THERE are a million numbers and a thousand ways to measure the success or failure of an economy. But for the average person, who cares?
The Philippines is about 100 million people, each with his or her own opinion on whether the nation’s economy is doing well or poorly, based on his or her own experience. That seems to be just common sense. However, even personal opinion does not accurately reflect the overall economy, or, actually, an individual’s personal financial situation.
People spend their money foolishly, and then complain about not having enough money. Others are lazy and are not willing to work hard or smart enough to get financially ahead. Still, there are those who do not know how to spend their money in a way that brings enjoyment and satisfaction.
I have always taught that you need to be able to treat yourself with every paycheck, assuming your income is only salary-based. If you cannot afford to buy that P200 Wagyu beef shawarma that you want, you are poor. You are either not making enough money like a dirt-poor farmer or you are spending like a drunken sailor. Either way, you are “poor,” no matter how much money you make.
Assuming you are younger and without a family to support, if you are not treating yourself, waiting for your income to get bigger, then you will not properly “treat” your family when you are making lots of money.
This spending for a treat may seem like some of the other advice that passes for financial wisdom that is actually financial baby food. But it is important personally and economically.
“Disposable income” is the amount of money that households have available for spending and saving after the government gets its cut of your labors.
Discretionary income is your disposable income after all expenses are paid to meet your current needs, like housing, food, clothes, school, car and medical expenses, and other essentials. Granted some of these are hard assets, like the car and the house, but you have to have a place to live and most of us need transportation.
Our discretionary income, what is left over after we survive, can be spent, saved or invested. But it’s the spending part that has the most immediate impact on the economy and maybe on our own lives.
Buying a new car or house, as well as that new pair of fancy shoes or designer shoes, is part of discretionary income. Vacations and luxury items are also part but what it really takes in is nonessential expenses, defined by whatever a person thinks that means including that expensive shawarma.
Steve Wynn is one of the sharpest operators in the global gambling business and was the prime force in revitalizing Las Vegas in the 1990s. His company now owns several resorts in Las Vegas and has expanded to Macau. He was supposed to do business in the Philippines, but had a major dispute with his Japanese partner.
Wynn says any talk of US economic recovery is false, because he see American discretionary income as collapsing. Of course, he bases this on, perhaps, the most “discretionary” of all discretionary spending: gambling, alcohol and other “fun” things.
Las Vegas revenues, including all the spending at gambling resorts, have been falling about 10 percent per month, year-on-year, for the last 12 months.
It is hard to measure total discretionary spending. You can look at spending for alcohol, new cars, airline travel and the like, but trying to determine how much of this is actually people feeling so confident with rising incomes that they feel comfortable splurging is difficult to accurately count. Nonetheless, it is an important gauge of the growth of the economy and consumer attitude.
Discretionary spending crosses all economic boundaries, and is not just a bottle of expensive wine at a five-star hotel. Members of all economic groups, except the desperately poor, even have a little more excess discretionary income when an economy is going up. It is not just the new car. It is the box of doughnuts on a trip to the mall. It is paying an extra P100 or P200 for better-quality school shoes.
Hard to measure and with an undetermined immediate economic impact, the longer-term result of increased discretionary income and discretionary spending is where the true importance lies. All those new malls in the last years are the result of people having a few more bucks to spend over time.
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