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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
A practical, easy-to-follow guide to understanding and responding to Australian economic trends
How does the fall in the Dow Jones or the rise in the Chinese yuan impact your personal finances? Using practical and real-world examples, Myth-busting Economics helps you make informed decisions for yourself and your business. Written by a leading economist, this frank, fact-filled, no-nonsense guide provides special insights into the Australian economy in Asia, commodity prices, housing affordability, the impact of an aging population on the economy, and much more. This book outlines the themes that people of all ages, incomes, and levels of wealth need to consider in the context of their personal finances. You'll get a better understanding of the key issues and find out how to fully prepare for the uncertainties lurking beneath the surface and you'll learn how to take advantage of emerging opportunities.
Economics dominates the news, but figuring out what is really important is no easy task. At last, this myth-busting book clears the air and gives you the facts you really need to be ready for the future.
- Learn what the economy means to you, your family, and your business
- Prepare for the coming economic trends now
- Understand what drives business through inevitable ups and downs
- Get a firm grasp on the major economic issues that impact your finances
Our lives are inexorably linked to the economy, but few Australians credit just how much economic trends affect their financial growth and security. Myth-busting Economics closes the gap in financial literacy and provides clarification and expert insight to help you navigate the road ahead.
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Seitenzahl: 298
Veröffentlichungsjahr: 2015
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MYTH BUSTING ECONOMICS
A NO-NONSENSE GUIDE TO YOUR MONEY, YOUR BUSINESS AND THE AUSTRALIAN ECONOMY
STEPHEN KOUKOULAS
First published in 2015 by John Wiley & Sons Australia, Ltd 42 McDougall St, Milton Qld 4064 Office also in Melbourne
© Market Economics Pty Limited 2015
The moral rights of the author have been asserted
National Library of Australia Cataloguing-in-Publication data:
Creator:
Koukoulas, Stephen, author.
Title:
Myth-busting economics: a no-nonsense guide to your money, your business and the Australian economy / Stephen Koukoulas.
ISBN:
9780730321958 (pbk.)
9780730321965 (ebook)
Notes:
Includes index.
Subjects:
Financial literacy — Australia.
Finance, Personal — Australia.
Economics — Australia — Popular works.
Dewey Number:
332.024
All rights reserved. Except as permitted under the Australian Copyright Act 1968 (for example, a fair dealing for the purposes of study, research, criticism or review), no part of this book may be reproduced, stored in a retrieval system, communicated or transmitted in any form or by any means without prior written permission. All inquiries should be made to the publisher at the address above.
Cover design by Wiley
Cover image © GoodLifeStudio/iStockphoto.com
DisclaimerThe material in this publication is of the nature of general comment only, and does not represent professional advice. It is not intended to provide specific guidance for particular circumstances and it should not be relied on as the basis for any decision to take action or not take action on any matter which it covers. Readers should obtain professional advice where appropriate, before making any such decision. To the maximum extent permitted by law, the author and publisher disclaim all responsibility and liability to any person, arising directly or indirectly from any person taking or not taking action based on the information in this publication.
CONTENTS
ABOUT THE AUTHOR
ACKNOWLEDGEMENTS
PREFACE
1 MASTERCHEF VS MASTER ECONOMIST
The problem of financial complacency
Planning, preparation and enthusiasm — an analogy
A model worth applying?
The importance of engagement
2 YOUR ECONOMY
Economic literacy — understanding the linkages
Interest rates
Going for growth — the role of surplus or deficit
Where you live and work
The unemployment rate: what should we accept or expect?
3 YOUR HOME AND MORTGAGE
To buy or to rent?
Housing price trends and drivers
Mortgage interest rates
Taking the plunge
Reverse mortgages
Affordability
4 YOUR BUSINESS
Managing your business within the macroeconomy
Business lending rates
Further implications of big-picture economics
Is a recession looming?
Managing your business in a recession
5 YOUR SUPERANNUATION
The purpose of the government superannuation scheme
You can’t afford not to pay attention!
Life-cycle investment
Emerging policy changes
How much will you need?
Self-managed superannuation funds
Other superannuation opportunities
6 YOUR GOVERNMENT
Microeconomic policy options
Government spending pressures
Tax revenues
Other regulatory issues
The impact on you and your business
7 YOUR RESERVE BANK
Setting the agenda — analysis and forecasts
Inflation targeting
Other RBA functions
8 YOUR FAMILY
Childcare costs
Public vs private schools
University fees
Healthcare costs
9 YOUR TOUGH DECISIONS
Home economics
Car purchases
Stealth wealth
10 YOUR FUN
Check your basic spending patterns
Comparing costs may surprise you
Money well spent? That’s your call!
11 YOUR NEGATIVE GEARING
What is negative gearing?
House credit since the GFC
Stocks vs property investment
Politics of negative gearing
12 YOUR WORLD
The global economy
Crucial linkages in a globalised world
Reading economic and market trends
Exports matter
Imports enrich our lives
AFTERWORD: BEWARE OF ADVICE AND BE FLEXIBLE
INDEX
ADVERT
EULA
List of Tables
Chapter 12
Table 12.1:
List of Illustrations
Chapter 2
Figure 2.1:
Australia's terms of trade over time
Figure 2.2:
Australian mortgage lending rates
Figure 2.3:
Australian unemployment rate, 1993–2014
Chapter 3
Figure 3.1:
housing prices in Australian cities
Figure 3.2:
banks’ non-performing assets (bad debts)
Chapter 4
Figure 4.1:
Australian business lending rates
Figure 4.2:
Wage Price Index growth
Figure 4.3:
Australian exports by destination
Chapter 7
Figure 7.1:
inflation over the long run
Chapter 12
Figure 12.1:
RBA Index of Commodity Prices
Guide
Cover
Table of Contents
Preface
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ABOUT THE AUTHOR
Stephen Koukoulas is one of Australia’s leading economic visionaries. With his rare and specialised professional experience from almost 30 years as an economist, he looks at economics with refreshing honesty and openness, especially when the answer to many of the economic issues of the day are neither black nor white.
His first job was in the Commonwealth Treasury in Canberra, arriving in an office where most of the staff were smoking, ashtrays were overflowing, the floor was a Soviet-grey lino and there was a huge computer printout of data on his desk that had to be checked with a sharp pencil and a calculator. After 8 years, Stephen moved to Citibank in Sydney and, at age 33, was appointed Chief Economist. It was in this role where he started to gain a profile in the business sector, funds management industry and the media. But in 1999, when Citibank merged with Salomon Smith Barney, Stephen was left to ‘look for other opportunities in the market’; in other words made redundant as the new Citibank strove for new ‘synergies’ and ‘efficiencies’. The ‘other opportunities’ for Stephen came in the form of a writing role at The Australian Financial Review. It was here that he started to stir the pot with frank and fearless analysis, opinion articles and bold calls in the financial markets.
The years that follow see Stephen returning to the financial markets, working for TD Securities which led to a promotion that would take him to London just before the global financial crisis. It might have been this experience that formed Stephen’s views about the virtues of using all levers of policy to promote economic growth and preserve jobs in times of economic and market upheaval.
On returning to Australia in 2010, he rejoined Treasury part-time as the macroeconomic adviser on financial markets. With the GFC still bubbling along in one form or another, he worked with then Treasurer Wayne Swan’s office up on Capital Hill, talking through and analysing what the high Aussie dollar, the Greek debt disaster and the still fractured markets might mean for policy settings in Australia. A few months later, the 2010 election saw the return of the Gillard government and Stephen’s mate, Jim Chalmers, who was Chief of Staff to Treasurer Wayne Swan and is now the Federal Member for Rankin, asked him if he would like to be economic policy adviser to Prime Minister Julia Gillard.
Stephen was in Prime Minister Gillard’s office for 10 months before leaving for personal reasons. In 2011, Stephen established his own advisory business, Market Economics, which prepares independent and tailored macroeconomic analysis for business clients needing to convert economic data into financial market and policy risks. His work provides clients with interesting and often unique insights into the macroeconomic policy debate.
With his unique background and knowledge, Stephen offers more than many economists. He has briefed Australian Prime Minister Tony Abbott on crucial economic policy issues; presented to over 35 central banks around the world; and delivered keynote addresses to the corporate world, the small business sector, retail investors and even Year 12 HSC economics students. He is a popular talking head for the ABC, Sky TV, radio and Network Ten’s The Project, and has a reputation for breaking down complex issues on the economy into easily understood commentary and analysis of the matter at hand.
For more on Stephen, or to follow his blog, visit www.thekouk.com.
ACKNOWLEDGEMENTS
For Meredith, oh how I miss you.
To Phoebe and Oskar — the shining lights of my life.
This, my first book, was sparked by some colourful conversations with the wonderful people from Ode Management, a speaker management office, or as they call themselves, ‘a direct management office for some of the world’s greatest disruptors, innovators and thought leaders’. I am reluctant to single anyone out for fear of missing someone but the infectious enthusiasm of Leanne Christie, Julie Masters, Lauren Kelly, Heidi Gregory, Fiona Pascoe and Darren Reid deserves a mention. They were the catalyst for getting many of the things I speak to clients about into this book.
Then there were the people at my publisher, Wiley — patient people as I stumbled through the process of working out what to do. And here is the finished product. So thanks to Chris Shorten, Jem Bates, Ingrid Bond and Lucy Raymond.
I would also like to thank Alan Kohler for allowing me to use some of the material from Business Spectator and for being an all-round good bloke.
And of course, to those over the years who have nurtured and fine-tuned my career and ideas on economics and financial markets and on how to sell a story. The likes of Grant Bailey, Chris Pashley, Mark Aldridge, Colleen Ryan, Roger Kilham, Martine Irman and from the distant past, it now seems, Chris Higgins, are just a few of the special people that probably don’t realise how much they influenced my career. What good people they are. To Arthur Sinodinos, thanks for hiring me as a graduate in Treasury all those years ago.
Finally, to my family. The last few years have taught me more about life than I will ever know about economics. More than I wanted to know. Who cares where the economy is or where interest rates are going when your world falls apart. Loved ones matter, not the ASX200. There is the personal exhilaration so often experienced in life and shared with your family during the good times, usually when luck also goes your way. These feelings are best shared and should be savoured like there is no tomorrow. Alas, we have also had to share the horrid grief and absolute despondency when ill-health and death end the most special relationships.
PREFACE
I adore economics and financial markets. They incorporate so much that is good for people, and for social fairness and decency, when implemented well. Yet there is a dark side that can be, and often is, exploited so these economic gains are eroded, unrealised or unequally distributed in society.
I am lucky to have spent all of my professional career tied up in real-world economics. That means I have applied the economic theory I first learned 30 years ago when studying for my honours degree in economics at the Australian National University.
While the learning process in economics and markets never really ends as long as your mind remains open to new ideas, many of the fundamental underpinnings of economics and finance will always hold true. Whether I am talking to a fund manager in Boston, Dubai or Beijing with many billions of dollar to invest, a Year 12 Higher School Certificate student in Canberra or Sydney, or people in the mortgage industry, or advising the prime minister or treasurer or the head of Treasury, the key issues of growth, sustainability, fairness, risk management and scenario planning are much the same.
Economics is not that hard, so long as you are aware of the linkages and consequences of acting in one area or another. Being alert to why government economic policy is changing or should change is enriching, even if it is simply to crystallise your thoughts on why some changes are inadvisable. I have long been shocked by how few people carefully audit their personal finances, especially at a time when the government is focused on cutting spending and raising taxes. As we get older we need to be sure we will have enough money to live comfortably in retirement, with decent health care and the financial freedom to do nice things, for ourselves and our children.
The importance of economic policy matters is matched by their frequent coverage in the media. Whether I’m giving a quick interview for a news grab on Radio 2GB, having a longer chat on the ABC’s Radio National or doing a spot on The Project or Sky Business TV, I have found that the thirst for information in the media is constant.
At a personal level, and this is really the pitch of this book, economics covers your job, business and superannuation. It spans interest rates, buying a racehorse, reverse mortgages and gap years for young adults, and so much more. It’s about being aware of the economic policy our political leaders deliver and making sure we know what is at stake economically when we elect this or that government. And don’t forget about the rest of the world and its pivotal influence on the Australian economy, which of course means you.
If you gain nothing else from reading this book, I hope you will be alerted to the importance of monitoring your own personal finances, from the fees you pay on your mortgage and superannuation to the costs of owning a dog or going to the theatre. Economics is about making choices. Some of the money you spend on buying that morning coffee might instead contribute to paying off your debt.
By the end of the book, I hope you will be more aware of your financial position and have a better sense of the trade-offs involved in spending today rather than saving or investing for tomorrow. I also hope you are encouraged to participate actively in the national economic debate and thereby help guide Australia towards better policy choices and better economic outcomes. Be informed and aware about economics and money, and be vocal. After all, at the end of the day it is all about you.
chapter oneMASTERCHEF VS MASTER ECONOMIST
My motivations for writing this book include frustration and disappointment with the direction of national economic policy, the prevailing lack of financial self-awareness and the woeful state of financial planning in Australia. The reality is that many people have little understanding of their own financial status, let alone the high-brow economic policy contemplated and delivered by the government of the day. An equally worrying problem is the unhelpful and often counterproductive financial advice given to business, mortgage holders and those saving for retirement through their superannuation fund. This may sound like a harsh assessment, but as you work your way through the following pages, there should be a realisation that this assessment is correct: people are complacent when it comes to their own money and the big-picture policy settings that influence their financial wellbeing.
The problem of financial complacency
I'll start by noting that many Australians simply don't care about politics and, by default, economic policy. This is demonstrated by Australian Electoral Commission estimates that show some 10 per cent of eligible voters do not bother to register on the electoral roll. A further 10 per cent of people on the electoral roll don't turn up to vote at each election. Add to that a further 5 per cent or more who cast an informal vote. On top of all this, an unknown number register a formal vote only because they are required to and would be fined if they failed to do so. Despite this level of apathy, there are unending complaints from the community about the government of the day, whether Labor or Liberal/National Party Coalition. ‘They are all hopeless!’ is the all too common refrain. And often at the core of these complaints are the government's economic policies, whether implemented or merely promised.
This level of disengagement encourages politicians to pitch the economic policy debate at simple, hip pocket issues that voters are most likely to fasten on when they watch the 10- or 20-second grab on the evening news. Major economic policy reforms that set Australia up so well in decades past were debated, analysed and implemented for the medium- to long-run wellbeing of the economy, rather than being advocated and shot down in the interests of political point scoring, as is all too frequently the case now.
As for people being aware of their own finances, an Essential Research poll conducted in 2014 found that 52 per cent of people with superannuation savings paid ‘not much attention' or ‘none at all', or had ‘no idea' about the arrangements for their retirement incomes. The poll found that only 15 per cent of people paid ‘a lot of attention' to their superannuation arrangements. This is astounding, even for young people, given how important retirement incomes are for people who are living longer and want a better standard of living in retirement.
Paradoxically, most people show little or no interest in their own finances, yet cost of living pressures dominate their concerns.
An odd thing about this lack of interest in personal finances is the high profile accorded to cost of living pressures in the general community, particularly among older people. Paradoxically, most people show little or no interest in their own finances, yet cost of living pressures dominate their concerns.
This financial complacency sees people with superannuation savings not bothering to check the details of how their money is being invested or the fees they are being charged, yet they lament loudly when at age 50, 55 or even 60 they realise they will not have enough savings to fund a decent retirement.
The Australian Taxation Office offers the startling statistic that there are 4 million unclaimed superannuation accounts, holding $18 billion in total assets. This is an extraordinary illustration of the lack of knowledge and interest so many have in their own financial fortunes. It is hard to fathom why people would not bother to keep track of or chase up their own money. Laziness? Too rich to worry? Or is it that they don't understand how superannuation works and how easily they can track their wealth accumulation and retirement income, along with their ability to add to it throughout their working life even when they change jobs.
A simple lack of effort to understand superannuation seems to be the most likely cause of this financial neglect. It could also be that many have built up a reliance on the government to ‘fix things' when needed. In the case of retirement income, why should I bother if I spend all my money now and don't save for retirement, when I know there is a decent age pension to fall back on?
Government economic policy and personal finances are about money, wealth, wellbeing and comfort. Without money it is hard, if not impossible, to access a good education, good health care, a comfortable retirement — even, in more extreme although all too common cases, decent food, clothing and shelter.
Included in the broad category of personal wellbeing, of course, are issues relating to our environment and how the planet can sustain the 7.1 billion people currently on it, let alone the 10 billion or so predicted by 2050. Money, finances and wealth matters are the focus of this book. But I hope readers will be persuaded to take greater responsibility for their vote to ensure our politicians do things right, even if it involves each of us paying a bit more tax or paying more out of our own pocket for services. Over the longer run, good economic policy and good economic outcomes mean higher incomes and wealth for the whole economy. These benefits accrue, in large part, to you and me and directly improve our personal financial position. If we elect duds to federal or state government, and if we don't take an interest in what economic policies are implemented, we run the risk of missing out on a decent lifestyle not only now but into our retirement. This takes time, certainly, but a little effort in thinking about your economy can help to deliver high financial returns.
Think of it this way. It is mandatory for our teenage children to spend hour after hour learning how to drive competently, yet there is no requirement — or even much interest, I might say — to teach them about money, saving, debt, income and opportunity cost. Many people under the age of 25 have little or no idea about how to manage their money. Financial ignorance and a general indifference to money matters persist for most people throughout their lives. This helps to explain why, despite almost 25 years of strong economic growth in Australia, too many people still fall on economic hard times. Most people turn out to be good or excellent drivers as a result of the effort that went into teaching them. Most, unfortunately, have little clue about their finances or where all their money goes each week and wonder why they are unable to save enough for a comfortable retirement.
Financial ignorance and a general indifference to money matters persist for most people throughout their lives.
The reasons for this neglect of financial wellbeing are not entirely clear, given that the issues and coping techniques are relatively straightforward. Again, it is a bit like driving a car. Learning how to drive involves learning to pay attention, to watch out for the dangers and risks ahead. You learn the rules about what is safe so you don't speed; you don't drink and drive; and you maintain your car. The good news is you can still drive wherever you want and go 110 kilometres an hour on the freeway. Not bad. Barring the outside chance of an accident, you will be much better off for having learned how to drive, which allows you not only to get from A to B, but to do so in the safest possible way. If you learn the ins and outs of finance and pay attention to the rules that surround savings, investment and spending, then, barring an accident, you are likely to achieve financial security. With financial knowledge, you are less likely to be ripped off or to end your working career without adequate savings. And you are more likely to take actions that save money, such as negotiating a lower interest rate on your mortgage or lower fees on your superannuation, both of which are money saved.
If you learn the ins and outs of finance and pay attention to the rules that surround savings, investment and spending, then, barring an accident, you are likely to achieve financial security.
Planning, preparation and enthusiasm — an analogy
In examining why so few people bother to take more than a cursory look at their finances, it is instructive to consider an illustration that might at first seem at an odd tangent from a discussion of economic policy, finances and financial planning.
In recent years television has produced a boom in wonderfully entertaining cooking shows. One is the Ten Network's Masterchef. In this show otherwise ordinary people with a lot of interest, and possibly a bit of talent, use their skills and knowledge to cook what are often weird and wonderful meals. They do this with direction and advice from some of the best chefs in the world.
Often the contestants do a remarkable job. Sometimes they match the finesse of Heston Blumenthal or the flair and creativity of Gary Mehigan. The contestants' sense of euphoria and accomplishment when they cook a great dish that the judges enjoy and rank highly is palpable. But more often than not these incredible highs are not realised; the wannabe chefs fail to cut the mustard and their dishes are judged to be merely so-so.
There is drama when the truffle-infused beetroot risotto is overcooked and gluggy, or when the duck breast turns out to be raw inside despite the crispy skin. Sometimes the contestants are too slow at ‘plating up', forget to drizzle the jus or misjudge the seasoning of the quail compote. These mistakes cost them dearly when it comes to qualifying for the next round or gaining that all-important immunity pin. But the judges, the masterchefs themselves, are there to guide the contestants on what went wrong, making sure that the next time they step up to the hot plate, their earlier mistakes are not repeated.
We might apply the Masterchef principles regarding effort, teaching and learning, and even entertainment, to our own economics and finances. There are, or at least there should be, similarities between planning for and preparing a meal and planning and preparing a business plan or investment decision. We know that every day businesses fail despite the best efforts and endeavours of those involved. Business results will often fall well short of the principals' objectives and dreams. This is because the people running the businesses and making the investment decisions are not the equivalent of the TV masterchefs.
There are, or at least there should be, similarities between planning for and preparing a meal and planning and preparing a business plan or investment decision.
Despite the crushing dismay of the contestants who are sent to the elimination challenge, in the real world a dodgy apricot chicken dish really doesn't matter all that much. For those who get through to the next round there is always tomorrow night to attempt to cook that restaurant-quality meal. When contestants do cook the equivalent of a dog's breakfast and must leave the show, tears are shed, there is a convulsion of bitter disappointment, but invariably they go home vowing to learn from their experience. Many go on to start a restaurant, café or catering business, using their newfound experience to embark on a new career. And the families of the Masterchef contestants will enjoy many culinary treats in the weeks and months after their loved ones leave the show and try out their new skills in the kitchen at home.
A model worth applying?
Of course, failures among Masterchef
