I recently went to the Economic Update that CPABC (that’s Chartered Professional Accountants of BC) puts on every year. I go every year as it is free professional development (well, almost free as it consumes my time) and I always think that I might learn something. This year I learned that the Economic Update works like a creativity hour for me.
This year the speaker went through his various charts on GDP, inflation and bank rates and gave his predictions. I am perhaps a bit of a cynic but are these economists ever able to predict anything? As he was going through his various charts he focused on the winter of 2014 where everything took a tumble due to bad weather, yet weather does not seem to be one of the factors when he made predictions for the upcoming years. Instead his predictions were based on all the old culprits: the state of the various world economies and the demand for the raw materials that Canada ships out.
After a while I tuned out. There were at least 100 slides of different charts predicting various things. After hearing that the Bank of Canada rate would likely remain unchanged, I sat back and began to daydream. After all, most of us middle class citizens are mainly concerned with knowing if our mortgage, line of credit or cost of doing business is going to change. As the economist predicted the Bank of Canada rate will not change for a year, we can all get back to paying off those mortgages and loans while building our lives and businesses.
As my mind drifted, I started thinking about our new Liberal government. I hadn’t followed much of the Liberal election campaign, but I did want to see change in Ottawa so I was happy to see that change. After the election I started hearing and reading about the Liberal’s election platform and in particular, I heard that Justin Trudeau is going to help Canada spend its way out of its economic doldrums by spending more money than is coming into the National Coffers. He is going to create a spending plan deficit for Canada… but just for a few years, because with that overspending, Canada is going to figure things out and build a new economy that is not just based on exporting natural resources. Canada is going to turn itself around and become a country whose economy is built on innovation and creativity.
I do agree that sometimes you have to spend money to create positive change.
I also know that sometimes spending your way out of a problem is just not an option. If Canada were like Greece, Canada could not improve its economy by spending more money to fix it. There would be no money to spend.
I think of individuals who find themselves in a job that just isn’t working for them or have been recently let go from a job that they have held for a long time. If that person has the opportunity and flexibility to take time and train and financial reserves to allow that to happen then that person could find something far more sustainable and financially rewarding than the traditional job they recently held.
I recently taught the time value of money to a class of grade 4 children. I told them that if they started investing $200 per year today, they’d have a nice tidy of sum of money to finance their mid-life crisis. Now that got me dreaming – wouldn’t that be fantastic if everyone did this?
But this is not the case for many individuals these days. Many people have no cushion.
People who have dug themselves into a financial hole with no savings, emergency funds and who are living paycheque to paycheque, simply cannot afford to take risks to get themselves into a better situation.
I also think about the person that is stuck in an unhappy marriage or relationship. If that person has a financial cushion, they are much more likely to take steps to improve that relationship by spending money on counselling or by spending money on a divorce. Sad to say, but many people stay in an unhappy marriage because they cannot afford to fix it or to get a divorce.
So what can a financially stuck person (or country) do in the situation where they cannot spend their way out of the problem?
Well, in Greece they enforced austerity measures. That doesn’t seem to be working either. Why not?
I think the key word in the above sentence is “enforced.”
Before someone makes the decision to start looking at options to cut personal spending, that person needs to know what future benefit the current pain is going to generate. It is hard to live with austerity, but what helps is knowing that it is for a defined period of time and it is to build a hopeful future. A clear path and plan for the future is necessary so you are not just living on the cheap forever. There must be a link between the current suffering you are going through and the future benefit so you are willing to continue that suffering.
Just like there has to be a clear path and plan for the spending that Canada will be doing. I would hope there is some sort of link between what the money is being spent on and how that will continue to benefit Canada in the long run. Where will that bridge we will be spending money on to build lead us to? Hopefully to a place that most of us want to go.