Paradox of Thrift

The Paradox of Thrift is the idea that when individuals try to save more money during tough economic times, it can lead to negative effects on the economy as a whole. If everyone saves more, they spend less, which decreases demand for goods and services. As businesses earn less, they may cut jobs or wages, leading to lower overall income and further reducing spending. Thus, while saving is generally beneficial for individuals, if everyone does it simultaneously, it can slow down economic growth and even worsen the financial situation, making the collective effort to save counterproductive.