
this time of reflection and re-evaluation.
_____________________________________
When New Frugals are looking to purchase the
necessities of life, utilities, insurance, financial
products, petrol, etc they are looking for the best
deal for their essential requirements.
When shopping for these necessities they are
likely to be turned off by unnecessary, complex
bells and whistles.
In ‘necessity’ categories New Frugals are likely to
judge brands by their transparency, the ease of
doing business and above all the ability to deliver
what they need at the best price.
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6. The New Frugal:
The emergence of a new attitude toward spending and saving
Bread & Butter Research & Strategy
Final word
Business has weathered the 1990’s recession, the
GFC, and various economic ups and downs, and in
the end, things have somehow returned to
‘normal’.
So why would the impact of Covid-19 be any
different?
Before coronavirus there was a small but growing
ground swell of people questioning the financial
pressure, they were living under. These people
came from across the socioeconomic spectrum.
What they had in common was their incomes had
not kept pace with their lifestyle expectations,
resulting in a constant feeling of uneasiness.
Living with this uneasiness was causing many to
question their lifestyle and spending. This resulted
in them taking more frugal approach to their
spending and saving in order to lessen the
financial pressure.
We expect peoples experience in this ‘time of
coronavirus’ will hit the accelerator on this
emerging behaviour, as the financial fault lines in
many people’s lives widen and their financial
vulnerabilities are exposed.
Early data would suggest this to be the case.
Organisations need to think about what this
means in terms of their value equations, retail
channel opportunities and how brands are
positioned and communicate.
Factoring this New Frugal mindset into your future
plans can help your organisation emerge stronger
from this coronavirus event by building a closer
relationship with your customer.
Margo Cashman & Rob Mason are the Founding Partners of Bread &
Butter Research & Strategy
Please contact: Margoc@bbutter.com.au or Robm@bbutter.com.au
for further enquires
Visit: www.bbutter.com.au
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