Over the last 18 months it has become harder and harder to come across good news. With the pandemic altering most of our daily lives, it’s becoming increasingly more difficult to remember how life looked before the pandemic. The one thing that has made it easier to bear is the fact that many people are doing well financially. Several studies have shown that the average net worth of a household has gone up by about 20% since the start of the pandemic. A big part of that growth is due to the government flushing the economy with cash. At first glance the government stimulus appears to be a good solution, however, it is one that may come with long term consequences.
We have already seen some of the unintended consequences of providing so much stimulus: inflation rates rising above average, asset prices jumping into bubble territory, difficulty for employers to find workers, and interest rates falling to unprecedented levels. Many people expect longer-term consequences as well, such as higher taxes to pay down the new debt, and further devaluation of currency as the amount of cash in the economy continues to increase. The reason there are consequences such as these is because governments are taking on debt and issuing stimulus at an unsustainable rate – and at a much faster pace than the economy can adjust to. This supplemental stimulus will eventually come to an end and people will need to take steps to adjust, which may be difficult.
The reason this can be a problem is because it is easy to accept more money in our pockets, but it’s not always as easy to accept less. Ultimately, when the pandemic subsides the stimulus will most likely be wound down as the government can’t continue on this track indefinitely. This means that these extra cash payments and other supplemental benefits will go away and that extra safety net that many people enjoyed over the last 18 months will be gone, leaving them to find ways to keep the bills paid. It would seem logical that people start making adjustments to their finances in advance to prevent a hard landing back to normal conditions. However, we know that many times people delay plans that involve cutting expenses, budgeting, or looking for new work.
The reason it is important to start viewing how our finances will look post-pandemic is because if the transition back to normal conditions is mismanaged there is a high chance there will be negative financial consequences. With real estate and the stock market at all-time highs, all it takes are a few bad missteps to make this bubble burst, which will be bad for everyone. There is also a big chance that taxes will be higher in the future in order to pay down the extra debt the government has taken on, which can also make you feel like you have less money in your pocket.
So now is as good a time as any for people to start looking at how the transition back to normal financial conditions will look for them, and what steps they need to take to take to mitigate any potential financial burdens they may have. Looking over your budget and making sure to leave some extra margin may be prudent as we will be going back to a world that may not look the same as it did prior to the pandemic. Paying off high interest debt such as credit cards or variable rate loans will also benefit you. Variable rate loans can bring financial trouble if inflation runs higher than expected for a considerable amount of time.
So, while financial conditions have been stable throughout the pandemic, it is important to not take it for granted because there will be a high price society will need to pay in the future for the decisions that were made during the pandemic. With the significant level of stimulus people have received, the least we can do is to not amplify the problem with poor planning. An economic downturn after the pandemic subsides would lead to more government spending, which in turn would lead to more debt, which would continue to push us into unstainable territory.
Proverbs 21:5 – The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty.