Is that the way the money goes?
Why we should Buy It Locally
In Part 1 of this series (Pump Summer 2020)1 we introduced the concept of the leaky bucket to explain Wheathampstead’s local economy.
We saw money leaking out of the bucket because it was spent outside the local economy. In Part 2, we’re going to look inside the bucket and watch the way the money goes round and round.
Let’s follow the money...
Becky lives in Wheathampstead and works in London. Her job is well paid so she has disposable income. Let’s take £100 of Becky’s disposable income and imagine we have painted a hundred £1 coins blue, then watch where they go and see how many people get blue paint on their hands.
If Becky spends all those blue £1 coins on a night out in London, they will all have left Wheathampstead (leaked out of the bucket) for ever.
But let’s imagine that Becky instead uses the blue coins to buy a necklace from local jeweller Rachel. Rachel then uses some of the blue coins to pay her employee Joan, another local resident, and the rest to buy some food from Mark, the local butcher. Joan uses her blue coins to eat out at a local restaurant who in turn pay their local employees. The restaurant uses a local accountant, Maureen, so she too receives some blue coins. Mark buys his weekly shop in the local minimarket, who also pay their local employees, and spends the rest on a haircut at a local barber’s shop -- and so it goes on.
Hopefully, you can visualise the blue £1 coins going round and round in the local economy. The more they are re-spent locally, the more people will have blue fingers before the money finally leaves Wheathampstead.
The Local Multiplier Effect
Money that is re-spent in Wheathampstead has the same effect as attracting new money into Wheathampstead because it is new money for the person who receives it. The more times it changes hands locally, the better for the local economy.
This is known as the Local Multiplier Effect; buying local products at locally owned businesses keeps money circulating close to where you spend it. This creates a ripple effect as those businesses and their employees also spend your money locally whereas corporate chains send most of your money out of the area. Studies have shown that for every £1 spent in a local business around 45 pence is reinvested locally, whereas for every £1 spent at a corporate chain only 15 pence is reinvested locally (in the worst case it could be that zero is reinvested locally).
Looking inside Billy’s leaky bucket helps us see the benefits of spending and re-spending money locally. In Part 3 of this series we will suggest some ideas on how you can keep the money going round and round by plugging some of the leaks. In doing so you will benefit Wheathampstead’s local economy and our community.