What the western world can learn from developing countries about safeguarding one’s economic future

When the dust settles on the COVID 19 pandemic, the world will be faced with one of the worst economic downturns in the last hundred years. However, the way different nations tackle this economic challenge and the rate at which they come out of it will vary distinctly. Millions are predicated to be jobless over the next year and this becomes even more worrisome given the amount of emergency funds available (or the lack of it) in these households to tide over such situations. The impact that it will have on different individuals will be dictated by how well we have practiced the art of Savings.

Surprisingly, the poor countries where earning a living is tough and an adventure in itself, have a better chance of coming out of this situation less impacted as compared to rich nations due to the habit of Savings and many other key socio-economic factors.

Why Savings?

Savings not only help navigate such uncertain time’s; they also provide a long-term security to tackle life changing events. They provide mental peace and insures a family’s future. Savings is the most important idea to be sold to people joining the workforce. It acts as a cushion against the punches the real-world throws at us time and time again. It acts as a much-needed fallback option in case of sudden joblessness, economic recessions or loss of assets. And critically, it secures one’s life after retirement.

Global Economies

The economies of this world are a volatile place and difficult to predict for the average population. The risks involved in sustaining one’s livelihoods in these turbulent economies are tremendous and largely underestimated. This problem is rampant in the developed and rich economies which thrive on spending populations instead of ones who save. The capitalist mindset that has besieged these countries is so deep rooted that it is near on impossible to reverse the trend. Plus, the constant temptations and urge to spend is so ingrained that the idea of savings seems very low on the priority list.

Examples

Look around (in the western world) and you will see plenty of examples depicting these problems

• Crowded retail stores and burgeoning e-commerce businesses
• Constant release of iterative (I won’t even call it new) products and hordes of people lining to get their hands on one
• A steady push to upgrade to things that don’t matter
• Stockpiling stuff in giant stores and offering ridiculous levels of discounts
• Eat outs and culture of dining out on a daily basis
• A CREDIT culture which makes one spend money which they don’t have

One great example is seeing people of supposedly low-income groups working as Uber drivers driving high end luxury cars. Makes you wonder why drive an Uber when you can own such cars?

The first thought that comes to our mind is Why?

To answer this question, we need to understand the mindset and historic outlook into these economies and in-turn, the culture that defines these economies and people part of this ecosystem.

There are many theories as to why western populations stopped savings some time back:

1. Internal government policies: Government policies which have made it easy to spend with credit cards, easy to borrow money from banks, and easy to raid savings which pushes people to spend and borrow more. However, this is negated by the increasing costs of houses and healthcare which put tremendous strain on a general household finances.
2. Buying houses: The poor and the average middle class went into debt for buying houses. Many of them used the credit boom to buy houses, cars, and furniture. What they didn’t realise is that to achieve this, they went into tremendous mortgage debts by investing all of their savings into one kitty. However, the housing bust turned into a nightmare for these people as they lost not only their homes, but also their life savings.
3. Savings stopped when income growth stopped: It is but natural for people to spend as well as save more when their incomes grow year-on-year. This was particularly true for western populations who saw tremendous income growths in the 1970’s. They purchased large homes, bought fancy cars and expensive jewellery. They also complimented it with savings that would sustain them for future uncertainties. However, in the following decades, the income growth drastically slowed and people kept on spending to cover for rising expenses like retail prices, healthcare and education, but couldn’t afford savings. Plus maintaining the elephant in the house which were not essential items acquired when times were on the up.
4. Mindset: One of the biggest mistakes one can make is to try and look and sound like the guy next to you. This means wearing expensive clothes, living in big houses, buying expensive cars or expensive gadgets. This is what they call living beyond your means. Unfortunately, this is exactly what transpired in the 1990’s and early 2000’s which eventually led to negative or negligible savings in western countries.
5. Socio-economic structures: Some of the western countries are notorious for their imbalanced Socio-economic structures. Single parents with children is one such problem. One such study reveals that nearly 60 percent of first births in lower-middle-class households are to unmarried women. This means that single incomes are rather lethargic in feeding and providing a sound future for everyone in a household. This makes it difficult to save from an already strained financial system which results in other serious problems.

The above aspects highlight a need for change, albeit slow, in how social aspects are and how economies need to evolve over a period of time.

What I am trying to say here is that had these civilizations focused more on savings instead of a flawed economic model, things would be a whole lot different than what they are today. Every day, we see millions of people apply for unemployment benefits during these tough times and it is difficult to see how this trend can be sustained in the long run.

It is high time that people not only in the western world, but also in developing economies understand the importance of savings at the earliest. It would be prudent to start adopting this philosophy at the earliest because tough times call for drastic changes in our lifestyles.