Should we save our money or go on a spending spree in the current crisis?

What do we need to do in the economic crisis that we’re facing at the moment? A lot of people are advocating that we shouldn’t splurge and we should save our money for the future.

Is that notion correct?

Going back to economics 101, it’s actually the other way around. As we all know, negative Gross Domestic Product (GDP) growth equals a recession. To support GDP, one actually needs to spend his/her money. Only then you can fuel the economy. If we save, we’re only crippling the GDP.

During an out of control economic boom do we only start cutting down on our expenditure so as not to allow the inflation goes out of hand.

However, of course, things are not as simple as that. The emotional distress that a financial crisis gives you alone is enough to deter you from going out there and shop like there’s no tomorrow.

Also, one thing to remember, splurging helps the economy but will be bad for an individual’s nest egg. Agreed?

Please, my readers out there. Do participate in the discussion. What do you reckon? Should we spend or should we save?

P.S. If you ask me whether am I spending or saving, I’d say I’m saving my money. I’m pretty much scared shitless thinking about what’s going to happen to me after I graduate.

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Disclaimer: This article is not a specific nor general advice on managing or investing your money. This article does not constitute a recommendation nor does it take into account your investment objectives, financial situation nor particular needs.

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About nadlique

This blog is about the journey of a 28-year-old Malaysian towards financial freedom. This blog was started back when the blogger was 21 years old. However, his journey towards financial freedom had begun way before that. Materials such as investing, business, entrepreneurship, equities, and real estate are presented. The author also posts his thoughts and observations on life in general.

Comments

  1. fatenbest says:

    Now we are having recession which means we have negative inflation. We should spend normally in non-durable product (as before recession), but reduce spending on durable product. At least we can help in increasing GDP and still have savings. Although if we save more today, it doesn’t mean we have more money because money can be devalued by inflation. But I might be wrong, because economics is not my area. I m studying Petroleum Engineering.

  2. Actually, recession means negative GDP, not negative inflation.

  3. I don’t think we should be spending only on perishable items. If we want to support the GDP, then expenditure on non-perishable items need to be widened as well. Remember, production of non-perishable items like cameras, cars, and etc. also contributes to GDP.

    What do you think?

  4. fatenbest says:

    You are right that non-perishable item contribute to GDP, but we can wait a little longer to buy it until the economic cycle move out from trough, at least we still have savings. Emm.. I know that during recession we are going to have negative GDP, but i learned in Macroeconomics class, during recession we are also going to have negative inflation. According to Philips curve, unemployment rate is inversely proportional to inflation. During recession period, unemployment rate is increasing but the inflation will be decreasing. But I might be wrong, because I m not an expert in this area, but i m trying to understand it. But I have a doubt about what I learned, where during recession we are going to have negative inflation. I already recheck the fact in the textbook, and it looks like it is correct. Economics is not like engineering, economics is an art. But you are really good in this field. I m impressed. Are u working or still studying?

  5. Eh, lupa pulak nak reply yg ni.

    Probably you got two terms mixed up? The terms are disinflation and deflation. Disinflation is when the inflation rate goes down (say, 5% to 3%) and deflation is when we have negative inflation. Most probably you are already aware of this.

    I don’t think that an economy has to be in a deflation state to be in a recession. Temporary reduction in prices do no constitute to deflation (i.e. negative inflation).

    An economy can still be in a recession and have positive inflation. For example, the United States right now.

    Plus, if we’re in a recession and the central bank responds by increasing money supply significantly, then that will in some way sustain the positive inflation rate.

  6. well. i don’t have that much money to go on a shopping spree. saving is still the priority

  7. Indeed my friend. I’ll be saving my money as well.

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