Consumer Spending is Everything
I had learned about this during my studies. Listened to my lecturers go on for hours about how consumer spending drives the economy. But I didn’t really understand it until I experienced it.
I had an inherent belief that businesses drove the economy. That business to business transactions continued to drive the underlying flow of money. I was very wrong about that.
When consumers stop spending, it stops everything. Let me give you a real life example that led to the demise of my own business.
Apparently, in Brisbane at least, there are certain times of the year that consumer spending is low. The city just goes quiet. This apparently is around May/June or the time the State of Origin Rugby League matches are on. Nobody told me this of course, this is just known by those who have been trading in the city for some time.
So when this happens, nobody buys your food. Not because your food is bad, they just aren’t spending. You prepare the food anyway, because you just never know when people are going to get hungry right? To prepare the food you need staff to help because it’s a big job and although you could do it on your own, you will be too exhausted to serve it if and when the customers come.
So you hire the staff, prepare the food, and nobody comes to buy it. You throw out the food and do it all again the next day.
So at the end of the week, you have minimal sales, some but nowhere near enough to pay your staff. You still have to find the money to buy the ingredients to do it all again next week.
You tell the staff they will get paid next week and you order the ingredients which you may not be able to pay for, in good faith thinking that next week will be better.
But it isn’t.
Now you have staff who don’t have money to spend either. You owe other businesses money for the ingredients you bought and still no-one is buying the food.
It’s a downward spiral.
When consumer spending stops, everything stops. Businesses can’t function. They can’t pay other businesses what they owe. So other businesses are affected. Landlords are without rent and the property market suffers.
Am I telling you to keep spending to save the world? Maybe. But as a consumer I totally get that I just don’t have money left over to the buy the stuff I would normally splurge on, like going out to lunch or dinner. These are extravagances. The latest bank ads aren’t really helping either by highlighting how much people are spending on take away foods. It’s the first thing to go.
By all means run your own race, and do your own budget, but understand the cycle. If everyone starts thinking like you and you lose your job because the economy is slow, now you’ll understand why.
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