Saving
- Thread starter pieman
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Good discussion point, Pieman!
We all know why: The GFC scared the bejesus out of everyone. That's a no-brainer. And retailing is feeling this horribly: I wouldn't want to be a boutique owner for quids in this climate.
But what's really interesting is this: What will it lead to? Is this just a cashing-up before a fresh consumption storm (i.e. temporary), or is it the start of a longer-term development, of a generation of spenders shifting toward becoming new-born savers?
If the latter, it could be extraordinarily interesting. Why?
Because I think one of the most under-appreciated schisms in our political landscape is that between spenders and savers. They have virtually opposing expectations of of government, and yet this schism cuts diagonally across traditional 'class' divisions (vis. workers vs employers).
Could this be a once in a lifetime shift from a mentality of entitlement toward a mentality of self-reliance? Might it mean, for example, that middle-class welfare can become acceptably debatable (questioning unmeans-tested government handouts, tax-free superannuation, etc, for example) and not just negative gearing? Could it possibly mean that the electorate will prefer less from their government in return for better-targetted governance?
We all know why: The GFC scared the bejesus out of everyone. That's a no-brainer. And retailing is feeling this horribly: I wouldn't want to be a boutique owner for quids in this climate.
But what's really interesting is this: What will it lead to? Is this just a cashing-up before a fresh consumption storm (i.e. temporary), or is it the start of a longer-term development, of a generation of spenders shifting toward becoming new-born savers?
If the latter, it could be extraordinarily interesting. Why?
Because I think one of the most under-appreciated schisms in our political landscape is that between spenders and savers. They have virtually opposing expectations of of government, and yet this schism cuts diagonally across traditional 'class' divisions (vis. workers vs employers).
Could this be a once in a lifetime shift from a mentality of entitlement toward a mentality of self-reliance? Might it mean, for example, that middle-class welfare can become acceptably debatable (questioning unmeans-tested government handouts, tax-free superannuation, etc, for example) and not just negative gearing? Could it possibly mean that the electorate will prefer less from their government in return for better-targetted governance?
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People have short memories. They'll save for a while, but then when they realise the sky hasn't fallen in, they'll return to consumption.
I think one thing driving it is the official interest rate here. Well in theory this is the lever the RBA uses to encourage saving or encourage investment / spending.
It was never initially meant to be an instrument which just takes money out of peoples pockets primarily due to higher mortgage costs. As I understood it, it was meant to change investment decisions, or at least this was what I was taught in economics classes in the early 90s.
The decision for the punter goes along the lines of we can build a factory and make widgets and have a return of 10% on our investment. We can get money for 6% cost over time lets proceed. When rates increase to 8% the decision becomes more marginal so less investment occurs.
Now everytime interest rates are pulled the pundits say, retail spending will be down etc. It was once around encouraging or discouraging business investment which flows onto employment and wage pressures rather than discouraging retail spending or otherwise which in a secondary sence encourages or discourages investment in business.
I imagine retail spending has always been a component to changes in aggregate demand post an interest rate change but now it appears to me to be the primary driver.
Does this mean the RBA has lost control over business investment? I fear it does... It makes interest rates a ridiculous tool for managing an economy as the effect it has on investment, employment and wage pressures is only secondary to a lot of pain to people more generally.
So now I would expect high interest rates to drive retail savings a lot more than has historically been the case.
Agree too though that recent GFC speculation has changed peoples mindsets too and it is as likely as anything to be having a big impact.
It was never initially meant to be an instrument which just takes money out of peoples pockets primarily due to higher mortgage costs. As I understood it, it was meant to change investment decisions, or at least this was what I was taught in economics classes in the early 90s.
The decision for the punter goes along the lines of we can build a factory and make widgets and have a return of 10% on our investment. We can get money for 6% cost over time lets proceed. When rates increase to 8% the decision becomes more marginal so less investment occurs.
Now everytime interest rates are pulled the pundits say, retail spending will be down etc. It was once around encouraging or discouraging business investment which flows onto employment and wage pressures rather than discouraging retail spending or otherwise which in a secondary sence encourages or discourages investment in business.
I imagine retail spending has always been a component to changes in aggregate demand post an interest rate change but now it appears to me to be the primary driver.
Does this mean the RBA has lost control over business investment? I fear it does... It makes interest rates a ridiculous tool for managing an economy as the effect it has on investment, employment and wage pressures is only secondary to a lot of pain to people more generally.
So now I would expect high interest rates to drive retail savings a lot more than has historically been the case.
Agree too though that recent GFC speculation has changed peoples mindsets too and it is as likely as anything to be having a big impact.
+1
I think it requires a lot more pain probably to the level of Great depression for ppl to permanantly change their attitudes from being a spender to being a saver. The current suffering has been nowhere close to bring about a permanant change.
Cheers,
Oracle.
10% of income is that it?, i know i save nearly 3.5k every month after paying 1500 on rent plus everything else. that's what you call saving not saving 500 dollars a month. and i get 6% interest on savings.and noooooooooo i don't have a mortgage thank god for that!!
I think you are wrong,people always look out for bargains.they simply don't want to pay too much for anything. foreign companies call Australia "Treasure Island". Kirin of Japan owns National foods, Parmalat is Italian and there is many more foreign companies ripping the Australians off big time. A Cadbury bar in UK is 50 cents cheaper than Australia.we basically pay too much for everything we buy in this country and i think people have just realized that.its only the begging.(I mean beginning LOL)
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??
Aussies are famous for getting off on spending too much on luxury items. Why do you think luxury items cost so much here compared to other western countries?
It's not the UK / Western European background Aussies that seem to love bargain hunting, as a general rule.
Just my $0.02.
Well i didn't talk about Luxury items.well take a chocolate bar or a box of cereal or Milk they all cost way more here than in UK and US.
Ok you might say we get paid more then UK and US. agree on that (All the pommies at my work tell me that they came here to get RICH LOL).
We get paid a lot and things cost a lot too,so for an example even to buy a car people here might have to take out a bigger loan and that means higher debt and in my view that is very bad.. and don't forget that one day we will run out of the minerals we dig up. and what then? recessions and lower wages? and how the hell are you going to service your debt?(Well i don't have any lol so doesn't worry me)
very interesting post, thanks.
You mean people living in debt-driven economies?
Do you have shares or other investment options? being yes real estate is quite expensive investment to go into.
Melbournian i do invest not here but overseas where dollars buys a lot more.. i mean on plantations.my parents are from a country far away.invest overseas.. just take the advantage of the high Aussie before it goes back to 1.02 against US.When prices are reasonable i will be buying a house not for investment but to live in it. Investing in houses is a thing of the past now.nobody wants to do it.
i prefer a steady flow of cash than buying and selling shares i also stay away from fluctuating asset values. say i take the risk, i get too tempted to reinvest whatever gain, back in to a same kind of asset.
i got plenty of time I'm very young!!
Yeah good question. I wonder what everyone is saving for. Something worthwhile or just more consumption items? Or is it just a knee jerk reaction to the GFC? I’m saving for an IP deposit but I’m probably in the minority
Absolutely.
Quoted for truth. Good post, tom32.
Certainly business investment has not yet recovered from the GFC and the small amount of manufacturing investment is limited to - guess where? - mining. My reading of the RBA in recent times is that they made up their mind some time ago that the mega mining boom will cause massive economic growth, and that they would need to lift rates whatever the cost to other sectors. They have already indicated their willingness to move early rather than late (unlike past boards). Given the lag effect of monetary policy I always find this puzzling.
I do think this is a longer term development but not to the same extent that it is in the USA. There has been a bit of commentary about the societal shift there being a sign of something more permanent. I think the shift will be less marked here because we felt relatively little ill effects from the GFC and also because it has not been as prolonged. For the last 3 years there has been an explosion of blogs & sites devoted to saving, growing your own food, cooking, making your own clothes, craft (god help us!)...
I think it may have started as an economic imperative but it quickly gathered credibility in the middle classes as a search for 'authenticity.' Inherent in this shift of values is the rejection of 'rampant consumerism.' Not to say it will vanish, but I do think that there has been longer-term shift - especially in the inner-urban demographic.
Interesting that you link this with a possible shift in how the government is seen. I certainly had never considered that; but it's plausible. SS is one place where 'middle class welfare' is indeed questioned. I guess it is because PIs tend to believe that people should make responsible long-term decisions wherever they can and should not have to 'subsidise' the lifestyles of those who choose not to. If you are right it does lead to fascinating political possibilities!
i do a bit of importing - but then again exchange rates are minimal unless you talking millions. As for shares trading - deriatives - best time to trade is now due to fluctuations - you could easily make your 6 months savings in 1 day.
Hmmm i think you will find that investing in property is still feasible. being you're really young not sure 18? best to have a kickstart early.
Unless you are working in a very high margin game currency rates absolutely smash you if you are an exporter / importer.
exchange rates are minimal?
Lets say you have a $250k p.a. gross margin business, assuming you are working on a 25% gross profit margin when the dollar is at $1.00 US and import from China or Hong Kong (both pegged to the US). You probably employ one staff, and pay yourself a wage, and rent a small shed here in Australia. Your profit from your business might be $80,000.00 a year after your own wage and your offsiders.
So you buy $1,000,000.00 of stock and bring it into Australia and sell it for $1,250,000.00 every year.
Now the dollar moves to $0.80 US dollars.
Try that again, you buy $1,250,000.00 dollars worth of stock and sell it for $1,250,000.00......... Any sized enterprise can go from being profitable to being useless on pretty small fluctuations in currency exchange if they are a price taker. You are now looking at paying wages and rent on last years profits. This is of course good for the local bloke manufacturing what you are competing against but the same is happening now in reverse to exporters. This is why manufacturing companies big and small are closing their doors locally.
I would say, it is not about the size of your business that speaks to the affect of currency exchange but the margin your business works on... You can be a very small business and still get smashed by FOREX changes turning a good business into bad very quickly.
Anyway lucky you, to say what you have only tells me that you must be in a high margin game to have not had to butt your head up against a floating exchange rate.
