Spend or save?
Consumers are caught in a difficult situation. Many still have large debts that they want to clear or have less secure jobs than they had during the boom times so are unwilling to spend more. Indeed they want to save for a rainy day but are punished for doing so by very interest rates that are lower than inflation. For the economy to fully recover consumers need to start spending again but if they do spend without first getting rid of any debts, or if they do as last time and go one a spending binge they cannot afford then we will simply be starting the cycle again. So a difficult decision of whether to spend or save money.
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Low interest rates were placed in order for spending.
Low interest rates have been put in place by the Government to encourage people not to save but to spend. If people put their money into save they will not make a good return on their investment. The “Bank rate has been at a record low of 0.5% since March 2009”. [[http://www.bbc.co.uk/news/business-11426497]] With no prospect of our money making any profit, where is in incentive to save? There is none. There is little benefit in saving during these times. Instead, we should invest in our economy by spending.
Surely the benefit of saving is the planning. If you are able to save your money, then you will not get into financial difficulty. You will have a safe storage of cash to keep you afloat. Whilst some may say this is what your income would be used for, we should all have enough saved in order to account for unaccounted for costs; such as the hire out price of a mechanic for our car. If we literally saved nothing, then we would not have enough of our income available for such unexpected costs.
Less spending equals less household income
If people spend less, businesses do not make profits. If businesses do not make profits they make job losses or they higher their prices. This can have a direct impact on a families disposable cash; it will decrease. Office for National Statistics [[ http://www.bbc.co.uk/news/business-11426497%5D%5D showed that without a sharp drop in household saving in the second quarter, there would be a drop in households' incomes. Therefore the ONS said that people should actually start listening to Government incentives and follow their encouragement to spend more. This way, they would actually increase their overall wealth.
People should spend their money on their home
In these low interest climates people are making little money on their savings. In these times, people will not make a profit on the sale of their homes either. Whilst workmen are crying out for work their prices can be driven down. With these three factors in mind, people should spend their money on improving their home. This would help them by increasing the value of their home, and whilst spending, they would also be investing. This would not be money spent as wastage, but money spent wisely, and this is the type of spending that we should encourage. Let us not forget the additional advantage of giving workmen a job to do; providing them with an income. By providing them with an income we are giving them capital to spend in the economy. This is the best financial strategy.
Over spending got us in this mess
During the boom times people were loving their surroundings. With no second thought to the economy and how it might develop, with no second thought to their future, they were spending like mad. This was encouraged and the boom times ensued. However, spending is an addiction and people took it way to far. People began spending what they did not have. They were taking out larger mortgages than prudently necessary and we were hit with the economy crash. We do not want to see such effects again.
In order to avoid it, we need to change our attitudes to spending. We need to be cautious and save. The economy will still grow, but slowly, with a sensible saving monetary policy for each individual. Slow growth is far more stable than fast growth stimulated by the Government's encouragement for spending.
People need to be responsible only for their own finances
It is unfair asking people to spend their capital in an unsecured economy after they have been prudent with their finances. The reason they are being asked to do this? Because other people, including the Government as a collective, have not been prudent with their finances. The prudent spenders should not be told that they should protect the economy by spending the money they saved; it is yet another blow. The situation was not caused by them. If everyone were only so prudent then the economy would not be in the trauma it is in now. Rather than relying on these prudent savers, we should try to encourage the irresponsible to be more responsible; not encourage the careful to be less careful.
Job losses are imminent
With jobs still uncertain, with companies still becoming insolvent, with the skill set required by our employment market ever changing, people's job prospects are not secure. They do not know if their employer will cut their hours, they do not know if they are keeping their jobs, they do not know how long it will take them to secure another form of employment. With such uncertainty as to future paychecks, how can the Bank of England encourage spending? Such endorsement of spending is not responsible.
People need to save for their child's education
Regardless of the merits of education in this climate, given the growing amount of graduates, all parents want their children to go to University. It is a life experience that few parents would want their children to miss out on. Due to Government 'initiative', the cost of this education is ever increasing[[http://www.bbc.co.uk/news/education-11525031]]. If we want to have an educated society, if we want to secure the future of our society, what we should be doing is saving to adopt the cost of our children's education. Otherwise, they will enter into huge amounts of debt and our current credit problem will resurface in the future. We cannot keep telling people to spend. We need to stop the cycle of debt here.
People need to save for retirement
With private pension funds not meeting the level of growth expected, and with the Government telling us that their funds are running low; people need to save for retirement. People need to save their money in order to insure they do not become a part of the growing level of elderly in poverty. People die from not being able to afford to turn their heating on, surely we should not encourage spending that would put people in this position. With life expectancy increasing, surely we should be encouraged to save for this growing period of our lives that the Government cannot afford to fund.
People need to save to pay off their debts
In order to avoid the credit crunch trauma re-occurring people need to reduce their debts. Let us not forget that this recession was due to people not being able to repay their loans, be they mortgages, overdrafts or credit card loans. What we then need people to do is to save their money and repay the debts that they owe. By paying off their debts, banks will receive money that they then need to use to repay their debts to the Government, then the Government can repay what they owe. What is best then is to encourage people to save in order to pay their debts in order for our country to be able to repay its debts in order for our economy to improve.
What do you think?