Recession is coming, and I’m conscious many sensible MoneySaving strategies run counter to the government’s aim of stimulating the economy. The other day a friend, tongue in cheek, joked with me that for the greater good the site should be shut to prevent sensible spending info getting out there…
What the government wants us to do.
Recession is about economic shrinkage, so the aim is to boost the money in the economy. The two traditional ways of doing this are being followed.
- Interest Rate Cuts. In a loosening of monetary policy, interest rates are cut. This both disincentives saving as it doesn’t pay as well, and decreases the cost of borrowing, in the hope businesses will borrow more to invest; and those with existing debts will have more cash to spend.
- Tax cuts. Then there’s the good old fashioned Keynesian fiscal stimulus, in other words putting more money in peoples’ pockets so they’ll spend it. This afternoon we’re going to hear the pre-budget report, which in one way or another will lower taxes or increase tax credits, especially towards the lower end of the earnings spectrum.
What MoneySaving says…
Yet the messages I give in my MoneySaving work tend to run counter to this aim. Here are three quick examples:
- Use the rate cut mortgage savings to overpay your home loan.
Mortgages and house prices are still on the tips of many peoples’ tongues. One of the new worries is the Evaporating Equity trap (the link takes you to a recent weekly email where I explain it). As part of how to beat it I suggest…
“ACT NOW before the rate cut hits. One option that’ll contribute to keeping the LTV as low as possible is utilising last week’s rate cut. Unless you’re on a fixed deal, your monthly repayments will drop by £100-£120 per £100,000 of mortgage.
Thus if you’ve no credit card debt or overdraft & some emergency cash saved up, then don’t get used to new extra cash, start putting it (and any spare cash) towards overpaying. If the lender doesn’t allow that, save the extra cash, and at remortgage time repay some debt so you’ll need to borrow less. This will help creep the LTV down.”
This is exactly the opposite of what the government wants people to do with its rate cuts.
- Don’t buy unnecessary presents this Christmas…
This week I’m launching the no unnecessary presents pact campaign. Again, while the aim’s right for individuals, it’s the last thing the UK’s retailers will want.
- Clear your debts…
One of my main messages in the recession proof your finances guide is to clear your debts and save, yet again doing so takes more money out of the economy.
Of course this site does look at bargains and deals and restaurant vouchers too; all of which are enablers for people to go out. Though in many ways that’s about doing what you do for less rather than doing it more.
The Recession Juxtaposition…
I suspect this conflict is just the start of what’s likely to become a wider political juxtaposition. A prime cause of the mess we’re in is irresponsible lending, a lack of debt education, and some spending the equity in their homes in the belief house prices are a one-way bet.
In the long run, prudence, education and a return to balanced budgets are the cure. Yet in the short run to help the economy we need some of these less sensible attitudes to continue – people to continue to play their role in our consumer society – and to spend. How to square this circle will be a great debate.
Yet to personalise this, I’ve a more immediate question of what angle and role I should take in my work.
And quite simply, I don’t believe anything should change. This site’s core remit is to unashamedly think of the individual consumer and provide info to help them to make rational personal choices. For years there’ve been lobby groups for companies, businesses, economic policy forums. When I started the site one of my main sound bites was:
“We live in an adversarial consumer society. A company’s job is to screw us for cash, our job is to stop them. There’s nothing wrong with that, the problem is we’re out gunned. Companies spend billions on advertising, marketing and teaching their staff to sell… we don’t get any buyers training… I hope MoneySaving will help change that”
And even with such a huge transition in the economic climate, I still think that applies. Admittedly with nearly 7m monthly users and 2.8m getting the email each week this site now has a wider societal role, and I need to be aware and wary of its impact, but the initial policy must stand.