I’ve been wondering whether the economy is built on a reliance of people spending most of their money quickly instead of accounting for lots of people saving. I thought I’d add it here to see if any other Monzonauts might have a better understanding of the economy as a whole than me.
I read a Guardian article yesterday about a rumour which says that Rishi Sunak might be considering distributing vouchers to all UK adults to help boost the economy. Personally, I’ve got serious doubts about whether this would be true, and if it is, about giving as much as £500 per person away. What caught my eye though was that it would be distributed as vouchers instead of cash. It would make sense as it would allow the government to direct the cash towards certain industries which needed it but the article said it would also be to stop people from simply adding the money to savings and not spending it.
It rang a bell about a news story on the BBC, which said that more people were saving more of their salary each month as a result of the lockdown than before. The story went on to hint that financiers and business owners were banking (no pun intended) on customers spending the money they’d saved as soon as lockdown was lifted.
I get the pandemic has had a serious impact on the economy but we’ve had really bad rates of saving for years now. My understanding was that it was largely due to the low interest rates and increasing cost of living. It did make me wonder though if the economy was built on a reliance of people quickly spending money instead of saving it though. Similar to how any bank would collapse if everyone tried to withdraw their cash at the same time, it relies on a constant stream of money flowing in and out.
I might be connecting two separate things, it’s hard to tell since we’re going through a massive economic shock at the same time but it’s clear many people struggle to save regularly for a long time and I wondered if the economy was built on a reliance of that instead of supporting people saving money to protect themselves long-term.
Edit: just to add, I was more referring to the fact that the economy seems to require us to spend the vast majority of our cash. The BBC article said that households were saving about 8.6% of their income during lockdown which doesn’t seem like a high amount and yet seems to be enough to cause concern (although again it’s hard to say that’s a definite with the whole system struggling from lockdown)