July 26, 2019

The Ramen Situation

Household savings in Australia are at an all time low level of 1% of the household income. According to MorganStanley, Australians also have debt-levels at 189%…which means that for every $100 of income, Australians are spending $189. This was OK for a while because the houses we owned were soaring in value and that extra spend was sort of being covered by the wealth we were amassing in the bricks and mortar that we live in. At some point, while we were keeping up with the Jones’ and the Kardashians, things have got a bit out of hand. 

As most Australians discover during their student days, if you spend all your money on Stone & Wood (beer, that is), then you will likely be dining on 2-minute noodles in order to catch up the deficit until the flow has returned to your cashflow. According to these figures from MorganStanley, most households in Australia are now on a steady diet of ramen noodles and the impact on the Australian economy is pretty dire.

(Forgive me if this is an elementary discussion on how the economy works, but they just don’t teach this in school. Too many of our politicians, it seems, have never sat down to a polystyrene cup of steaming re-hydrated wheat noodles with coloured flecks to pass as nutrition…so it’s a lesson we can all revisit.)

You see, when Mr. and Mrs. Joe and Josephine Citizen, don’t have money in their pocket to spend, then they don’t – spend. That means that there is no money going into businesses and those businesses are less or not profitable. Less profit means that there is no growth in the business – no growth in wages either, and no new jobs. And suddenly everyone is eating a steady diet of ramen.

It is a downward spiral from there, because of how the economy works – the less money there is, the less it is worth. This means that government must intercede and try to free up some cash to jump start things. They do this primarily in two ways: By lowering the cash rate and through tax relief. Spoiler alert – neither of these interventions feels particularly good.

Firstly, lowering the cash rate. This happens when the RBA meets on the first Tuesday each month and over their Tim Tams and coffee, they decide to ‘drop’ the cash rate by x number of basis points. The banks, who hold most of our mortgages, now ‘interpret’ this according their own margins and will often pass on a ‘cut’ to their variable interest rates. Less money being paid in bank interest, means more money to spend on other things…like an uplift in our culinary intake. But, it also means that there is less money being put away in savings…so there is no incentive to put money away to spend during the next ramen season. With less coming in by way of mortgage interest, and less in the coffers from saving…it also means that banks are less likely to lend or invest in businesses; leaving the private sector (including small businesses) to grow or increase wages or employ more people.

Secondly, is through tax relief. When the government changes tax policy to give us back more money at tax time to spend. The Rudd government did this during the GFC by giving everyone around $900 and encouraged them to buy a new flatscreen. Seemed simple, but all that extra cash floating around gave the retail sector a kickstart and Australia survived the global financial crisis with a blip instead of a trough. But, you take money out of government, and it means you take money away from schools, hospitals, roads, and from the welfare of vulnerable people. 

It seems the words of Edward E. Cummings ring true for many Australian households: “I’m living so far beyond my income that we may almost be said to be living apart.”

Time to reconnect with our financial health. Wellness is more than just yoga, matcha and activated charcoal. Money is taboo for so many Australians who don’t want to face the reality of their lifestyle or their situation. Robert Kyosaki (Rich Dad, Poor Dad author,) insists that financial freedom is a mental, emotional and educational process. With the average Aussie 189% in debt, it might be time to take stock, suck up the ramen, and reconnect with our goals and our financial selves to our social and spiritual selves for some much-needed realignment.