This article was published on 14 July 2009. Some information may be out of date.

Recession could be a blessing for most

The response to a question in a recent survey bothered me a little. Asked what they would do with a $10,000 cash windfall, 54.3 per cent of the respondents said they would pay off debt or save the money — down from 58.3 per cent three months earlier.

It’s not exactly a huge drop. But I was hoping for a substantial increase.

I should hasten to add that the headline news from the Westpac McDermott Miller consumer confidence survey — that confidence had risen to an 18-month high — seemed to be good news. Certainly retailers and the companies that supply or service retailers — and all the people who work for those companies — would have been happy.

And pretty much everyone wants to see a return to economic growth, which can’t happen if people aren’t buying goods and services.

Nevertheless, the silver lining to the recession cloud might yet be that New Zealanders learn a new attitude to spending. There have been some encouraging signs:

  • Finance Minister Bill English recently told Parliament’s finance and expenditure select committee that New Zealanders have been “incredibly willing to borrow money”, but that we are now consuming less and saving more.
  • New Zealand is shifting from a model “built around excess consumption, debt-fuelled spending, and spending for today” to a new model “about earning first, and spending second,” says ANZ National chief economist Cameron Bagrie in a recent report on financial literacy the bank wrote with the Retirement Commission.

    “For the first time since 2001, the household debt to income ratio is starting to decrease — indicating people are seeking to pay off their debt.”

    He added that while retail sales declines put pressure on the economy, this is a “welcome rebalancing process” for the country as a whole.

  • Younger New Zealanders, in particular, are becoming more reluctant to take on debt, according to credit reporting company Veda Advantage. While people in all age groups are less likely to apply for hire purchase, credit cards or personal loans compared with a year ago, the drop was even bigger for 15 to 28-year-olds.

    “Whilst in the past this generation had become accustomed to taking on debt as a result of student loans, the indications are that they are now becoming more cautious about increasing their indebtedness,” said the company.

  • About 65 per cent of New Zealanders “have cut back on household expenses and treats in the last 12 months,” according to a Nielsen global consumer confidence survey. “They are staying at home more, buying cheaper groceries, using the car less, cutting back their power usage, eating less takeaways and wearing fewer new clothes.”

    More importantly, Nielsen’s Susanna Baggaley adds that, “Almost all vow to keep up at least some of their prudent new habits even when economic conditions improve.

    “In times of financial uncertainty consumers re-evaluate their spending priorities and often discover the cuts they make don’t significantly impact their quality of life. As such, many people, post-recession will continue to cost-cut in areas deemed a low priority or not a necessity.”

Wouldn’t it be great if Baggaley is right — if New Zealanders learn that buying things doesn’t necessarily make them happier? And, in fact, that borrowing to buy things can lead to financial strife and misery?

Recessions strike unevenly. As English said in a recent speech, “Ninety per cent of the people get on okay, and 10 per cent lose their jobs and carry a great burden.”

For those of us lucky enough to be in the 90 per cent, the recession might turn out to be a blessing if it teaches us the lessons about spending.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.