by Scott Pape - February 28th 2009
I am sitting at the airport checking my email before I board my flight home from Tokyo. My inbox shows a dozen new emails from stressed-out people seeking financial advice.
There will be more waiting for me when I land.
I have no hope of responding to them all. It’s inevitable. Unavoidable. I have no other option but to officially file for email bankruptcy.
While each email I receive is different, they all point to the same conclusion: This isn’t an economic crisis. It’s a confidence crisis.
No monetary mojo
It’s a lack of monetary mojo that’s causing consumers not to spend and bankers not to lend, sending the world economy into an ever-deeper downward spiral.
Worse still, the people we look to for guidance in these times of crisis have failed us.
When the lights came on we found out that the wizards of Wall Street not only weren’t wearing any clothes, they’d photocopied their private parts and sent a copy to taxpayers with a bailout bill attached.
Our politicians in Australia haven’t fared much better. Their economic pill involves spending their way out of trouble.
The theory goes that when consumers put their wallets away, the Government must step in to take up the slack.
In order to get the stimulus across the line, the Government has had to lay it on with a trowel; we’ve been told that we’re facing an economic emergency, the likes of which we haven’t seen since the Great Depression.
What Japan teaches us
Yet all this achieves is to knock our fragile confidence even more.
My trip to Japan provided a working case study of the importance of really supporting consumer confidence – and why middle-aged men sitting in Canberra talking about how they can stimulate us need to get their heads out of their policy documents and look deeply, and quickly, at the ramifications of their economic actions.
In the early 90s, Japan experienced the popping of an economic bubble that led to property and share values declining by 60 to 80 per cent over a 14-year period.
Faced with economic Armageddon, the Japanese government of the day played the same hand our politicians are playing today – ramping up spending to fill the gap left by shell-shocked consumers.
They gave it a red-hot go.
Over the next 14 years, successive Japanese governments racked up the largest public debt on earth.
In 13 instalments they pumped no less than $US5.5 trillion into the economy, building infrastructure and bailing out banks and businesses.
It didn’t work. For 14 long, painful years asset prices dropped, the economy remained on life support, and the people grew more fearful.
Ramifications of public debt
Throughout my trip I’ve spoken to many Japanese about their views on this tumultuous period.
All were bitter about the government’s spending – their children have inherited a debt burden they’ll be forced to repay throughout their lives, while they have inherited a deep aversion to risk and an addiction to saving over spending.
Today, the average Japanese consumer has 50 per cent of their wealth in low-interest savings accounts, which makes them the biggest savers in the world. This is what economists call the “paradox of thrift” – if everyone banks under the bed, the economy will stall.
Then again, they’ll need it.
More stimulus
The global crisis has caused a drop-off in the demand for Japan’s exports. Some economists fear our biggest trading partner is in a depression – yes, a depression.
In response, the Japanese Government’s latest effort was to give every adult 12,000 ($A189) in the hope they’d spend and stimulate.
It’s easy to sit on the sidelines and whinge, but much harder to have something constructive to add to the equation.
So, as someone who doesn’t qualify for the government gravy, here’s my two bobs’ worth on the best way the Australian
Government can improve the confidence of consumers.
Stop spending our money like confetti. Start making a real investment in our nation’s future by providing government-subsidised independent financial planning to the masses.
Why you need a financial plan
The people who email me don’t have a financial plan.
Without a basic understanding of where they stand financially, they can’t possibly have any confidence in the future.
When you’re scared you make irrational decisions.
While the rich can afford good advice, the masses – who wade at the shallow end of the economic pool – tend to attract the sharks.
While I understand that having the Government run anything means they might balls it up in some way, it’s a risk worth taking.
This is one of the only ways to ensure the masses can access truly independent, fee-for-service financial advice.
I did some research this week and found that there was a grand total of 11 financial planners in the entire country that fit this bill.
The numbers
Lets talk numbers: even if the government-funded financial planners cost taxpayers $180 an hour (five hours equals $900), it’s still a good investment for the future of our economy. Here’s why:
A family could spend five hours getting personal advice, learning basic budgeting, ensuring they have the lowest mortgage and debt servicing possible, evaluating their super, projecting what they’re likely to retire with, and learning some strategies on how to boost it long before they pull on the sandals and socks.
This would not only inspire confidence (which will eventually lead to increased consumer spending), but it would also lead to smarter money decisions.
More dough would find its way into productive places like savings and investments and less towards feeding the plastic monster.
Just like in Japan, the economic boom we experienced masked many mistakes – a failure to save, to diversify and to plan for the future.
Now our day of reckoning has arrived, the best thing the Government can do is help people to help themselves.
Tread your own path!
Photo: www.flickr.com/photos/tjt195/27285219/
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