What COVID-19 demands - Saving Economy or Spending Economy?
Monday June 01, 2020,
5 min Read
Will the saving economy over-weigh the spending economy post-COVID-19?
John Maynard Keynes once said that saving money is a virtue of the citizen but a sin of society.
That's been the standard economics position for a very long time. The fundamental assumption is that any economic activity is stimulated by demand. Hence there is more economic activity as there is more demand. Therefore an economy is rising as demand increases. Modern economists, therefore, conclude that ceaseless consumer buying is what drives the economy.
Will this pursuit aligning towards more and more of spending be sustainable for the economy?
The economic growth investment strategy can be seen as one of the significant factors behind many economic ills. First, many economies have gone deep into debt to raise spending and rebound from financial setbacks. The method will only work if the capital goods investment is made. In the other hand, if the money were used to make contributions for welfare then the spending will have done more economic damage than good. It would give a temporary push for the growth of the economy. However, this would only lead to more indebtedness in the long run.
Having seen the problem with the approach to spending, let's see what the corona Virus Pandemic has to do with the changes in consumers' behaviour?
The possibility of the Corona Virus becoming a pandemic virus has always been present, even before it was identified. Knowing this fact, there are a number of factors that will be taken into consideration in order to control the spread of the disease.
The propagation of the virus is usually due to environmental condition. These conditions include low temperatures, humidity, infectious aerosols, etc. Therefore, virtually every aspect of our lives has changed since the inception of COVID-19, and consumer spending is no exception.
Similarly, the economic effects of the Corona Virus pandemic have decreased consumer spending, with many experts expect it to continue to decrease their household income in the coming months.
Will developing a saving attitude do any good to the economy post-COVID?
The current economic situation is a direct result of the government's failure to understand the problems facing the economy. It seems that each successive government is a little more inept than the last one. Even so, it is very difficult to identify the causes of the crisis. This is because there is so much confusion as to how to help those in real need.
Most of us are unable to cope with economic changes and are struggling to stay afloat. The inability to cope has also encouraged inefficiency among businesses and companies. Even though we have been affected by the downturn in the economy, the responses are far too slow.
There is now good news though. We can actually use the recession to gain control of our lives. Let us look at some ways we can use the crisis to our advantage.
The recession has meant that home-ownership is not quite as popular as it once was. And this means that you may now have less equity in your home, compared to when the bubble burst. This does not mean that you should put your home on the market. You should instead take advantage of the fact that people are finding it harder to pay their mortgages.
You can use this time to negotiate the amount you have to pay on your mortgage payments. There are lenders out there who can give you a better deal than you were able to achieve when the market was booming. And in addition to this, there are many government programs that are designed to help those with housing difficulties.
Reduce your debts
Have you noticed that your credit card balance keeps going up? This is because you keep using your credit cards to keep up with the rising prices of goods and services. It is now possible to get a much better deal by negotiating your credit card debts.
Reduce your electricity bill
You can do this by looking for companies that will slash your energy costs and also by ensuring that you pay off your bills on time.
Buy real estate
If you are thinking about buying a home, it is possible to do so as the market is strong now and home prices are climbing.
Save on your monthly expenses
The recession has also meant that many of us have to cut back on our spending, but there are still many other ways you can save money. Here are some ideas.
Invest in mutual funds
In addition to the high returns, you also have an opportunity to earn tax-free dividends. Mutual funds also allow you to be able to diversify your investments.
Try the stock market
When stock markets go up, the chances are that your pay check goes up with it.
Take advantage of real estate
If you cannot afford to buy the property yourself, there are many who are ready to sell their property to you at a price.
Sustaining a sound savings rate at both personal and national level is one of the best solutions for economic problems. Although this means that the Americans have to live within their directions, it also means that in future we will be less prone to economic downturns. What is left to be seen is whether customers can remember the lessons of the past few years and maintain a more conservative level of savings as credit flows freely again.
After all, we'll be doomed to repeat it if we can't learn from our mistakes.