ZPI: We are Living for Less, Don’t Get Too Comfy

Zoomer | September 18th, 2009

The upside to the downturn is that, by our estimate, the cost of living well is lower than it was a year ago.

You may not have felt the increased prices for goods and services from the price spikes earlier this year as they were offset by an increase in the value of your home, some recovery in stocks and the historically low interest payments on adjustable rate mortgages and lines of credit.

Comfortable as they are, low-interest rates are a temporary recession-busting measure, so make sure you have a buffer for surprise hikes in the cost of servicing credit lines. Banks can promote debt at current low-interest rates, hooking debtors to pay it back at the inevitably higher
rates around the corner. Consider whether a sparkly new “product” (read debt) is really worth it before signing on, as variable interest has few places to go but up.

Speaking of inevitabilities, health-care costs and pension obligations will be
emphasized as the cause of stress on public finances, while leftward popular
sentiment around the world has taken some of the competitive pressure off governments in regard to tax rates. Zoomers winding down their prime earning years are relatively insulated from income and consumption taxes, but it would be worth keeping abreast of new levies on property, trust, inheritance and capital gains, which become more politically palatable as downsized voters return to work after a recession. While you may feel slightly richer this month, the downside to the upturn is that interest, taxes and rhetoric are clearly set to rise.

–Jamie Reid