What Will We Buy To Help Us Through Hard Times?
by Efin Advisor | November 30, 2008
After a week of sometimes frantic, (and even fatal), consumer stampeding for holiday bargains, The Financial Times of London posed the penultimate question for store-goers: “What will we buy to help us through hard times?”
In the USA, sales of flat panel, digital TVs were in high demand, while in the UK, the Sun reported that sales of maternity dresses, of all things, were up. The Economist found evidence that physical therapists were a hot ticket to help anxious workers “de-stress.”
Traditional economic theory dictates that consumers should cut back their spending if they believe that their earning power will fall for an extended period of time, but if they believe the hard times are temporary – say, a short period out of work – they might “smooth” consumption by borrowing during the hard times (such as with credit card purchases) and paying back when things pick up. That sounds reassuring, but can be a perilous prescription. Ray Barrell of the National Institute of Economic and Social Research comments that consumers who want to borrow teir way out of the rough spots may not be able to borrow as easily to do so0
Nervous retailers might wish to pick up research from the 1990s by the British economists Martin Browning and Thomas Crossley, called “Shocks, Stocks and Socks.” They found that when people are unemployed they save money in a logical way, by not buying “small durables” such as socks, and indeed clothes in general. In the short term, people get by and save about 15 per cent of their household budget. When they find a new job, they replace the tired old socks. Bad news for Marks & Spencer; good news for sellers of needles and thread.
What’s on your wish list for the holidays? Are there essentials you can’t live without?
Or do you intend to trim your budget this season along with your tree?
I think that it is plausible that people cut their budgets by not buying socks, but I don’t buy socks that often anyway. Its not like I have a clothing budget built in every month- so I have to find other ways to trim the budget. I have found that little things like unplugging appliances, and turning down the heat in my house have a much larger impact on my monthly finances than I thought. I try to use as few rooms as possible in my house so that I heat them less, and I keep the lights off or dim as much as possible. I have started to sleep earlier and wake up earlier, so that I can make more efficient use of the sun, instead of running up my electric bill during the night hours. If anyone else has ideas for me I would gladly hear them.
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I don’t know about cutting back on power, but I have managed to save by buying differently at the store. I look for generic brands, I buy deli-meat from the deli instead of pre-packaged, and I look for meals that I can make cheaply that yield left-overs. I have also stopped ordering drinks when I eat out, a glass of water is healthy and cheap. I think that the most important way that I have tried to save money is by cutting out the more expensive novelties of my life, such as the lottery ticket I used to buy each week.
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Borrowing money during a time of financial crisis is not a good idea. The article says to only do it when it looks like you’ve just hit a short-term rough patch… but of COURSE everyone who is out of work or hurting for money tells himself it’s just a short-term rough patch. And even if it’s a situation that legitimately is a short-term rough patch, the onset of a greater recession or depression will transform it into a long-term problem. My advice: be frugal. Don’t live beyond your means. Maybe it stinks to not be able to buy that new car or flat-screen TV, but waiting a year or two will ensure your survival. Don’t shoot yourself in the foot, especially if you have a family to support, by borrowing money and throwing yourself into a world of debt.
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Saving definitely involves more than cutting back on the small things in life. Those things tend to be infrequently purchased anyway. Honestly, how often do you buy socks? The biggest expenses tend to be energy related and food related. If we all travel less, turn our lights off more frequently, keep doors closed so rooms stay hot, and buy generic food instead of brand names of the same products, we can all save a large deal of money.
It is interesting though that if you did buy less durables, you could save a lot of money. People may want to do this more in general. Buy less clothing, wear it longer, and save a ton of money that could be invested or put in a rainy day fund.
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I think we are going to see people buying things that are much more durable this year. If people still want to buy things that are fun and entertaining, which is a common theme for this season, then I think we will see a lot cheap things that provide a lot of fun bought. Things like video games, which last a long time and provide a lot of entertainment, will probably be in high demand. People will be looking for long lasting ability more than anything else, so they can capitalize on lots of entertainment over a long time.
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