The rainy day is here, and the Government has started unprecedented spending to stimulate the economy. Should households do the same to save the tourism industry?
Our economy is in for quite a shake, and with this, we have started to hear about how we need to adapt to this new reality or new normal. Some of these ideas are great, though some may raise a few eyebrows.
Getting out and exploring our own backyard is being touted as one of the solutions for the woes of the tourism industry. On face value, that sounds fantastic, who wouldn’t want some extra time off in these strange times?
Last October I wrote an article entitled “Save the world buy a TV” relating to the Reserve Bank’s suggestion that encouraging consumer spending would support the economy, restore consumer confidence, and encourage further business investment. With COVID-19, our economy has taken on other hit, with a much bigger challenge, and completely switching off the tourism sector. The four-day week to encourage spending follows similar logic to saving the world with more TVs. We are now hearing that we should spend as if we are overseas, while travelling New Zealand.
In total, saving the $16 billion industry would require additional tourist spending of $3,300 for every person in New Zealand. We would need to keep this up until we can get the border open, and then for the tourist numbers get back to ‘normal’.
This comes while many households are looking at highly uncertain financial reality. A recent survey by the Commission for Financial Capability surveyed 3,000 New Zealanders and the results suggest that the majority of households are either in financial crisis, or on the brink of crisis. With extreme uncertainty around the economy, and a wide range of predictions from catastrophic to surprisingly optimistic, shouldn’t we be saving up just in case?
How much you should save can depend on a range of factors, but many financial advisors recommend available savings of three to six months’ worth of expenses.
Striking the balance of financial stability
Spending and saving are both very important for financial stability. If everyone were to completely stop spending, cash flow for businesses would dry up, reducing incomes and starting an economic collapse, though the inverse can also be equally damaging for households. Spending as if we’re in an economic boom, despite clear risks to future incomes could place households on the edge of financial ruin.
It will be testing times for households in high financial stress. Having a good financial buffer, not only in home equity, is critical in ensuring that households can get through these tough periods.
Realistically, the tourism industry is going to slow down, even with domestic support. Travelling New Zealand while the border is closed will be very appealing for many. The idea of premium tourist attractions without the crowds, and even at a discount may sound appealing, especially when also ‘saving’ the tourism industry and given time off work. Unfortunately, there’s still a long way to go in the economic recovery, and for many households, this may be the calm before the storm.