How to save lots of money, and kill the economy

If you're saving like Gretta, you could be accidentally hurting the economy

Australians are hurting the economy by not spending, with household savings soaring as consumer spending plummets to its lowest level since the global financial crisis.

People like Gretta Dunn, a mother of two living in south-west Sydney who works part-time, are the reason the household saving rate rose to 4.8 per cent.


"The cost of living is going up and our wages aren't really going up as much, so for that reason we are really self budgeting and concentrating on saving money," she said.

"I'd like to pay the house off, I'd really like to get that mortgage done and dusted."

On the other side of that coin are business owners like Iftkhar Khan, who has run a grocery store in Ms Dunn's neighbourhood for the past 30 years.

"I think [with] spending, people are very selective of where they go these days," he said.

 

"Australians are hurting the economy by not spending, with household savings soaring..."

I posted this a while ago and was mocked by a group of trolls who couldn't grasp the concept of household savings. At the time I made the observation that households saving is good for the household but bad for the economy.

If households keep saving at this rate and cause a recession, with a pile of cash, what happens on the other side? If consumer confidence returns and they go on a spending spree then that impacts inflation. I don't like either scenario.

 

So you prefer some kind of Secular Stagnation of low growth with lowflation?

 

I don't think households are waking up one day and saying lets save "lots" of money and kill the economy.

They are instead forced too. They have no choice. They are experiencing cost of living rise much faster than wages and have worked out they need a buffer. What is the alternative? Mass personal bankruptcies, if they continue to spend at the same place?

The cause is actually high housing costs, high energy/electricity costs, high health care/insurance costs, high child chair costs etc.

 

Plus the effects of

1. barefoot investor

2. minimalism and Marie Kondo

 

Im not sure that people are saving much money in large quantities as such. People - as a large group are not overly financially educated - live week to week. That is generalising, but human nature doesnt shift far or quickly, over the not a lot changes - the household debt levels across society haven't really gone down over my lifetime I think.
So their biggest contribution to saving is to pay off the home loan and car loan, while still spending on consumer items, and possibly saving for the next holiday somewhere.
Probably the consumer items spending patterns have changed. Maybe less credit card debt, certainly lots more cheaper priced online shopping, and sites like Ebay and Gumtree are doing well, plus such things as 5 year interest free loans on furniture and other bigger ticket items.

 

How is this a bad thing? Why would anyone want to spend more than they have to?

I think it's a good thing people are realising how over indebted most are and that they are taking action. I also believe that the RC into the banks showed many people that they are being robbed by the banks so many are adamant on paying off the mortgage asap to free themselves up.

One other point is that many realised that these low interest rates might not last forever so are taking the opportunity to pay down their mortgages while the good times last.

 

avoiding a blind consumerist focus as population is a good thing. makes you think about what's important.

 

When the government wants to stimulate consumer spending they make additional payments to low income earners and those on benefits as they know the money will be back in the economy in a relatively short time.

There would not be a lot of people in the above demographic who would put the money away for a rainy day, me on the other hand would put it in an offset which stimulates nothing in the short term.

 

Absolutely.

And could be why consumption is down

 

Now that would be great policy...increase the dole by about 100pw....but the caveat is that $150 of the dole money would need to be sent only on food and other grocery essentials via a debit card. No booze or soft drinks.

But hey..I digress.. the liberal clowns...would never let this happen. That would stimulate the economy a lot more. They could get some of this spend by reforming private health insurance and setting fee ranges for doctors...and driving down the cost of PHI of which they subsidize.

 

They have rolled out a trial card and there has been push back that it is only good for larger supermarkets and is not able to be used at market stalls to buy cheaper groceries.

I like market stalls but I don’t recall ever paying less than the supermarket.

 

I think you can safely tar every Political Party with that same brush.
Ironically; if they were remotely in touch with the views of the wider population; they would know that the silent majority support what you say (restrict dole to essentials), but they only pay attention to the noisy minority.
It would actually be a well-received hard decision - if any of them had the guts to make it.

 

It appears that they are about to restrict the dole to essentials with the cashless welfare card. 80 percent of the money is quarantined to be spent on food/bills and rent.

 

This is not new. It was even covered in my high school economics class way back in 92-93.

Look up The Paradox of Thrift. While it was popularized by Keynes, there are references predating him by 150 years or more.

Cheers,
Inertia

 

interesting observation given what the LNP did at the end of the financial year - giving an additional tax refund of $255 for low income earners, up to $1080 for middle income earners. Compare and contrast to Rudd's stimulus which was a $900 rebate for anyone that was a net tax payer earning up to 80k, and tapering down from there.

Rudd's stimulus largely got spent, Scomo's stimulus largely didnt.

Scomo's stimulus attempt didn't attract anywhere near the criticism that Rudd's did, and yet Rudd's was effective...

Cheers,
Inertia.

 

I think the push back is the expense of the card, and that the payments are going to mates of the LNP.

In principle, I am not necessarily against it, but it seems unduly punitive. I think it either needs to be implemented across the board (pensioners, disabled, government expense cards), or in specific scenarios only (drug convictions or whatnot). And there needs to be better transparency around the tender process and who implements it.

Cheers,
Inertia.

 

As part of the silent majority I know that with immigration and time I’ll be part of the silent minority soon enough.

The issue is the hard decisions needing to be made are massive and would impact on all levels of society resulting in very few people feeling they are better off.

Increasing benefits to our poorest at the expense of retirees is clearly unpalatable.

Increasing company taxes when large corporations can get a better deal overseas is likely to lead to less opportunities for employment.

Increasing benefits while locking people into a card to be used for specific spending is likely to further undermine self-esteem as people want to spend their money when and how they feel.

How about these crazy ideas from my head...

1. Tiered benefits based on location;
- If you are in an area with lower costs of living this is reflected in the benefit paid. Why should you have more disposable income then someone else on benefits?
- If you are in an area with low employment opportunities you should be encouraged to move (carrot or stick).

2. Rent assistance to be paid directly to landlord or PM would likely lead to fewer evictions and more stable communities.

The only political party who is going to have the guts to float their ideas to get an electoral mandate is the one who believes no matter what they say or do they will win the election, and we know how that turns out.

 

I think it’s in the delivery, a tax refund is just getting back the excess tax paid over the year where as a payment not linked to effort is a windfall and is more likely to be spent.

If the government wants to stimulate spending then the Rudd approach is certainly the go, but politics is all about perception and being seen as giving money for nothing (at least the lowest earners) is not really a LNP strategy.

 

I personally think its 2 things, a difference's in generations and mindset and also the cost of living as you mention.

In an age of rapid information we are learning so much more about psychology, happiness, fulfilment etc - Despite us young ones being branded as being the big spenders and not having delayed gratification like the previous generations like to think, We are waking up to the fact that we don't need everything brand new to be happy, new lounge suits, appliances etc, we would sooner spend money at cafe's with friends or on travel. (with the exception of having a nice car & clothes for most)

Add to this the cost of living and you have a large part of the population not spending in retail due to being much more careful where the disposable income is placed. ​