Dr Roger Hosein
Senior economics lecturer at UWI, St Augustine, and co-ordinator of the Trade and Economic Development Unit
“Champagne tastes, but with mauby pocket.”
This is a local saying which captures the idea of people with expensive tastes but not enough money to support that kind of lifestyle.
During the boom period many citizens developed tastes based on the income of that time, but during a recessionary period with less money circulating it is much more difficult to maintain such a lifestyle.
With Christmas now over, many citizens have started spending on carnival costumes, fetes and other expenses associated with this season.
Should people be saving more during a recession instead of heavy spending on consumer items?
T&T already has a shortage of foreign exchange and the carnival period will place more burden on the demand for forex as economist Marlene Attzs told the Guardian last week.
Professionals in the personal finance and investment field spoke to Sunday Business on spending habits and what people should be doing during a recessionary period.
MANAGING YOUR MONEY WELL
Giselle Ferreira, Investment Advisor, JMMB Investments T&T spoke to Sunday Business about how individuals should approach the year from a personal finance perspective.
She advises citizens to assess their financial situation as the year begins.
This could be done by creating a monthly budget based on total income.
“This differentiates what you need to spend on monthly expenses and your disposable income. People can also reduce expenses so as to meet short, medium and long term goals. One must differentiate between their needs and their wants in the current moment. According to the ‘time value of money’ concept, the purchasing power of money can vary over time and have a lesser value in the future.”
She added that savings and disposable income can be used to explore supplementary revenue opportunity.
“Paying bills automatically each month is another way for consumers to live within their budget” she said.
“In this way you will not be tempted to spend out of your means.”
For future personal growth—financial and otherwise—Ferreira advises: “Commence a business friendship for additional revenue streams or invest in your education to improve that future earning capacity.”
She also said it would be wise for people to “research and review” investment plans.
“Of course this would be from your supplementary income towards that.”
Given the current recessionary period the country is in, she cautioned those wishing to invest to take “calculated risks”.
“Consider applying a percentage of your savings to purchase local stocks to obtain superior returns and growth.”
In reply to the question of whether nationals are educated enough on how to manage their finances and budget, Ferreira said “probably no.”
“People think that you need a lot of money to invest to manage their finances. Really, all it takes is starting from that next pay check. Sometimes it is the little changes. Instead of buying produce at the supermarket, growing your own vegetable garden in your backyard could make a huge difference in terms of the monies that you have at the end of the month as opposed to the grocery every time.”
She urged citizens to “live within their means” as she said far too many people are spending more than they earn.
THE INVESTMENT OUTLOOK
Narisa Hosein, Vice President, Investments, Guardian Asset Management and Investment Services Limited told Sunday Business that people should be selective in terms of spending their disposable income given the economic uncertainty that the country is in at present.
“People should ensure that some of their income is allocated to savings. Security of capital is important at this time and investors should seek more stable investments, providing a steady rate of return such as income funds and some bonds. This is recommended over more risky investments such as equities given the volatility that can be experienced as in the event the funds are needed in the short term, values can be depressed.”
She also said investors with a long term perspective however can invest in equities ensuring they are very selective in their choices.
“The investment climate locally will be characterized with relatively low interest rates however we do expect these rates to increase in order to keep pace with increases in rates in the US. We expect the stock market to continue to be muted in 2018 given that companies may be challenged to deliver higher earnings in a slowing economy with less demand, higher costs of inputs in some cases as a result of scarce foreign exchange and higher taxes.”
She pointed out that people’s behavior has been modified because of the current recession.
“As expected, persons are changing their perspectives on investing. They are more cautious because of fears as it relates to job losses, downsizing and cost cuts during the recession so they may prefer to keep their money close at hand either in their bank account or in a deposit that can be easily accessed. There are however those long-term investors who will maintain their discipline of investing over the various economic cycles.”
She also spoke about some of the markets that investors should be watching closely in 2018.
“Locally, fixed income investments may offer a better alternative for return versus stocks as rates may increase in the coming year and stocks may not perform as well given low demand and challenging results.
There may however be a few stocks which may withstand the recession and provide good value in the future. In terms of real estate, this is always a good long term strategy but returns may be challenged in the short term as the rental market has weakened and the income stream may be low especially if there is the cost of a mortgage involved.”
Hosein added that internationally, US stock markets can provide some further opportunities in 2018 as the economy continues to show strength and as US companies benefit from better economic activity as tax policies come into effect which should see better earnings as a result of lower corporate taxes.
She spoke about the importance of “financial literacy.”
“There are some sophisticated investors but a lot more has to be done to educate the general public on investing so they can understand the different types of investments and what is best suited given their personal circumstances. This is increasingly important especially during a time of economic weakness. For those that are not as sophisticated, it is recommended to seek the advice of an investment professional who can guide them accordingly.”
CHRISTMAS INTO CARNIVAL SPENDING
One person, who is a public servant who spent for Christmas and also takes part in carnival fetes and other activities, told Sunday Business that he spent less that $5,000 for the Christmas season but by the end of the carnival season would have spent about $10,000 on carnival activities.
“I’m not big into Christmas but I observe the traditions. Going to the market was stiff for Christmas and prices were higher as the business people locally don’t want to negotiate prices. While the lower income people bought locally, a lot of middle income and upper income people still bought online from what I saw.”
He called himself a “big spender” during the carnival season every year and apart from himself has observed that other people are still spending “like crazy.”
“You saw how much people went to the Moka Fete? It was packed. People are still spending their money. The clubs are full, the bars are full. There are still some bands who sold out their costumes since last September.”
When asked what is responsible for him and other like minded people spending heavily during the Christmas and carnival periods, he said the tradition in T&T is for people to spend money to make themselves happy, recession or not.
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