Spending goes out of fashion

By Martin Hawes

The recession has skittled the plans of a lot of people. A sizeable part of the population now believe they no longer have the chance of a decent retirement and have nearly given up on investing for the future. This may be the perception but the reality is quite different; in fact, for many the opposite is true – the recession ought to make a good retirement more achievable. This is for three reasons.

The first is the obvious one, that asset values, especially shares and property, are much lower. I am confident that anyone investing in the next couple of years will enjoy better returns in the next decade than they have in the past. While it is not possible to be sure we have seen the bottom of investment markets, asset values currently offer better value than they have for a long time.

Second, interest rates are low. While this may not be permanent, there is currently a good opportunity to retire debt quickly. Those with substantial mortgages should keep their repayments up when they have an interest rate reduction and therefore pay off their mortgages quicker. 

 Third, conspicuous consumption is no longer the order of the day. It is more socially acceptable to reduce expenditure and go without things – it is easier to say “no” to the kids or to make a case to your partner justifying why an expenditure item needs to be deferred.

The great consumption competition we have witnessed for the past decade is over and this should reduce pressure on the budget meaning you will have more money available for investment. I am not sure who won the great consumption game but I know there were plenty of losers. As people competed to have more (mostly on borrowed money), there were many who fell by the wayside. Certainly, there are groups of people whose financial plans will have been much harder hit and who will find a decent retirement difficult: those in their 50s and 60s will need to resolve to work longer.

The other group comprises those who lose their jobs and take a long time to get back into employment. They will be permanently affected if they are not serious about retraining or getting into other work. The recession is a threat – but it is also an opportunity. Those who keep their employment and businesses will continue to have good cash flow. The zeitgeist has changed. It is now perfectly all right to be into debt reduction or investment rather than competing to consume.