Money Lessons from the Great Depression
We all remember seeing the queues of Australians outside the nation’s Centrelink offices in the immediate aftermath of the first coronavirus lockdown. They had lost their roles in hospitality, retail and other industries affected by the shutting down of businesses.
For some with long memories, the scenes were reminiscent of the long queues of unemployed during the great depression in the 1930s, but the numbers were much worse. Unemployment peaked at 32% in 1932, and people were flat out feeding their families.
Those people had to learn how to survive on the fly. And while it is getting close to a century later, many of the following financial lessons we learned from the great depression are still relevant today.
1. Stash some cash(flow)
Families in the first half of the 20th century didn’t spend the same way we did. They weren’t racking up big credit card debt on new cars, state of the art appliances and lavish holidays. It was more of a saving culture. Even so, people without enough money stashed away were caught out big time in the great depression.
We learned it’s important to have enough cash available to deal with rainy days, or even once in a generation financial downturns, as best as you can.
With interest rates so low, there is little reward for saving cash, so a modern take on this is making sure unencumbered equity in your home or investment properties is available to you in case you need it. Negotiate better interest rates from lenders and use the extra cash to pay down more of your debt and access equity.
2. Be debt smart
Credit cards weren’t introduced in Australia until the 1970s, but people still had debt from banks, retailers and other lenders when the depression struck.
Australia’s relationship with debt evolved as we became a society of instant gratification. Many people are now happy to spend big on credit and worry about it later. The problem is when they don’t make their payments on time and end up stuck paying off massive amounts of interest on their debt.
But not all debt is bad. With interest rates on loans so low, accumulating assets like property is a great way to future proof your funds. Low interest debt attached to an asset that appreciates in value over time and returns a rental income is good debt.
3. My kitchen rules
We were all forced to eat at home when cafes and restaurants were closed down, but now that they are back open for business (the ones that survived anyway), spending $25 on a café breakfast you could make at home for about $5 is frivolous.
Eating more at home sees the savings add up over time. Even if you saved just $50 a week on food, it equates to $2500 extra a year in your pocket. And you still have it much better than depression-era Aussies who were sitting down to bread and gravy for dinner or going without meals all together.
And if you want to get creative with what you have in the pantry at home, the internet has free and easy access to millions of recipes and online tutorials.
4. Hit the road
The depression saw many forced to move to where they could find work or where buying or renting was more affordable.
The current pandemic in Australia has seen droves of people packing up and moving towns too, not just out of necessity but also choice. People being forced to work from home during lockdown meant many employers realised it was an option going forward. Times and money could be saved on commuting, office space, equipment and even health.
So rather than having to live close to their job in a major city, many of us have gone bush or up the coast to a place that offers a better, more affordable lifestyle, while continuing to work remotely.
5. Side hustles
Depression-era folk learned quickly not to be job snobs. Many of the recently unemployed soon found themselves undertaking all sorts of manual tasks for anyone who could afford to pay them.
In a way it was an early form of the gig economy: one-off payments for chopping wood, digging holes, or whatever else was going.
Nowadays there are all sorts of odd jobs going through platforms like Airtasker, as well as ways to turn other assets like storage or parking spaces, unused cars and even spare rooms into income producers.
A lot of these little money makers can add up into a total that might make a big difference for your household budget.