Where You Spend Your Money Is Important

Where You Spend Your Money Is Important Prof. James Gaius Ibe, Ph.D., CAE.

Everyone wonders why some neighborhoods or communities are prosperous and other are beset with economic and social decay. Though the problems are complex and the causes are debatable, some solutions are quite simple.

Where you spend your money is where you create jobs. When you create jobs, you create opportunities and better economic conditions that uplift the whole community or neighborhood. Simply put, increased spending leads to increased output, increased output leads to increased employment, increased employment leads to increased income, increased income leads to increased spending. The secret is in what economist call the money multiplier effect.

The multiplier effect is a basic economic concept, which refers to how many times an injection of original spending circulates through a local economy such as a neighborhood or community. As a result of re-spending, it benefits the whole neighborhood or community. The multiplier effect works through changes in the level of economic activities throughout the whole economy. When a spending injection into a economy leads to an increased national income more than the original injection, this is the multiplier effect. Indeed, the multiplier effect is the effect from continuous re-spending of incomes.

We are aware of the reasons why people choose not to patronize businesses in their neighborhoods and communities. Whatever your reason, just remember that where you spend your money is important and the multiplier effect works in the opposite direction also: Decreased spending leads to decreased output, decreased output leads to decreased employment, decreased employment leads to decreased income, decreased income leads to decreased spending.

In sum, if you want to do something about economic stagnation in your neighborhood, consider creating jobs in your neighborhood by spending money at your neighborhood stores. As regarding profit and cost margins, if other people can come into our neighborhoods and make legitimate money, we can certainly make reasonable money by starting businesses in our neighborhood.

ABOUT THE AUTHOR: Dr. James Gaius Ibe is the Principal-at Large of  the Global Group, LLC-Political Economists and Marketing Management Consultants. He is also a senior Professor of Economics and Marketing at one of our local colleges.