The Fierce Girl's Guide to Finance

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The three numbers you need to care about

When they tack sport onto the end of the news bulletins, I have an uncanny ability to tune it out. Not on purpose – I just have zero interest in who sportsed harder than the other.

I’ll bet you do that with the business news too. You legit don’t care about the price of gold or Texas crude oil. You don’t care that the All Ords was down 4%.

I get it – even I only listen with half an ear. (Daily movements don’t mean much – it’s all about the trend lines.)

But there are some numbers in the world of economics that have a real impact on you and your life.

Keeping an eye on them not only makes you smarter, it helps you make better decisions.  So here is a list of numbers I watch and care about, even as someone who can barely use Excel. (Seriously, I can’t even do formulas – it’s like some sort of learning disability).

GDP Growth – This is a simple number with a huge amount of stuff sitting behind it. It’s kinda like saying ‘This is a smoky eye’ when actually this is 20 minutes, five make-up brushes, eyeliner, mascara and probably some swearing.

Gross Domestic Product Growth is a sign of how well the economy is doing: what business is up to; how productive people are (every time you check Facebook at work you are hurting the economy. JK! Well sort of); how technology is making things more efficient. You don’t need to know each thing, but you do need to know the effect.

When the economy is growing, things are pretty good. There are lots of jobs, people spend money, investments grow in value.

If the economy is going backwards, it’s called ‘negative growth’, (an oxymoron in my view, but a thing nonetheless). This is VERY BAD for jobs and general chill levels.

GDP growth is measured every quarter and if you have two consecutive quarters of negative growth, that is a RECESSION.

Now the weird thing (in a good way) about Australia is that we’ve now had over 100 consecutive quarters of positive growth. While all those Europeans and Americans had a post-GFC recession, we didn’t (see side note below).

But it hasn’t been amaaazing growth either, which is one reason why the Reserve Bank has cut interest rates so many times – to try and pump up the economy by making it cheap to borrow and invest.

Unfortunately, most of that borrowing and investing has been by consumers and not businesses. Hence the housing market has gone bananas, while business investment levels have fallen off a cliff (here are the stats if you’re interested).

The reasons behind that are complex, but I think it’s partly a risk-averse corporate culture, and partly because shareholders are demanding big dividends instead of putting profits back into the business.

Side Note Why politicians matter to the economy – if you aren’t interested skip to the next section.

Remember K Rudd sending everyone some free money in 2008 (the ‘stimulus’ program)? That was to avoid a recession. The idea is that if everyone keeps spending, the economy will keep growing.

Sounds simple right? And it is, if you believe my friend Keynes (he’s my friend in the way Beyonce is – we don’t actually hang out. Also, he died in 1946). Keynes says if consumers and business stop spending then the government needs to step in and spend instead. Or give consumers the cash to spend (hello K Rudd!).

The alternative approach is where the government cuts spending to the bone – called ‘austerity’ – and then hopes for the best. It’s been proven to be totally fucking useless and just sends countries into deep, long-term unemployment (see Greece, as an example).

But the weird thing about economic policy is that governments often do stuff that has never been proven to work, because it’s based on the ideology of the people in charge.

Like, tax cuts for business and rich people have never been proved to trickle down to the rest of the economy, but Malcolm Turnbull and Donald Trump fucking love them anyway because they love business and rich people. OK, end of side note.

Inflation – measured as the Consumer Price Index (CPI), this tells us how much prices have moved. They take a ‘basket’ of goods and services – food, clothes, school fees, petrol etc – and track how much people are paying for them.

Some prices go up – hello, glass of wine in a bar! (I paid $13 for one the other day. I nearly vomited). And other prices go down, like TVs and clothes from H&M.  When they are all added and averaged, it gives us the inflation rate – most recently 2.1%.

Why does this matter? Well every time things get more exy, the money you have in your hot little hand is worth less. So you don’t want inflation to be too high.

But if it doesn’t grow at all, it’s a sign that the economy isn’t healthy, so you don’t want it too low either.

Tricky huh?

The Reserve Bank has decided the ‘just right’ level of inflation is 2-3%, so this is the their ‘target inflation band’. If the rate falls below it, they might cut interest rates (see why this stuff matters!).

Or they might not, depending on what else is going on, like house prices going crazy.

TBH, the Reserve Bank has a pretty tough job. Their overall goal is to keep the economy humming. But it’s harder than doing a wedding seating plan. Like if you put that cousin with that friend, they will argue about Trump. And where do you put that lone friend who doesn’t know anybody? Should you put all the single peeps together, or is that telling them they are non-married losers who should be separated from society?

Well that’s how the RBA feels when they try and balance inflation with house prices, growth with avoiding a bubble, stimulus with fairness. And worst of all, they only have ONE TOOL for doing this: interest rates. Up, down or on hold.

And that’s why inflation matters – not just because it affects your spending power, but because it drives interest rates. If you have a mortgage, that matters.

And if you don’t, it still matters, because it affects a) the price of the property you might buy one day and b) the investors buying the property you rent.

Wages Growth – This is very closely related to unemployment, and right now, these two numbers are not good friends. They grew up as besties – doing the same stuff together. When unemployment was low, wages went up. That’s how they rolled.

But in the past few years, they’ve really started going separate ways. One of them likes raves and EDM, the other is into Indie bands at pubs. One of them is vegan and wears recycled fashion, the other is shopping at Forever 21 and gets eyelash extensions.

Don’t believe me? Check out this RBA graph – see where they diverge and also how damn low wages growth is now.

Image result for wages growth unemployment australia 2017

What’s changed is the amount of UNDER-employment – people who want to work more but can’t find the hours. They stay out of the headline unemployment rate but are still economically disadvantaged.

Which is a long way of saying that the economy is complicated, yo.

You should care about wages growth because it relates to your market price as an employee. On a national scale, it’s getting harder to march into your boss and ask for a payrise. So you need to make sure you stay relevant and in-demand, and that you’re acquiring new skills that increase your value. You may also need to be realistic about your payrise expectations (soz).

The Upshot

I know, that was a long and detailed foray into economics. And hardly any celebrities to break it up (well, we had K Rudd and Keynes, I guess).

But I want you to know that this stuff matters. It’s not just numbers on the news; it’s stuff that makes a genuine difference to our lives and should affect our voting decisions.

There are actually tons more cool figures I could have included in here, but hopefully this gives you a taste for that exciting world of ‘the national accounts’. Woot woot! Let’s party with Bey!


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Tears, fights and vomit: why economics is as fun as your 21st birthday

Think you don’t like economics? Oh stop, I know: you fell asleep just hearing the word. I used to as well. But somehow I actually learned to love it.

It was kinda like that nerdy guy who grows on you – the more you get to know him, the more he seems surprisingly sexy.

Wait, is that just me? Sorry. Anyway, there are a few concepts that shape your life more than you know; understanding them can help you with your own money.

Also, being able to converse about economics is a great party trick. Not as good as doing The Worm, but I can’t do that anyway … so here I am in the corner, drinking martinis and discussing central bank policy.


Here’s how you can be that cool too.

The lowdown on interest rates

Interest rates have a big impact on your life because they’re tied up with property prices, and therefore how much money you have to spend or save once you’ve put a roof over your head. (I have another post about this topic, but it’s already outdated because bloody Taylor Swift can’t keep a boyfriend – read it here).

The thing to remember is that interest rates are both a cause AND an effect. The Reserve Bank of Australia (our central bank) uses them to influence economic growth, but they only do this in response to other trends.

For example, the RBA will raise interest rates to ‘cool’ the economy, when inflation is running high and wages are growing too fast – what’s known as a ‘wages breakout’.

(How awesome does that sound though? Like, somehow our paypackets go nuts and party hard and we all end up as total ballers driving Porsches). Apparently, however, this is NOT A GOOD THING.

When things go too hard, too fast and too enthusiastically, they end in disaster, and you’re lying there like ‘Wait, what? Are you done already?’.

Obviously I am talking about inflation (get your mind out of the gutter). High inflation is bad because it reduces the value of your money, drives prices up and creates general chaos in the economy.

It’s not ideal when it’s too low either, as wages stagnate and the economy slows. Basically, inflation is like a fucking needy pedigree cat who only wants the exact right amount of food in the exact right bowl at the exact right time of day. So the RBA tries to tame it with interest rate policy.

Interest rates and housing affordability – aka ‘why am I destined to rent forever?’

I bet you’ve heard your parents complain about  the 1990s, when interest rates climbed as high as 17.5% (compared to 1.5% today).

I know right! Apparently there was more to worry about in the 90s than whether Pearl Jam’s second album could possibly be as good as Ten (It wasn’t. Like, it was good, but no Ten).


Anyway, they have probably told you this in the context of ‘But we had it so hard when we bought a house‘ and ‘we had to walk six miles to school, through the snow, in bare feet.’

If they try this on you, feel free to point out that yes, rates were higher, but the amount you had  borrow was miniscule compared to now. A handy chart from the Government shows the price of a house in the 90s was about four times the median income. It’s now six times that.


So what has made prices rise so much?

There are lots of factors such as population growth and land supply.

But loose monetary policy is also to blame. And no, I’m not implying anything about the morals of said policy – it is actually talked about in terms of ‘easing’ or ‘tightening’, as though it’s some sort of screwdriver. (Obvs invented by men.)

When shit gets real at your party

When the GFC swept through, economic growth fell off a cliff. Business and consumers stopped spending money because they were totally freaking out.

So how does a central bank convince you to spend again? They cut rates. The lower rates are, the cheaper it is for businesses to borrow money and invest it in things that create jobs.

Since the GFC, the central banks of the world have been using low interest rates to pump more money into the economy and make it grow.

This is like walking into a 21st birthday party and giving everyone tequila laybacks on the dancefloor – it will definitely liven up the party, but you can’t predict exactly how.

Well, we can make general predictions: someone will vomit over the balcony; at least two girls will cry; and there will be a punch-on among the boys. Standard.

Similarly, when interest rates go down, house prices go up  because more people can afford to get a home loan. Other asset prices often go up too – like the stock market – for the same reason.

In the same way that tequila makes everyone feel super hot and ridiculously charming, low interest rates make people feel rich – like they could go to a strip joint and make it rain.

But you know how at a certain point, you can’t drink anymore? You’re too drunk, too sick or too tired, so you lie on the nature strip and have a little ‘rest’. That’s where the world is right now with monetary policy. The central banks have pumped so much tequila into the party that everyone is sick of it and it’s not working anymore.

Not before median house prices in Sydney hit a million bucks though. Thanks RBA!

I have some personal views about the failure of this whole approach, its link to rising income inequality and the resulting rise in destructive populist politics. But I’ll save that for the party talk.

In the meantime, let me leave you with this thought. You can’t control the big picture economics happening around you. But understanding them will give you greater insight into how you might respond to them – or even make money from them.

So, don’t be afraid to read more, listen more and think more about that hot, nerdy guy known as economics.

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