With the economic downturn a lot of people have been thinking it might be time to save a bit of cash so they have something for a rainy day. I have recently come to the conclusion that this is the last thing you want to be doing. I remember a while ago when talking about personal debt David Cameron had told people to simply spend less and pay their debts off. It was not long before he retracted this when someone deep in Whitehall had presumably explained to him that a British public that was not spending money was a recipe for economic stagnation. It is pretty evident that the government do not want the public to save their money and stop supporting business with their custom. All the same, a lot of people might disagree with the government point of view and decide that now is the time to begin thinking about holding something back for the future.
However the economic situation in many of our nations is really too far gone to take this very obvious and traditional way of ensuring our future prosperity. Many of our nations are experiencing levels of debt that have in the past presaged wars, revolutions and other detrimental situations. In living memory many of us have grown used to a very comfortable and stable way of life, but looking at history shows that good times always come to an end. Tropical eras are followed by ice ages; empires are followed by dark ages; boom is followed by bust; even day is followed by night and summer is followed by winter. Of course there is always the possibility that the complexity of our modern technology might present ways in which we can avoid most of the possible deterioration of society that might have occurred in a previous age, but nevertheless there will always be change.
It is possible that many of the disastrous scenarios I am privately fearing may never come to pass, but even so, it is highly probable given the modern world we now live in that none of our ancestors ever experienced, that the way in which we might wish to use our spare cash will be far more likely to change.
Those in the social stratosphere descended from medieval gentry have typically used their cash very wisely. It is easy to invest wisely when you have so much wealth that you could buy the rest of your lifetime’s meals and still be left with vast sums weighing you down. For the rest of us investment gets a little trickier. It is all very well taking investment advice that tells you to store your wealth in gold or perhaps buy stocks in a foreign power, but if all the gold you can afford will fit in your pocket then it is not going to do you a lot of good when you can’t pay the bills at the end of the month. For most of us there are two main ways in which we will use our extra wealth; we will spend it on shiny things, or we will put it into an ISA/pension/etc.
There seems little wisdom in either of these paths. Our own mothers would be the first to explain why it is not wise to spend it on shiny things. Maybe a few shiny things might be nice but when we are living on a shoe string but have a 50″ 3D TV then we should realise for ourselves that we are losing our sense of proportion. The second path of saving is something that we are encouraged to do with all kinds of tax advantages. It is nice to know that we have that little bit of tax free benefit in an ISA; the same goes for the incentives we are offered to put our money into a pension pot. It is a necessity to incentivise this sort of behaviour to encourage a few people not to spend their money on shiny things. For those who would have done so the pension or ISA are probably an improvement. However it is also an incentive that can prevent those who would have spent their money more wisely from doing so. Those who have their eye on the future might be discouraged from spending their money getting to that future in favour of putting it into an accumulating account that they might access when they arrive.
The returns to be had by such savings are pitiful. Those figures might have looked favourable when we were taking out our pension but considering the inflation of the last generation it is likely that we would reach our retirement to discover that our cash had been doing the fiscal equivalent of treading water and trying to keep its nose above the surface. Any money put into savings of any sort may well be there to spend in the future but what use is spending money at an age where we might possibly have had a heart attack and died many years before.
Those with a fair amount of wealth know exactly what to do. When you have enough wealth it is only a tiny percentage that need be spent on getting the kind of advice that will allow investments to double in a matter of years or even months. The figure for such advice is more likely to be several hundred per cent of whatever we might be able to afford to put away. That is why we stick it into various tempting schemes, but the problem is we can not even afford the level of advice that will tell us which of these schemes might offer the best return.
Where should a person with almost no money invest the few pennies they have. Considering the level of financial woe that recent years have given us, the first answer many people will think of is investing it in beer, wine and spirits. Drowning our sorrows has been one of the ways in which the British public has long sought to support the noble efforts of the brewers and publicans. The way in which it might be more practical to invest money is in the things that are so evidently going to be needed in the probable future. If money is tight then it makes sense to invest our money in ways of avoiding that problem. D.I.Y., tools, sugru, solar panels, allotment gardening, sustainable transport, repair networks, recyclables, thread, needles, yarn, education. These are the things that green movements have been trying to talk us into for the sake of the planet for a long time. It is ironic that what may ultimately push us in that direction is the selfishness of preserving our immediate comfort that has kept us away from that lifestyle for all these years.
Spending money is what the economists want us to do to keep things moving. Forgetting economics for a while, it is spending money that we need to do to prepare for the failings of the economists. At present we are spending plenty but it is not sustainable spending. DVDs, TVs, PS3s the list of things that we buy to take our minds off our woes is extensive but if things do get worse then we will need to be developing practical skills, we will need to be buying useful items, we will need the materials and infrastructure of creators and fixers, not consumers. The market will adjust to supplying these different desires and our confidence will grow. Those industries might also be the best places for the greater investment of setting up businesses.
We need not spend less to save money for the future, we can spend as much as the economists hope we do but lets spend that money on the things that will enable us to create better lives rather than allowing the possibility of failing markets to leave us with lives that no one would want.
Posted on July 28, 2013, in business, Economics, Philosophy, Top tips, Uncategorized and tagged economic collapse, fixer, future, investment, maker, mender, preparation, saving, spending. Bookmark the permalink. 1 Comment.