Surviving Challenging Economic Times

When the price of oil fell from an annual average of US$93 per barrel in 2014 to US$49 in 2015 and then to US$43 in 2016, severe consequences were imposed on the domestic economy, which were exacerbated by the fall in gas and oil output during the period. The direct effect was a significant fall in revenue from the energy sector, which in turn led to a contraction in GDP, the deterioration of public finances and increased unemployment. Needless to say, these conditions have not been ideal for the private sector, as many businesses took action to streamline expenditure, while some were forced to close. Since late 2017, conditions in the domestic energy sector have been improving, with higher oil prices and increased gas production. However, in its Mid-Year review in May 2018, the government took the opportunity to point out that the domestic economy is by no means out of the woods. Against this backdrop, there continues to be a fair amount of uncertainty and anxiety among all stakeholders, with citizens continually being urged to manage their finances carefully (tighten their belts), which is indeed very useful advice. However, both households and firms must ensure that their actions in this regard are not motivated paranoia or panic, but by prudence. There are several strategies available to help citizens cope with the challenges associated with challenging economic times. It is important though to seek the combination of initiatives that best suits one’s particular needs. Accordingly, I highlight one possible combination of strategies that can be adopted by households.

Tight finances can place undue strain on relations within the home and this is not necessarily limited to spouses. For this reason, it is important for families to face the difficulties associated with the slumping economy on a united front. To achieve this, the head of the household should first seek the commitment of the family before implementing changes to the way household resources are managed and consumed. An open discussion with the members of the family is a good place to start. This conversation can help to clarify the situation and give family members a greater appreciation of the need to take action to mitigate the negative fallouts. After all, wouldn’t it be counterproductive for the head of the family to set objectives that fail to generate the requisite support from other family members? After the buy-in of the family has been acquired, then the goal-setting process can begin. Everyone who is able should be involved in the development of objectives; like the open discussion, this should also be a family affair. If all members of the family are actively involved in the process, they would better understand the importance of their role and would be more likely to commit to the associated components. At the end of the process, everyone should have a clear understanding of what the objectives are and the activities and attitudes necessary to attain them.

During the planning process, it is important to conduct a thorough assessment of household costs. This analysis would reveal varying needs for different families. For instance, in a household where one or more breadwinners have been retrenched, the need to cut costs may be urgent, while for another household the requirement may be to control expenses. The aim here is for families to maintain expenditure at sustainable levels, which would enable the attainment of key financial goals, such as saving. In this regard, a budget can be a very effective tool and it is highly recommended in both upbeat and tight financial times. However, its usefulness is highly dependent on one’s level of commitment. Unfortunately, a budget, like New Year’s resolutions, is many times enthusiastically drafted, but quickly shelved because the requisite discipline to follow through is absent. A critical step in the budgeting process is the separation of needs and wants or put another way, necessities and luxuries. The budget should ideally cater for all necessities first, while luxuries should be added to the extent that key financial goals are not sacrificed. For instance, saving for your child’s education or paying down debt should not be sidelined for the short-term pleasure provided by luxuries. Other ways household expenditure can be trimmed include reducing meals out, seeking discounts and using cheaper brands.

While families are generally advised to maintain healthy saving habits and to keep debt at manageable levels, this need is drawn into sharper focus during an economic downturn. Although the cost cutting initiative discussed above is generally expected to bring about an increase in savings, it is advised that saving be directed toward the attainment of specific goals. One such goal is the creation of an emergency fund, which would provide some cushion if one falls victim to retrenchment. It is generally recommended that households accumulate at least three to six months of living expenses to this end and seek to increase the fund further, during economic downturns. The ideal approach is to establish the emergency saving early in one’s work life and build it up over time. While this is by no means new advice, not many people adhere to this practice, similar to the failure of many to set aside sufficient resources for retirement and to acquire insurance coverage. Pairing saving with prudent debt management could go a long way in helping to achieve financial goals. In this regard, one should seek to control debt, paying close attention to one’s ability to repay. Although the expansion of credit would help to boost economic activity, rising non-performing loans and bad debts would have the opposite effect. To some, accumulating the levels of savings discussed above may seem a daunting task and to others it may be nigh impossible. To these people I say it is important to save whatever you can on a consistent basis, since recession aside, life can throw some major challenges at us all at any time. Let your efforts to save be guided by goals which suit your particular circumstance.

During this period, it is also vital to protect or even augment household income. For entrepreneurs, this means protecting market share, seeking new markets etc. For employees, it means being excellent at the workplace. This involves being punctual, doing more than is required of you, looking for ways to improve processes or reduce costs and volunteering for projects. In simple terms, you should strive to be the last person your employer would want to lay off. With regard to boosting income, leveraging personal skills, such as baking and computer repair, provides a good way to do this, as well as generating income for individuals who lost their jobs. Making yourself more marketable through education and training can also help to land that new job or simply retain employment. It can also help persons take advantage of the new opportunities that arise when the economy returns to growth.

Finally, it is important not to panic. A recession is definitely not something to take lightly, but reacting out of fear normally does more harm than good. History is full of examples of governments, companies and families that took actions that were more motivated by fear than by reason in tough economic times, only to struggle with the consequences of their decisions. An example of this for a family would be the sale of important assets or valuable investments to boost liquidity or pay down debt, without a proper evaluation of the household’s true financial standing. This can compromise long-term financial objectives. Further, some may think this is a time to cut all entertainment, thereby limiting avenues for the family to de-stress. Do not be controlled by fear. Instead, be prudent and make a conscious effort to enjoy life, making the most of what you have. Maybe you can no longer afford to take the family on that trip abroad; well why not spend the weekend at the beach; explore this great land of ours; go see a movie. Entertainment is important; it helps to keep us healthy. Although we may be forced to reduce our recreational budget, let’s not eliminate it altogether.

While the underlying source of the weak economic activity currently affecting Trinidad and Tobago is beyond our control, we must recognise that we have various strategies at our disposal, which can help to mitigate the hardships imposed. We should seek to generate a united response from our families, remembering the critical need to be guided by prudence rather than fear and paranoia. We should also work toward protecting our income, while setting aside sufficient resources for savings in the process. It is vital to take the long view because recessions, like economic booms are a part of the business cycle and as such, tend to recur from time to time. Accordingly, let’s manage our resources in a manner that will allow us to take advantage of the upbeat times and survive the challenging economic times.