When our business leaders, planners, and politicians look at ways to revitalize local towns and rural areas, the usual proposed solutions are to find ways to bring more money into the community. Typical approaches to bringing in money involve promoting tourism, agriculture, corporate relocations and other forms of inward investments. What is often overlooked is the important concept of money flow within the community.
Think of your local economy as a bucket and bringing in money to your community is like pouring water in the bucket. The bucket is going to have some holes in it and some of the water will leak out. Some of the holes can’t be fixed so you will always have a leaky bucket. The state and federal government will collect taxes, for example. That is a hole that can’t be fixed.
Other holes can be fixed. Residents who shop at a box store, for example, will shop at your locally owned store if the locally owned store offers the same product or service at a competitive price and with the expected customer service level offered by a big box store.
The idea of the leaky bucket illustrates the importance of money flow through a community. The more water the bucket holds, the less frequently you have to refill the bucket. By the same token, the more money that circulates and stays within the community, the less frequently the community has to look for outside money to revive the local economy.
Let’s put the illustration in simple dollar and cents. Some studies suggest that for every dollar spent at a locally owned and operated business, sixty-eight cents stays in the community. The same dollar spent at a nationally owned store sees thirteen cents staying in the community.
Now an important concept comes into play, a concept called the multiplier effect. The sixty-eight cents from your dollar that stayed in your community is spent by that business owner or employee at another locally owned and operated business. Forty-six cents remains in the local community. If the person who received the forty-six cents continues the trend of spending locally, the money will pass through eight more hands before the leaky bucket has taken it down to two cents. At the national box store, the employee who received the thirteen cents in his pay (the rest of your dollar was exported to the owner and upper management in another state) spends it at another nationally owned business. Only two cents remain in the community.
From this simple example, you can see how fast your community needs to find more outside money to regenerate your local economy. Your dollar spent at a locally owned and operated business will pass through nine of your friends’ and neighbors’ hands before it has practically vanished from your community. Your dollar spent at nationally owned businesses would only pass through one of your friend’s or neighbor’s hands before it has practically vanished from your community.
Reminder
Saturday, April 14, is the second, unofficial Shop Local Delmarva Day! Discover some of your local gems. If you can't a find a business on Shop Local Delmarva, visit your favorite locally owned and operated business or one you've been meaning to check out, but haven't found the time to stop in. Please be sure to tell them about "Shop Local Delmarva dot com", Delmarva's directory of locally owned and operated businesses. Remember, all locally owned businesses receive a basic listing that is and always will be free!
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