To Spend or Not to Spend

So the economy is in limbo. 6 weeks ago the STI drop to it's lowest close since 2003 (1600.28 on 24th Oct), light crude is now USD55/barrel (as of the 28th) and SM Goh is encouraging Singaporeans to keep indulging themselves:

Mr Goh added that although many are now concerned about costs, Singaporeans should not save excessively.

"If all of us go into a power save mode, then the economy will really go into a recession! This is what economists called the Paradox of Thrift. If you have sufficient savings and can afford to spend, you should continue to spend on life's little pleasures.

"Take your family to the movies, shop, dine out at restaurants and hawker centres, go for your regular foot massage, indulge yourself at a spa, take a taxi, donate to charity and so on.

"This way, we keep the economy going. In fact, I would say when times are a little slow, you could get the best bargain," the senior minister said.

- Channel News Asia, 6th Nov

Of course, there's the caveat of "If you have sufficient savings and can afford to spend..". I wonder how many people do actually have sufficient savings AND can afford to spend. How does one define sufficient savings, anyway? 3 months of living expenses socked away in easy to access accounts? 6 months? A year? Many Singaporeans live on credit anyway, so maybe it's not something to worry about. As long as the line of credit is there, they can still spend. But what about that impending retrenchment? As long as my job's there I'm fine, but what happens if my company decides that my "services are no longer required"?

By a conservative estimate, I've got about 8 months worth of living expenses tucked away just in case I'm given the boot at work. I've no debt and I pay my insurance premiums on a yearly basis and those are only next due in May next year. My only big recurring cost is my rent. If I were to really stretch it, I guess I could probably survive for a year on what I've got saved so far. Despite all this, I still don't consider this sufficient savings for me to be able to go out and indulge myself. Why? Because for all SM Goh's encouragement, he can't guarantee that I'll still have my job this time next year. Because Singapore's economy is highly dependent on the global economy unlike some other countries, where it's more self-contained. Because the guys I work for are in the red with no rescue or turnaround in sight. If anything, I wish I could afford to save more.

Not everyone agrees that encouraging spending is the right thing to do now, though. Came across this post on Consumerism Commentary that discusses the issue from an American perspective.

Sometimes it seems as if we’re working at cross-purposes with our best interests. We’re watching a struggle born of reduced economic activity while intentionally reducing our own spending. If you look at it on that level, it appears as if we’re intentionally punching ourselves in the gut. If you view it from a broader perspective, however, it’s clear that there is no tension between economization and a stronger economy. If anything, more responsible personal money management is exactly what our economy needs.

I think regardless of how the economy is going, we just need to be responsible for our own finances. Job security fluctuates, as do prices and economies. We just have to take care of ourselves and be prepared for anything.