The world economy has been rocked by crisis and scandal for 5 years. What started as a problem in the US real estate market quickly spread and we now find ourselves several years down the line with a crisis of historic proportions in the Eurozone, questionable growth in China, and uncertainty where it all began – in the US economy. And with a 24 news cycle covering every company going into administration, jobs being off-shored to the Far East and every round of redundancies, it’s little wonder that there is so much fear, uncertainty and doubt among the public at large.
However, some would argue that the hardship this economic crisis proffers has actually taught society a lesson. First, a society cannot survive on a binge of debt. Second, that individuals need to save for their future.
In the USA
If you’d been a US citizen earlier this year, the chances are you’d have been spending more than you were earning. In fact, the personal saving rate plummeted to 3.7%, the lowest rate since the recession started, which officially did so in December 2007 according to the National Bureau of Economic Research.
But now US citizens are saving again, despite low interest rates low and the housing market and the stock exchange recovering. Charred by the recession, Americans are replenishing their savings, having fallen back on them or even taken on more debt to get by during the tough economic times.
As for ‘He who dares wins’, Americans seem perfectly happy to settle for second place or even just to finish.
Many have changed their investment strategies, exchanging the thrills and spills of the stock market for the safety of bonds and a guaranteed return.
So how are others managing their personal finances while the economy keeps falling down but getting up again?
In Australia
Well, according to a report, Australian consumers are saving more, despite three interest rate cuts since May. The largest increase in savings ratios has been in households where fears of job loss have increased. However, the same report indicates that they’re spending more in certain areas, with borrowing to buy a home increasing and spending on cars too. Although consumer spending rose by 3.9% in September and then fell by 1.2% in October, it’s still up by 6.2% compared to a year ago.
Even in the Middle East
Consumers in Dubai, in the UAE, are also saving more. According to the Consumer Confidence Index (CCI), conducted every quarter by the Department of Economic Development, 4% more consumers placed money into savings in the third quarter of 2012 than in the second one. They’re also being more prudent, spending less on holidays, outdoor entertainment, technology, home improvements and on paying off debts, including credit cards and loans.
Not only this, the report has also found that consumer confidence has grown in the economy. 84% of the people who took part in the survey for the index believe Dubai’s economy is growing to improve, and two thirds of consumers rated job prospects as very good during the third quarter.
So it might be a good time to save if you’re in the Middle East and are thinking of opening a savings account. One good country to do so in is Qatar. In its 2012–2013 Annual Report for Global Competitiveness, the World Economic Forum named Qatar as the Middle East’s most competitive economy.
Is Saving the New Spending?
Whether you’re in Australia, the UAE or the US, saving seems to be the order of the day. If you’re in Australia you might feel tempted to splash out a bit more on a house or a car, whereas if you’re in Dubai you’ll be doing so with renewed confidence in the economy. Meanwhile, if you’re in the US, you may opt for safety all around on investment and saving and given the economic times, who can blame you?
Professional Post from HSBC
Given the precarious economy these days with the cost of living rising, Greece and other counties on the verge of bankruptcy and the world’s sharemarkets on a constant roller coaster ride, now could be the time for being very frugal.
Buying groceries is the biggest recurring expenses for most households and it can be a huge drain on the weekly cash flow. Our Five Ways to Save tips will help you target the best opportunities for saving on the grocery bill.
THE NEWSLETTER – 3
I’m currently in North Wales, UK, which is a very interesting place with a long and proud history. In the local village, the ‘very old’ Welsh language is still widely used as a first language for the locals including my father. They are all quick to point out that the Welsh are very good savers and my father quoted this relevant verse in Welsh to me:
Tra yn byw yn gynil, gynil
Aeth un ddafad imi’n ddwyfil.
Tra yn byw yn afrad, afrad
Aeth y ddwyfil yn un ddafad.
Vicar Pritchard, Llandovery, Wales. (1800 A.D.)
Loosely translated it is:
When I lived prudent, prudent
One sheep became two thousand.
When I lived wasteful wasteful
Two thousand went to one sheep.
This article along the previous articles Saving Money by avoiding Impulse Buying (Part 1) and Saving Money by avoiding Impulse Buying (Part 2), highlight the need to change our spending and savings behaviours. Many of you may have heard the Albert Einstein quote “The definition of insanity is doing the same thing over and over and expecting a different result”. Put simply, if you can’t save today, you must change your ways if you want a better tomorrow.
What’s the difference between a Saver and an Investor, and who is the most successful?
A ‘saver’ will typically focus on maximising their opportunity to build wealth by limiting their spending. Whereby an investor will focus at putting their assets to work in the various investment markets.
Typically the most successful will be good at both. The most obvious example is Warren Buffett who despite his wealth, still lives a relatively frugal life. He resides in the same house that he purchased in 1958 and is valued at about $700,000 and eats at the local diner. He is now just as famous for his philanthropic ways as he is for being regarded as the most successful business leader of our time.
Financial Trivia
What is the PE Ratio that is often quoted by stock brokers? The ‘P’ stands for the current share Price of a company and the ‘E’ stands for the Earnings per share, (the full year profits divided by the number of shares that have been issued). The Price is divided by the Earnings to give a Ratio. For example, if company ABC had a share price of $10.00 and it’s earnings represent $0.75 per share, it would have a PE Ratio of 13.33 ($10/$0.75 = 13.33). Often it can be described as a multiple, e.g. ABC is trading at a PE multiple of 13.33.
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