The Cost of Living Post-Crisis – Financial Management

The Cost of Living Post-Crisis – Financial Management

The Cost of Living Post-Crisis – Financial Management

By Chris De Luca

For a series of seminars I have been preparing, I have been looking back to see how we used to spend our money compared to the present. The cost of living is a topic that has been brought to the forefront of many people’s minds, due to the current crisis. Whether you have been forced into furlough, home working, and so on, you are likely to be facing a multitude of challenges.

As well as looking at our past spending habits, I have been considering how we used to manage our work-life balance, compared to the present, and into the future. The term ‘work-life balance’ is bandied about a lot, but what does it actually mean? How can you quantify it? Is it measurable? It’s quite natural to want to have it all (and many of us can), but not all at once! There is a direct parallel between the cost of living and the quality of our lifestyles.

The first scientific attempt of comparing the cost of living was the ‘RPI basket of goods’ introduced after World War 2 in 1947. The difference between then and now is fascinating. RPI stands for ‘retail price index’ and the ‘basket’ is made up of goods and services, which are split into a dozen or so categories. The weighting of these different categories reflects and guides major trends in society. RPI is used to measure inflation, i.e. how the cost of goods and services have changed over time.

Why is RPI important? Because it drives our own aspirations, including our ‘bucket lists’, and it relates to our work-life balance. All too often when we talk about this, or ‘the future’, the timeframe being considered is less than 5 years. This is the typical period that we normally think decisively about, and we often unconsciously find ourselves slipping into a lifestyle or behaviour pattern without taking much notice of the long-term consequences. The rise of internet shopping, the use of contactless cards, and an almost bewildering level of consumer choice makes it all too easy to ignore tomorrow in pursuit of instant gratification today.

As some of you might be aware, I have been doing this job for a year or two (!), and this will be the fourth recession I have faced in my time. When it comes to the stock market and other financial matters, there are lots of predictions flying around about how the ‘new normal’ will look compared to the old normal, i.e. ‘the past’.

The series of articles I intend to write during this time draw on my experiences, and my aim is to help those who may be trying to plot a course for themselves. For example, you may have a good idea of where you want to be now and years down the line. However, the past few months has taught us there’s truth in the comment made by Mike Tyson – on entering the boxing ring, “Everyone has a plan ‘till they get punched in the mouth!”.

Let’s take a moment to go back to 1947 when the RPI had just been introduced. The UK was in the throes of recovering from World War 2 and rationing was still in place. To give you an idea of how an average family’s money was spent at this time, I looked at the categories which usually define our work-life balance more than any other. I have rounded the figures up or down:

1947 2019 (published Jan 2020)
Food and alcohol 35% 11%
Transport 3% 12%
Housing 16% 30%
Leisure 5% 23%

 

The post-war world of 1947 was very different to today. People lived closer to where they worked. Villages often had their own industry or a small factory. Farms employed around five times the numbers they do now.

We only have to drive around the city of Leicester to see the history of industry by looking at the changes in housing architecture in Highfields (the owners), across to Spinney Hill (a barrier to the ‘huddled masses’) and to East Park Road (the managers’ houses), along with rows of terraced houses (for the workers) within easy reach of the nearby factories.

Back then, public transport routes coped easily with travel requirements. In today’s world, travel routes do not necessarily reflect where we live and how we work. For example, Fosse Park and the Meridian area have recently seen big new commercial and residential developments. There are other such developments around the city and across the county, but few can be reached other than by car.

In 1947, families could spend their money on football and cinema tickets, some (but not many) shows, concerts, theatres, and dances in music halls. Back then the only gadgets were limited to radios – TVs were not yet household items. Now we have all sorts of technology and online subscriptions coming out of our ears!

Fewer holidays were taken, and these were usually by train to the seaside, as motorcars were not owned by everyone. The Leicester Mercury often features old black and white photos of holidaymakers and the railway stations they would travel from (there used to be seven stations in the Leicester area). In 1947, only the rich travelled to holiday destinations by airplane.

Last year around the world, 40 million planes took off (and landed one way or the other!) and, at any one time, there were 10,000 planes in the air. Coupled with 1.4 billion of us visiting another country for a holiday last year, all of this has created significant environmental concerns for our future. However, this year due to COVID-19, all but necessary air travel paused.

The current crisis has impacted our lifestyles and the cost of living. I will be continuing to explore this topic in future blogs, but for more insights into work-life balance, please follow my LinkedIn page.

Need to review your current financial plan? Worried about how the crisis has affected your savings? We offer practical financial advice and our first meeting is always free with no obligation. Why not get in touch to see how we can help

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