"It’s scaremongering"

Many people have different ideas about the
recession. Some think it isn’t occurring at all, or at the very least it does not apply to them or affect them. Others disagree.

One of my friends, another recent university graduate, is sick of hearing about it. She believes that the widespread discussion of it in the media, in government rhetoric and so on is only serving to create fear amongst the public and that well, tampering with the public’s emotions that way is just not at all nice.

I do see her point. It is one thing to report on what is occurring; it is another thing to report the facts and then skew them so that an emotional reaction is created in the audience. However, making information — particularly information seen as vital — accessible to the audience often involves presenting it in a way so as to interest them.

Other people are just confused. On the one hand, if you have accumulated a lot of debt, the best way to deal with everything right now is to pay it off and save and make all your assets, cash based ones. This works at the individual level.

At the community level is another problem. Some people are advocating that people continue to spend — preferably with cash, though they do not mention that. If the overall trend is towards saving, then that reduces income generated by companies who then lay off more people, causing more people to become unemployed. In the interest of keeping more money in more people’s hands, the advice is to spend while preferably not accumulating more debt. In other words, leave your credit card at home. Cut it up if you can.

The cause of all this has been the debt accumulated by people using credit cards and believing that they can pay it off later. There has been in the last few years an increasing trend where people have been living a lifestyle beyond their means with the use of credit cards with the often mistaken belief that in another few years they will make more money and therefore be able to pay the debt off.

This, coupled with another myth about finance, the belief that property prices will always go up, has led to problems we have now. Property prices have fallen as they invariably do when not enough people have enough money to afford property or a mortgage. This has taken everything else with it since property is still a major form of collateral. Can’t pay your debt?

Then the lenders and banks will take your property — except wait a minute, you still owe them some more money because your property isn’t worth as much as it used to be. Playing the property market is like playing the stock market — buy low, sell high and it can carry the same sort of risks except in a longer term of reference.

In case, you were wondering, this has happened before. Booms and busts, recessions and depressions are a fact of financial life and have been around as long as finance has been. There was a huge recession in the late 1800s due to mostly the fall in property prices in the colonies, the scams in the Argentine and the worldwide habit of letting people keep a tab in any store (in other words: credit) and banks loaning money but the cash being spent on assets they could not retrieve such as fencing on sheep farms.

When you spend money on fence posts and barbed wire, you can’t exactly hand it back to the bank when they call in your loan. But that is the kind of thing, people need loans for. You know that fencing your stock will give you (coupled with luck, weather, the price of wool and good farming strategies) more money in the long term when you finally do sell your wool to the market. However, that is an intangible result and what happens when the bank calls in your loan before you can sell your wool? Or even shear it off the sheep?

What saved Western Australia at least in the late 1800s and prevented it from a depression before the 1900s came a-calling, was gold. Gold was suddenly worth the investment and the risk. After all, if you had nothing else left with the recession and the banks collapsing left, right and center, you could afford to go off to the mines. The payoff was worth it if you found a viable claim. You got gold — the standard of currency.

It started off Western Australia on what was termed a "boom." To most people, the boom has continued till recently, with the mining industry in Western Australia, helping to prop up Australia’s economy. The mines have provided iron ore, bauxite and gold amongst other minerals with nations such as China and Japan doing huge business with Australia. Australia is the one developed nation to still have a huge part of the economy devoted to mining.

However, things are changing now. Even the mining companies are restructuring and laying people off in the thousands. Entire communities of people involved in mining are wondering what they should do now when what they have thought of as a career is proving to be no longer viable. My flatmate used to work for a company that was outsourced by mining companies. Since the restructuring of the company, my flatmate has found it difficult to find anything similar. As the person living with them, I cannot say that the recession or the global financial crisis hasn’t affected me - it has.

My lifestyle has changed. I never had a credit card so I never had financial debt but I also do not have much money saved either. The changes in my lifestyle are not that awful. If I have food and shelter, the mere basics, that is still more than what 80% of the world’s population has and so I am grateful.

However, there are people out there who have gotten used to a particular lifestyle and are therefore now highly upset that they cannot continue it because they are in debt or they haven’t sufficient income or their money doesn’t stretch as far as it used to.

This is most likely due to the fact that a lot of people — as someone else pointed out recently — have not learnt much about finance, about how it works, about how to think about money. Most people have not realised that to live within your means is to have money to spend on essentials, some luxuries and a sufficient amount to save.

Somethings do stagger me. I have previously read about people profiled in interior decor magazines who claim that their justification for having a huge entertainment/living room but not a huge kitchen is because they don’t like cooking or they eat out every day. I thought perhaps it was a one off strange person who perhaps quite justifiably would poison others or was time poor but then I heard a comment from the head of the Australian Retailers Association who claimed that there was an increasing trend in people buying more staples in the supermarket such as bread. At which point it hit me that quite a lot of people previously had been living a lifestyle where they ate out all the time instead of cooking at home, no doubt doing their bit to contribute to obesity statistics in the process. To me, that’s insane. What’s wrong with going once or twice but staying at home, entertaining at home, eating at home? But it just proves my point that an essential in life is not the plasma TV or having to eat out all the time or that pair of shoes or cashmere sweater. The essentials are the food staples, your bills for electricity, water and gas and your rent payments or mortagage with the possible addition of money for catching public transport or buying fuel for your car.

This is part of the problem the government is having. On the one hand, it has to dictate to the average consumer that spending patterns and habits need to change so this recession or crisis is serious but on the other hand it cannot send anyone into a panic or forecast doom and gloom. The Australian government released a fiscal package late last year designed to help motivate people into spending and to give them some more cash to spend on essentials and so on. By all statistical accounts it worked. There is now talk of a second package.

But again, how can the government tell the average consumer to spend on essentials, cut back on debt and save if possible when everyone has a different idea of what the essentials are? It was people overspending on luxuries that caused part of the issue, if these people didn’t think of saving or spending on essentials more or changing their lifestyle habits then, what will make them change them now? Can you coax them into it? Will they be amenable to financial education? Can you scare them into it?

Perhaps all those who have had credit card debts over a certain amount should by law have to take a few free classes in how to manage their money and spending and how to save and how finance works? I can see a lot of complaining over that but also a lot of people coming away with a better idea of how to cope.

It is apparent that people don’t know how to cope with this. Other than managing money, so many have focused on careers that finding themselves locked out of the field that they have been in for so long, they do not know what else to do. I think it’s time for people to focus more on the skills they do have and how those skills and their knowledge can be applied to other fields. It’s not a viable enough career path to settle into a job and attempt to get promoted upwards through the company as is the traditional mode and idea.

Get a job you like, doing something you can, in any field. Move around, gain experience, and when the day comes where you find yourself in the sort of situation we are in now, you will be better equipped to land yourself work. To stagnate in one position because of an idea that it is secure is a fallacy. When there is a recession on, the rules are rewritten and even so called "permanent positions" can be and often are axed.

Having been in a position for the last decade does not assure you a permanent seat — more than likely people are going to wonder why your long term experience with the company has not prevented it from suffering as it has from the financial crisis.

"Bunker down." I am bunkering — I have been for the last few years. I am fishing to feed myself and attempting to stretch my grocery budget. I am trying to save as much as I can. I am hunting for a part time job, freelancing my writing and editing skills out and still sending off applications to companies in the hope that I will get a foot in the door in the publishing industry.

My friends and I swap favours these days, cooking for printing and so on. Much as I hate to run into anyone from university at the moment, I linger in the library so I can use the internet and the research databases for free. Unlike my friend however, I watch the news. I want to know all the information I can about what’s going on so I have a better idea of how to use what I can to make the best of it.

My friend thinks this is not conducive to a positive state of mind and would therefore prefer to ignore it. She does not want to be brought down by it — she’d rather focus on making the best of it. I have yet to convince her that it is possible to watch the ongoing debate and news and to not be negatively affected by it.

Above all else, it is a lesson. It is a lesson in how the individual’s attitude can affect the wider community and be, in turn, affected by it. If you have bad spending habits, you can affect the financial world. If all everyone talks about is the crisis and it is all negative and as an individual you can’t objectively turn it into something you can use, you can become fearful and this will then dictate your behaviour.

Your behaviour then can affect others. If you are fearful and cut down on your spending, you reduce income earned by others and then profits fall, companies get restructured and others get fired and another round of news about the crisis begins. So I can see why my friend wants to switch the news off, Having no debt, she wants to get on with her life the best way she can and quite possibly be a positive effect on the rest of the community at this point.

The important point is the debt. Recessions and depressions end only when the excessive global debt has been worked through and paid up. Right now assets are hard to value so don’t sell too many of them off. Save your cash, don’t be fussy about the jobs you take on to have an income (you have no choice, I am sorry), pay off your debt and cut up your credit cards.

Consolidate your bank accounts into no more than two — one for saving and one for day to day expenses. When you do start spending again, spend only what you have in your bank account and use payment methods that allow you to do this such as debit cards.

Change your lifestyle so that you focus on the essentials and fun is something you can have without paying for it. The luxuries you do buy will be all the more sweeter and you will want less of them. Volunteer somewhere so that you are constantly reminded of how lucky you are to have what you do have be it something tangible or just the possibility of making choices. If you can get through this financially and psychologically sound, you can weather anything.

Good luck.