To Save or Not to Save….?

If you are a baby boomer, like me, you may remember your parents saying to you that the secret to a happy and prosperous life was to work hard, save hard and above all else do not go into debt.

If you are a Gen Y you can be forgiven for thinking this philosophy was something out of the Dark Ages. However, I can assure you it is not.

You’ve probably heard on the news or read in the newspapers that despite the biggest mining boom in over 100 years, some (probably most) sectors of the economy are doing it tough. For example, retail sales have collapsed, building approvals are down, established home sales are the lowest for 20 plus years and credit growth has been slowing for quite some time.

One of the reasons we are given for this depressing state of affairs is that we, the consuming public, are saving too much of our income rather than borrowing and spending.

So what does this mean….

Apparently we are saving 10% of our gross income, post GFC, as opposed to around 2% pre GFC. You may recall when the Global Financial Crisis hit in 2008, Kevin Rudd (remember him?), gave everyone a nice gift in the form of $900 handouts which we were instructed to spend. Some did, some didn’t, some paid down debt, some saved for a rainy day.

Every dollar we save or use to pay down debt, is a dollar we don’t spend in the shops. Hence the reason retailers are struggling to make profits. Of course, this also applies to other discretionary spending.

Now that the handouts, including the First Home Buyers Boost have run out the economy as a whole is slowing significantly, apart from mining. In my travels around Leederville and Mount Hawthorn, I speak to a lot of people, including many small business owners and they all tell me things are slow.

However, in my experience there is always business to be had if you are creative and resourceful, (and work hard).

The point of all this is that our modern economy is built on a foundation of debt and spending to acquire more, more, more (things we don’t need). This all seems a bit back to front to me. What happened to the old virtues of hard work, thrift and saving?

Maybe they do belong in the Dark Ages?

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