ESSAY- Frugal or cheap: How to tell which is which

Today's sagging economy has us all thinking frugality. And frugality is a good thing. Cheapness, however, is not.

To know the difference, let's start with a look at Hetty Green. Her contemporaries called her "The Witch of Wall Street." She was a millionaire (back when a millionaire was really rich) many time over. Yet Green wore rags, lived in a cheap boarding house, and argued with store clerks over pennies. When she tipped anyone, she gave a nickel. And, most notoriously, in 1887, after her son smashed his leg while sledding, Green refused to pay for a doctor. The leg eventually needed to be amputated.

Whether she was truly a "witch" is debatable, but it's fairly safe to say that Green had a decidedly unhealthy attitude about money. Her cheapness resulted in misery to others, and it is hard to imagine that she herself, despite her great wealth, was a very happy woman.

And yet, we've all known people who, the polar opposite of Green, let money fly through their fingers. They inevitably wind up in debt, ignore their bills, and often become a burden to others. Clearly, somewhere between the two extremes, between pathological stinginess and reckless spending, there's a place of rationality about money.

We'll call that place intelligent frugality. "Quite unlike cheapness, frugality can be a form of wisdom," says Robert Jaffe, Ph.D, a psychotherapist in Encino, California, who helps people develop more reasoned approaches to spending and saving. "Frugality can be a sign of mental health, cheapness is certainly not."

If you need further clarification on the differences between frugality and cheapness, consider the following scenarios.

Scenario #1: It's your wife's birthday. She describes to you a certain dress that she would absolutely love. You find the perfect dress, and you can afford it, but it costs a little more than you planned on spending. What do you do? A) Forget about the dress, pick up a $7.50 knickknack instead, wrap it in brown paper, and say "Happy birthday, honey"; or B) Shop around to see if you could perhaps find the same dress, or a very similar dress, elsewhere for less money.

Frugal or Cheap? A is cheap. B is frugal. "Being cheap is depriving loved ones of things that would bring them joy, just to save a few bucks," says Jaffe. "Being frugal means respecting money, yes, but putting people and relationships first."

Scenario #2: You need a new car. Car A has 90,000 miles, burns oil, squeals like a hamster when it brakes, and jumps when switching gears. Car B has 30,000 miles and runs like a dream. Car A costs $3,500. Car B costs $14,000. Which do you buy?

Frugal or Cheap? The cheap response is to buy Car A. The frugal response, which might result in your buying Car B, is to weigh the pros and cons of both cars, and look beyond the sticker price. "Cheapness is short-term thinking. Frugality is longer-term, and more intelligent thinking," says Matthew Gelfand, Ph.D., CFP, Managing Director and Chief Investment Officer with Lynx Investment Advisory, LLC, in Washington, DC.

"Being cheap is going with whatever option costs less today, disregarding quality. Ironically, that often results in more expense over time. Frugality, on the other hand, is economical."

Scenario #3: Marie is getting married. Joan goes to the ritziest shop in town and spends $2,500 to buy Marie a luxurious set of silver. Devon goes to a garage sale, spends $2.50 on yarn, and knits Marie a quilt.

Frugal or Cheap? You may be inclined to call Devon cheap, but you could be wrong. "Be very careful about judging people on what they spend or don't spend," says frugality expert Janet Groene, author of Fantastic Discounts & Deals for Anyone Over 50 (Cold Spring Press). "A quilt might take over 100 hours to make, and show an enormous generosity of spirit."

Scenario #4: You attend a party at the home of a person you don't know very well. You go to the bathroom, and are surprised to see a sign above the toilet that reads, Please don't flush for pee. Frugal or Cheap? By American standards, your host is something of an eccentric, but cheap? Once again, you don't know that. "What looks like cheapness to one person may simply be common sense to another," says Groene. "Some people have strong environmental convictions and because of those convictions will go to great lengths to not waste resources. That's not the same as being cheap."

Scenario #5: Your son hurts his leg badly in a sledding accident, and you take him to the doctor ... well, you know the answer to this one.

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Financial journalist and money manager Russell Wild wrote this essay for Today's Health & Wellness magazine.

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