Wealthier households intending to buy cheap shares

Monday, 11 July 2022

Travel, international and domestic, is something the relatively well-off are still willing to splash out on.

More people with money to splash on luxuries, like new TVs and eating out, are cutting spending as economic gloom mounts.

But the economically-privileged are still spending on travel, and some are planning on buying shares because they think stock markets have fallen too far.

Freelance economist Tony Alexander does monthly surveys with the 27,000 people who subscribe to his economics newsletters, and his July survey, answered by just under 1000 of them, showed a net 27% planned to reduce their spending over the coming three to six months.

The net figure is calculated by subtracting the number of people who said they intended to increase their spending, or hold it unchanged, from those who planned to tighten their belts.

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Alexander’s subscribers are older, wealthier, and more financially-engaged than the general population, giving an insight into spending confidence among the better-off.

Alexander said confidence to spend had been on a downward track for the past 12 months.

In December, a net 17% were still feeling confident enough to be planning to increase spending.

But by February a net 11% were planning on making cuts, and that fell to a net 21% in June.

Eating out is the most common thing people told Tony Alexander they would cut back on.

The decline in sentiment had begun with rising mortgage rates, and intensified as inflation rose, and then continued to worsen as house prices started to fall, Alexander said.

Spending cutbacks covered most areas of the household budget from home renovations to cars to clothing, but eating out was the most common thing people planned to cut.

“A record net 36% of people plan to reduce their spending on eating out,” Alexander said.

“It’s going to be a tough winter for hospitality,” he said.

The survey also indicated clothing and shoe retailers were going to have a hard time in the coming months.

But despite the cuts, there were areas in which more of Alexander’s respondents planned spending increases than cuts.

They expected to spend more for groceries, international and domestic travel, and buying shares.

“Whereas there are strong expectations that house prices will continue to fall, that is not necessarily the case for shares,” Alexander said.

While many households were suffering, others were far less affected by things like rising home loan rates, Alexander said.

“People make the mistake of believing hard times for some mean hard times for all,” Alexander said.

“Only one-third of NZ households have a mortgage and plenty of people know that when the number of headless chooks running around the yard is near a peak, that is the optimal time for buying something as prices will be cheap and owners/vendors amenable to negotiation,” he said.