The Greater Economic Picture – how does it affect you?
As a child in the 1970s, I felt like I was living on the edge of a green pasture. The baby boomers were piled ahead of me and it was a time of profound economic growth. I walked past schools that were overflowing with portable units to manage the crowds, but by the time it came for me to enrol in them, they were closing down from the lack of enrolment. I realized that we live in a financial environment the way animals live in a habitat, and that it affects us on a very personal level.
Economic growth that happened during my toddlerhood had given way to inflation that marked my childhood, the way a big parade leaves a trail of garbage in its wake. When you’re tagging along at the tail end, you know there’s been a big party ahead of you, but all you cansee is litter and the clean up crews. It was a bit like growing up in the line up for an amusement park that had, just that minute, declared itself full to capacity and pulled the rope across the door just as you got to the front of the line.
I am the demographic leading edge of Gen X, and have found this has had a huge impact on me financially. As a child, I grew up in a sense of wealth and rising prospects, but also profound inflation and a confusion about what things were fundamentally worth. As a teen, I entered the workforce into an economy undergoing the flood of young adults into the labour market. Younger, and with less experience, I couldn’t find jobs. Anywhere. I spent my summers at the beach and couldn’t decide if I was lazy or lucky. I redirected back into school because I wanted to be a professor, but by the time I graduated from my B.A. there were already hiring freezes in universities across Canada.
I don’t tell you this story to imply that we are helpless in the face of macroeconomics, but if you’re doing any kind of financial planning I think you better keep the big picture in mind. A friend of mine just started a business as a personal chef. It’s a luxury market, relying on people to be so busy or so flush with cash that they can commodify basic chores like cooking. I think this is bad timing for such a business, in a big picture sense of things. Will she make it? I can’t say, but I can predict that it will probably be easier to market her services as a cook for busy families and a cheap alternative to catering companies than a high-end chef who only does expensive gourmet meals, wouldn’t you say?
Understanding the financial world around you is critical to doing any financial life planning. Money is all about social exchange, and it never happens in a vacuum. You are a fish in a stream, going with or against the current. You trade, sell and buy in the context of a system, and being able to predict some future circumstances is also fundamental to manoeuvring your way through the stronger currents shaping up around you.
Of course, anyone who’s knowledgeable in finances will tell you it’s impossible to predict the future. In fact, it’s often not a question of being right or wrong, since that really depends on timing. For example, knowing that the internet is the next big thing was obviously the right guess in 1997, but a potentially disastrous investment by 2000. The same goes for the recent housing market and other boom-and-bust speculative bubbles. Being a genius is all about figuring out the right move before everyone else does; being a fool is thinking you’re a genius because everyone ‘knows’ you’re doing the right thing.
But better economic literacy isn’t just about market-timing your way to a get-rich-quick scheme. A greater awareness and knowledge about macroeconomic factors can help you make financial decisions on a personal level and negotiate your next move. For example, if you tried starting a business a few years ago and it didn’t work out, maybe it’s time to reconsider. Has the market changed? Have you changed? Or maybe you’re thinking of starting your own company because you’ve been laid off recently. So think for a minute – how many other people are in the same situation? If competition is stiff, what advantage can you offer that will make your business a success. My own business has slowed this year and I was left wondering what I’d done wrong, until one of my non-profit clients mentioned that fundraising and endowment income had left their budget slashed for the year. I walked away from that meeting realizing that my work was actually pretty protected from downturns, since my baseline income was the same. It’s just that no one has money for special projects right now and that’s an ongoing chunk of my income.
Unlike the character in the movie The Graduate, I’m not going to lean over and whisper “plastics” in your ear, but I do want to open the floor to all of you. Can you peer into your crystal ball to the future and predict what big factors are just around the corner? Can you even see clearly into the present? I’d love to know.