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June’s statistics, released a little later, showed that while net debt repayment had slowed, consumers’ bank balances continued to grow.
And when July’s statistics come out, later in August at the time of writing, I think we’ll see much the same thing, albeit perhaps a little muted by seasonal expenditure on holidays.
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It’s not difficult to see the thinking. Yes, some consumers are undoubtedly feeling financial pain during the pandemic. But many others aren’t.
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And with fewer opportunities to spend money, spare cash is accumulating. In times of economic uncertainty, paying off debt – and putting money aside for a rainy day – makes excellent sense.
No more ‘urge to splurge’
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For while people’s individual circumstances differ, the same broadly comparable imperatives are driving the behaviour. Working from home is cheaper than working from, er, work – there’s no cost of commuting, and no expensive coffees and sandwiches.
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People are also going out shopping less, so they’re making fewer impulse purchases. Sources of entertainment are either closed, or are unappealing for consumers keen to socially distance themselves. And with fewer opportunities for social interaction, people are travelling less, and spending less on social gatherings.
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And so on, and so on. Lots of small changes in behaviour add up to one thing: flusher finances.
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What are people going to do with this money? What are you going to do with it?
Saving becomes the new normal
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Businesses have discovered that they don’t need all their employees to be at work in their offices, all the time. Some individuals have found that they are more productive, and less stressed, working from home offices. Investment bank Schroders decreed that employees could work from home permanently, not just for the duration of the pandemic.
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Travel, shopping, entertainment, socialising – even if there’s a vaccine, I expect that some of the behavioural changes that we’ve seen will linger on for quite some time.
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Meaning that people’s finances will also a little flusher for a little longer.
Smart move
Paying off debt is sensible: do that first. Bolstering your bank balance is also sensible: cash savings are a handy safety net. But with interest rates on the floor, savers must recognise that the real level of return is either close to zero, or negative.
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In early January, before the pandemic panic of late February and early March, the Footsie was close to 7700. Since late May, it’s been bumping along at around 6100 – a 20% discount, in other words.
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Granted, plenty of businesses have taken a pandemic pounding, taking their share prices to even steeper discounts. But many others are recovering nicely, with dividends being restored and confidence returning.
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With surplus cash, a few judicious stock market investments is looking more and more like a smart move.
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What are you waiting for? For as I’ve remarked before: if you don’t buy shares when they’re cheap, when do you buy them?