HOW SECURE IS YOUR & YOUR FAMILY’S SOCIAL SECURITY? PART 7: Theme: Individuals’ and Families Strategies for Increasing Savings. Topic: Building an Emergency-Fund.


As the world becomes a more risky place for the majority of workers and families, self-reliance, self-responsibility, and prudence become hallmarks of economic resilience.   The first step along this smarter pathway is to apply those extra savings that we have been discussing and illustrating in the past 6 articles.   Having seen many ways that we can cut our costs and increase our weekly or monthly surplus, we can now build our reserves for emergencies.

It is fashionable and tempting to rush into various types of investing, as well as long-term saving for our children’s education (or even our grandchildren’s!), and one’s own retirement-savings.   However, none of these things can be sustained without a solid foundation of clear goals, good habits, and a growing cushion of short-term savings.   Otherwise, every little situation that arises will become a likely drain on our savings, and all other goals will be imperilled.   For example, how many persons have withdrawn from their retirement-savings or pension-funds long before retirement?   Or borrowed against them?   These actions defeat the very purpose of saving for the long term.

It does not matter how small the amount is; simply start putting aside whatever you can.   Over years and decades, cumulative savings and the compounding of returns will create a fortune beyond anything that you might initially have expected.   Regularly putting aside just the coins in your wallet or purse (e.g., at the end of each day or each week) can be the beginning of a life-changing pattern.   Whichever way you choose to save, make it a habit.

Better than that, use technology and defaults to make it immediate, automatic, and easy.   For instance, have a certain amount deducted from your salary and sent to a special account (e.g., at a local credit-union, which will give you a much better return than a bank, while having few or none of the typical bank’s fees, which nowadays include fees just for HAVING a savings-account!).   Treat that amount as if it were an inviolable mortgage-payment.    Never touch it for regular expenses or include it in your regular budget.   Sometimes, it will mean deferring some spending or cutting favourite habits for a while, but, over time, its value will become evident again and again.

How much is enough to have in your emergency-fund?   This depends on many factors, including your age, your income, your debts and debt-service, your stage of life, your stage of job/career, the type of business or employment that you have, and the level of risk within that job/business/industry.  For instance, if you have been with the same company for more than 20 years, you have had a remarkable stability and continuity that would imply low risk versus the many persons who have part-time, short-term, or fixed-term contracts.   The basic principle here is this: the higher the risk, the more we need to set aside from each inflow or pay-cheque.   It is better to make sacrifices or adjustments by choice in order to fund our reserves for emergencies, than to wait until an illness, divorce, economic recession, business-failure, or job-loss force them upon us.   Treat your savings towards your emergency-fund as if your (financial) life depends on it . . . because, sooner or later, you will realise that it does!

More precisely, advisors typically recommend starting with a goal of short-term savings enough to cover 1 to 3 months of essential expenses (e.g., mortgage or rent, utilities, and food).   Depending on your level of overall risk, you will want to continue to grow your emergency-fund until you have at least 6 months’ of basic spending covered.   The good news is that, with reasonable rates of returns on savings and deposits, as well as the greater returns from the compounding of interest and returns over years and decades, our emergency-funds can continue to grow by themselves . . . even if we reduce our contributions or, for a period of especial difficulty, stop adding to them altogether.   By maximizing our savings in the good times, we are also maximizing our protection in the bad times . . . just as the biblical Joseph (the one in the Old Testament) used 7 years of plenty to provide reserves for the 7 years of economic depression that followed.   Doesn’t that sound a lot like a modern economic cycle?   Over time, that wisdom and such patience made him and his country not only survive, but prosper . . . even when other nations were failing and dying.

HOW SECURE IS YOUR & YOUR FAMILY’S SOCIAL SECURITY? PART 6: Theme: Individuals’ and Families Strategies for Increasing Savings and Cutting Costs. Topic: Making Better Decisions: Direct Costs and Explicit Costs versus Implicit Costs and Opportunity-Costs.


Sometimes, these kinds of epiphanies and everyday insights allow us to see wonderful new possibilities: e.g., to try a new brand or to change our habits, whether by buying in bulk at great savings versus daily or weekly small purchases (which are usually over-priced per unit), or switching to alternatives, or by discontinuing some of our purchases altogether.   Another application is choosing a different schedule, selecting a different channel or mode for purchasing something, using a different method of payment/financing, or trying a different route to work/school/elsewhere.

Here are some simple illustrations of how powerful this can be:

Scenario 1: Choosing the least-cost option among products/services.   During one period of my life, I was a dedicated gym-goer but wanted to reduce my costs.   I surveyed half a dozen places, comparing the various packages within and across the service-providers, and quickly realized how much better it was to choose annual packages versus monthly packages, for instance.

Scenario 2: Choosing a fundamental change of patterns and habits.   At another stage of my life, I calculated the indirect and opportunity-costs of going to the gym and decided to stop going to gyms altogether.   I switched to exercises at home and long walks in the neighbourhood, saving myself not only the gym-fees (over $1,000 per year for the cheapest option), but also the time, fuel, and other vehicle-costs of travelling to and from even the nearest option.   I calculated that the cost of gasoline was x cents per kilometer; then, I added the various other costs of owning and operating a car and found that the total costs could be double the gasoline-costs!   Even a seemingly short trip to the nearest mall or gym would cost about $10 every time.

In a year, that one decision would mean thousands of dollars either spent or saved.   I wisely chose to save rather than to continue to spend in that one area of my budget so that I could have more to put towards my retirement, my health, and my other high priorities.   Likewise, when his financial circumstances changed drastically after an unexpected job-loss, I showed my father how these principles applied to several parts of his lifestyle: e.g., [1] going to the gym; [2] long trips to distant parishes to visit friends/relatives; [3] using the private car versus using the bus (only $2 per trip, no matter how long the bus-route, and then FREE for pensioners); and [4] playing golf even once per week.

Instead of looking only at the explicit costs (e.g., gym-fees at a gym; and gasoline for a car-trip), I showed him the total direct costs, the indirect costs (e.g., the time and travel-expenses to go to a gym or to visit distant places), and the opportunity-costs (the highest value of alternate uses of that money).   So long as he had any balance incurring interest on a loan or a credit-card, for instance, he would need to add implicit interest-costs to every purchase or spending decision, since that money could have been used to pay off the interest-incurring debt.   That is one of the most important cost-concepts of all!   It radically changes our perception of the TRUE COST of doing whatever we do, and of buying whatever we buy.

For many years, before misfortune struck the economy and the household, my parents were in the habit of using their car to go everywhere and whenever the impulse struck.   E.g. my mother might use the car to go to the supermarket in the morning and then one of my parents might use the car to go to the gym in the afternoon, instead of combining both activities in one trip so that one could enjoy the gym whilst the other paid bills or did some grocery-shopping, for instance.   However, once they understood the cost per kilometer for using the gasoline, versus the very low bus-fare as the nearest travel-alternative, it was easy and much cheaper to switch to using the bus even for small trips.   Even more powerful was the insight about the other costs of doing things: e.g., the total cost of using the car is much more than the cost of the gasoline incurred in a given trip!

HOW SECURE IS YOUR & YOUR FAMILY’S SOCIAL SECURITY? PART 5: Theme: Individuals’ and Families Strategies for Increasing Savings and Cutting Costs. Topic: Making Better Decisions: Direct Costs and Explicit Costs versus Implicit Costs and Opportunity-Costs.


For me, moving from North America to the Caribbean addressed all of these types of cost.   Overall, even if not in every specific line-item of one’s budget, the direct costs are, on average, much, much lower; the indirect costs are lower; and the opportunity-costs are dramatically lower.   For example, many, if not most, foods consumed in small islands — and even in small communities within large countries — are imported, but there is a wide range of items, of quality, and of prices even within a very small market.   We also have the opportunity [1] to grow some things for ourselves, no matter where we live, and [2] to share with friends, with relatives, with neighbours, and/or with colleagues, thus improving our physical health and nutrition as well as our financial well-being.

CASE-STUDY #1:   For instance, in Montserrat, I once did a survey of shops and supermarkets for a basket of common items, and found that even a small item could have a wide variety of prices.   One item cost as much as $3.00 in one shop but as low as $1.50 in a supermarket.    That means that some stores charge as much as 100% more than what others charge for the same item!   You will often find this same pattern with airlines, with hotels, and with restaurants, where prices tend to be higher than average in any case, but the mark-up on beverages can be as much 200% to 500%.

CASE-STUDY #2:   On another occasion, a supermarket offered that item at a special reduced price of 3 for $2.00!   Comparing the implied unit-price of ( $2.00 / 3 = ) $0.67 versus the normal range of $1.50 to $3.00, I quickly realised that the percentage of savings (about 60% on the cheapest alternative up to nearly 80% on the most expensive alternative) was even greater than the interest-rate on any of my credit-card accounts.

Once the rate of discount or saving on an item is less than the cost of obtaining it and/or financing it, it makes sense to buy it even if we have to borrow for it in the short term.   E.g., if the interest-rate on the credit-card or loan for an item is 16% to 23% per year, and the available discount is 25% to 30%, it makes sense to stock up on that item to the extent of what we would normally consume within 6 to 12 months.   The bigger is the discount available to us, the more it makes sense to buy extra quantities and to store them . . . up to the point that the incremental costs equal the incremental benefits.

Then, I took a look at the range of prices even within the same store/supermarket: e.g., on the same shelf/aisle, the price per pound varied from $4.66 for green split peas all the way up to about $9.00 on one type of beans.   That is a massive difference over time!   E.g., if you consume just one pound of legumes per week, a difference of $3 to $5 on one pound of just one item yields an annual total of $150 to $300 or more.   Continuing that analysis across all the items that we buy, we could find opportunities to save thousands of dollars per year . . . or even tens of thousands of dollars per year.   Wow!

HOW SECURE IS SOCIAL SECURITY? PART 4: Theme: Individuals’ and Families Strategies for Increasing Savings and Cutting Costs. Topic: Making Better Decisions: Sunk Costs versus Incremental Costs.

Part 4:

This illustration, from the previous article, shows how important it is to have a good understanding [a] of types of costs, and [b] of the total relationships between various costs.   Sometimes, less cost in one area (e.g., living downtown saves commuting costs) can mean more cost in other areas (e.g., much higher cost of rent/mortgage), and/or new costs (e.g., condominium-fees; parking fees; security-systems; bigger crowds; heavy traffic; more noise and more light-pollution 24/7; and worse pollution of air/water/food).    Clearly, we need to consider all types of cost and how they affect each other, in order to make optimal choices, wiser purchases, and smarter lifestyle-decisions (e.g., where we work; where we live; what we eat/drink; if/how we travel; when we work, buy, or travel).

This leads us to another important cost-concept: incremental costs versus sunk costs.    In many cases, we are tempted to maintain the status quo (be it a home, a relationship, a longtime habit, or a prized possession) because we are looking at how long we have been in the current situation and/or how much we have invested in it (financially, emotionally, socially, or otherwise).   However, the principles of economics and the lessons of behavioural finance teach us to ignore/de-emphasise past costs when we are making new decisions; they are just like spilt milk . . . valuable in itself, perhaps, but gone forever once it is poured onto the sand, the soil, or the sea (either physically or metaphorically).   We must not let ourselves become slaves to the past; we have to face the facts or the present and the prospects for the future at each point in time.

REFLECTION: To put it simply, the rear-view mirror is very helpful from time to time, but we cannot drive forward safely . . . and reach our final destination . . . if we KEEP staring at the rear-view mirror!   As with driving, so with life and personal finances, if we remain fixated on the past, at the expense of our present/future, we shall soon and surely CRASH!

What matters for making effective decisions is not what we have already spent on a thing, but how much will we have to spend from now onward.   Often, there is a balance between incremental costs and incremental benefits.   A decision is worthwhile once the new/extra benefits exceed the new/extra costs.   For example, switching my mortgage-provider was going to cost over $30,000 in legal and other expenses, but the incremental benefits were in the hundreds of thousands of dollars.   You can easily use a free online calculator to compare the monthly saving of having any given loan or mortgage-amount at 9% p.a. versus 7% p.a. versus 6% p.a. versus 5% p.a. to see how significant the savings can be in just the monthly payments.

Over time, every percentage-point is important, and especially with long-term loans such as car-loans (which can be up to 8 to 10 years in some markets) and mortgage-loans (which can be up to 30 to 40 years in some markets).   At first glance, a reduction of $50 to $100 a month might not seem to be much if the existing monthly installment is, let us say, $1,000 to $1500.   However, even a saving of $10 to $25 per month on a long-term loan can mean large total long-term savings over the remaining life of that obligation.   Every $10 per month on a 30-year mortgage-loan is $120 per year x 30 years = $3,600 either saved or spent.

ILLUSTRATION: Even at seemingly low interest-rates, the cumulative total interest expense is often more than the original amount borrowed!   E.g., an $800,000 mortgage-loan at an interest-rate of only 6.50% p.a. will ultimately cost over $1 million of interest (plus fees) over 30 years.   What a revelation that becomes when we calculate the true cost of each of our decisions!   That insight can become the motivation to propel us past inertia, procrastination, and indecisiveness.

Important Note: Again, the precise or absolute numbers do not matter here; what is important is the overall ratios/relationships of the costs and the principles that we are illustrating.   Wherever you are living, you can easily adjust the examples/figures to what makes sense in your unique personal circumstances, household, property-market, economy, and country.   E.g., in California, U.S.A., the AVERAGE house-price might be over U.S.$800,000, whilst in another country it might be only E.C.$400,000 (= U.S.$150,000) or BDS$350,000 (= U.S.$175,000).

Up to this point, we have seen that various types of cost have different meanings and implications both in the short term and in the long term.   However, even greater than the actual direct costs (or explicit costs) are the indirect costs and the opportunity-costs.   It is easy to see the direct costs in most cases: e.g., using water and electricity causes us to get a bill each month for such and such an amount.   The more we use, the more we pay; the less we use, the more we save.   That is an example of a direct and causal relationship between two variables.

What the bill does not reflect is the environmental cost of those resources, or the impacts on human health if the utilities are produced or delivered to us with some use of fossil-fuels (e.g., gasoline, diesel, crude oil, or coal).   Many cities around the world are now so polluted that people [1] have to wear masks, [2] face bans on outdoor activities from time to time, and [3] incur serious risks of respiratory ailments and premature death.   The outdoors can be so dangerous that schools are closed and businesses have to limit their operating hours/days.   These create major disruptions for everyday living, including education, work, business, travel, transportation, and tourism, and the economic costs are huge even in the short term.

In short, living in metropoles (e.g., New York City, Los Angeles, London, Tokyo, Rio de Janeiro) can be very exciting, but also extremely expensive and, increasingly, very risky or even deadly . . . in several ways: e.g.,

[a] air-pollution is increasingly causing diseases and premature deaths; up to 97% of the world’s population, according to a year-2016 report of the World Health Organisation, is breathing unsafe air!

[b] water-pollution and other forms of pollution are worst of all in big cities; . . .

[c] big populations mean bigger problems on a much bigger scale; . . .  such as these:

[d] huge crowds,

[e] long queues, and

[f] terrible traffic;

[g] costs of every type are high (and certainly higher than in suburban and rural zones);

[h] housing is often unaffordable to all but the upper 10% of the population; and

[i] crime,

[j] stress,

[k] noise-pollution,

[l] light-pollution,

[m] sleep-impairment, and

[n] loneliness are some of the issues contributing to urban angst.

In the next segment of this series of articles, we will look more closely at the concept of opportunity-cost and explore how to apply it in everyday decision-making.

HOW SECURE IS SOCIAL SECURITY? PART 3: Theme: Individuals’ Strategies for Increasing Savings and Cutting Costs. Topic: Variable Costs versus Fixed Costs.

What are the options for workers and for countries amidst these major social and economic trends sweeping the globe?   For workers, the three main strategies are: (1) reduce expenses/spending; (2) find ways to earn extra income(s); and/or (3) save/invest more.   Spending less is the easiest of these three strategies for most individuals.   It tends to be the case that most of us have greater control over expenses and consumption-patterns than over income.   In other words, it is easier to stop or to reduce some of our buying habits than to increase our income.   Hint: when was the last time that you got a promotion or a salary-increase?   Hint #2: even if you were so fortunate, after all statutory deductions, how much did that effectively add to your disposable income per week/month?   Any increment is better than none, but, for instance, a 3% raise on a salary of $2,000 is only $60 per month, or $2 per day.

This brings us to the first theme in this segment: types of cost.   Most of us are aware that some expenses are wants (things that are nice but optional) whilst others are needs (things that are vital or necessary) or are deemed to be very important.   Another classification is variable costs versus semi-variable costs versus fixed costs.   An example of a semi-variable cost is an electricity-bill: [a] the fixed portion is the unavoidable minimal monthly charge or rental fee that the utility-company charges the customer for remaining connected to the service, regardless of usage; [b] the variable portion relates to how much power (kilowatt-hours) we use, and to the constantly changing price of oil.   As utility-bills tend to have bands of usage, with a rising cost per unit as usage increases, we can often save considerable sums each year: (1) just by becoming fully informed of the billing parameters, and then (2) by progressively minimising our usage to the level that  makes the most sense for our financial goals and economic circumstances.

In economics, we learn that even fixed costs are fixed only in a given time-frame; as we progress from the medium term to the long term to the very long term, every expense is eventually variable.   For instance, in the context of this month or this calendar-quarter, our monthly rent or mortgage-payments might very well be considered as unavoidable and necessary fixed costs.   They are certainly non-discretionary and would receive high priority in most personal budgets.   Indeed, some individuals would rather eat less, or even skip a few meals per week/month, than to miss an important payment, such as a payment that protects their home.

REFLECTION: How far are you willing to go to achieve a better future?   How much are you prepared to sacrifice for what is most important to you?

Yet, in the course of time, even those major types of payment can be renegotiated, reduced, or switched to an alternative: e.g., [1] as interest-rates in the financial markets change, [2] as new service-providers come to the market, [3] as we build better financial relationships, and [4] as our negotiating skills improve so that we can achieve lower costs, interest-rates, and/or payments.   In Barbados, for instance, I remember that, around the early year 2000s, mortgage-loans had interest-rates of 8% to 9% per year; by the year 2004, I was able to find another bank willing to offer mortgage-loans at 6.50% per year.   That made it more than worthwhile to go through the lengthy legal process of switching my financial provider after many years with the first provider.   Over the next ten years, that same provider’s interest-rate for new clients declined to 5.95% per year and then to 4.95% per year.    Today, the same financial market is offering interest-rates as low as 3.40% per year!   The lowest interest-rate ever!

INSIGHT:  Do you know how much you would save . . . (a) per month, (b) per year, and (c) per decade . . . simply by reducing your current interest-rate (on any type of loan) by even one percentage-point?

As another example, a friend of mine, living in suburban Miami, Florida, U.S.A., had a studio-apartment for a monthly all-inclusive rent of U.S.$780.   In the year 2015, as the economy grew and as the number of employed persons rose, demand for apartments increased, and the landlord increased that figure to U.S.$870.   That was uncomfortable for an already strained budget!   My friend’s strategy was to look for other accommodation, but the search was frustrating because most available places were either more expensive or were not all-inclusive (e.g., utilities would be extra even if the rent were less), and/or the distance to the office would be farther or would be on a busier route that would ultimately take longer, thus raising travelling expenses.   Eventually, he found an option to share a 2-bedroom condominium with a coworker, whereby he would now have his own space in a bigger home, but his monthly contribution would fall to U.S.$650.   That was a saving of U.S.$2,650 per year!   Great decision!

[Note: it does not matter what the precise figures or currency happen to be; each of us can apply the relative changes to his/her own currency and absolute figures for easy comparison.   For example, compute the rate of increase from $780 to $870; then, calculate the rate of saving by switching from $870 to $650.   Using rates and percentages allows us to make effective comparisons across markets, cultures, currencies, and jurisdictions.   The principles here are far more important than the examples or figures themselves.]

HOW SECURE IS SOCIAL SECURITY? Part 2: Issues for workers in a much changed world.


Since the Great Recession (years 2007 to 2009), these trends have accelerated.   As the labour-market in the U.S.A. illustrates, personal careers based on lifelong jobs with only one or two employers are a faint memory from our grandparents’ era.   The generous employer-provided health-insurance and defined-benefit pension-plans (including many that did not require workers even to contribute!) that our parents’ generation took for granted are increasingly rare.   Where they do exist, such plans are usually closed to new enrollments, thus favouring older workers over newer/younger ones.   Nowadays, the most common form of employer-provided pension-plan is one with defined contributions, but no guarantee of final benefits.

Gut-wrenchingly, this also means that many workers’ fortunes rise and fall with each economic cycle, and persons are dashed to despair with each market-crash.   Just think of the millions of workers who were at or near retirement-age when the U.S. equity-markets (the largest in the world) fell over 50% (during year 2008 to year 2009), losing trillions of dollars of collective value, and dramatically plunging the worth of all related pension-assets (either through direct shareholdings or indirectly through mutual funds).   Ten years later, many firms and families have still not recovered fully from such losses (which are both financial and psychological).    Investment-firms and financial institutions as large as Bear Stearns, AIG, CLICO, C. L. Financial, Sir Alan Stanford’s Financial Group, British American Insurance Company (BAICO), Lehman Brothers (with over U.S.$600 billion of assets at its demise, the largest bankruptcy in history) merged, declared bankruptcy, restructured, or disappeared altogether.

Indeed, even as they are becoming more and more important and are very much needed, workplace-sponsored pension-plans of any kind are rare in several industries and are (or becoming) extinct in many types of companies.   Without strong unions to protect their rights, most workers in the private sector are left to fend for themselves in many respects, including planning and funding their own retirements.   This is made even more difficult without the convenience of having automatic deductions from payroll directly to formal retirement-savings plans, or the added benefit of employers’ contributions to pension-funds.   In countries that provide tax-benefits for persons who contribute to retirement-accounts, this trend widens the already large and astonishingly inequitable gap between the top 10% and the bottom 90%.   It means that those who would benefit proportionately more from any tax-benefit are often the ones least likely to qualify for it, whilst the richest and highest paid are most likely to be in a position to maximise both retirement-savings and all applicable tax-benefits.

Not surprisingly, therefore, the notion of retirement itself is being challenged by the Millennial Generation (which can be broadly defined as those born since the year 1980).   Young workers, having seen their parents and grandparents lose their savings and investments in the Great Recession, are much less inclined to participate in the stock-market.   This is ironic because equities and growth-oriented investments are exactly what persons under 40 years of age need to maximise their protection against long-term inflation and the relentless rise in the cost of living.

REFLECTION: at just 3% to 3.50% inflation per year, the cost of living DOUBLES every generation (20 to 25 years)!   That means that, within two generations, the cost of living will QUADRUPLE!   E.g., What costs $100 today will cost $400 in the next 4 decades.

Case-Study: in my grandparents’ era, a flying fish in Barbados sold for a penny; today, one costs over $1.00 (more than a hundred times more!).   By the way, the same fisher-folk now have cafes and restaurants at the fish-market, offering a simple fish-plus-sides meal for $25.00 to $30.00 every weekend.  Clearly, they are taking care of their retirement-savings rather well, right? [smile]

Coupled with (a) long periods of joblessness, (b) the tragedy of waves of retrenchments and downsizing, and (c) falling incomes and/or no salary-increases for many workers during the past ten years (the Lost Decade of years 2008 to 2017), real incomes have hardly changed, on average, for large numbers of households . . . since the 1960s.   Ouch!   To many people, therefore, it still feels like a recession even though the news-headlines declare that G.D.P. is growing again.   Wage-increases, if and when they do come, have been wholly inadequate to compensate for years/decades of slow/no growth.

The resistance of many employers and interest-groups even to modest changes in the minimum wage highlights the gross inequity perpetrated by ever wealthier corporate executives against labour, and the continuing onslaught on the low-income and middle-income strata of the workforce.   Even $15 per hour is a small consolation to the tens of millions of people who have only part-time or short-term jobs.   For overpaid executives with golden parachutes, even being fired can be extremely lucrative, with reported severance-packages in the millions of dollars up to the hundreds of millions of dollars.   By contrast, for many workers and their families, even one missed pay-cheque spells acute stress, if not an immediate financial disaster!

REFLECTION: How many weeks/months could you sustain your standard of living without working for a pay-cheque?

Young people also witnessed how many families lost their jobs as well as their homes during these past ten years.   Accordingly, home-ownership rates are declining, and this trend extends to other assets such as cars, revolutionizing industries where ride-hailing (e.g., Uber and Lyft) and home-sharing (e.g., Airbnb) are much more common than they were just 5 to 10 years ago.   For the first time in history, as of the year 2017, telecommuting has surpassed public transit to become the second most frequent way that U.S. workers “travel” or relate to their workplaces, thus further reducing the need of physical travel and transportation.

Historically, their home was the biggest asset and investment that most persons or families had.   Over the typical 4 to 6 decades of an adult’s working life, the appreciation of real assets consistently outpaced the rate of inflation in consumer-prices.   Among other benefits, this provided a long-term safety-net of private wealth, which then underpinned a secure retirement, propelling upward social mobility, and a burgeoning middle class.   Related financial solutions, such as (a) home-equity loans, (b) home-equity lines of credit, and, more recently, (c) the availability of increasingly relevant and useful reverse mortgages (which pay you a guaranteed lifelong retirement-income against the value of your home, instead of the typical mortgage in which you spend decades of your life paying a loan), have all added value to home-ownership among older persons.   By contrast, younger persons without homes, . . . without full-time or permanent jobs, . . . without corporate pension-schemes, . . . and/or lacking conventional expectations of upward social mobility and economic security . . . will clearly face much bigger financial risks in the coming years.

INSIGHT: Many people will not be able to afford to retire!

In these circumstances, Social Security programmes (or National Insurance Schemes) are more important than ever before.   If the majority of employers are no longer providing a defined pension-benefit, . . . or, worst of all, no pension-plan at all, . . . workers must provide for themselves as a matter of survival.   Otherwise, later years of life will be like facing a very, very long Winter (e.g., life-expectancies are rising), but with little or no indoor heating (e.g., little or no pension or other post-retirement benefits) . . . an outcome that is potentially deadly!   Extending the analogy, many will, of course, have heating (some form of pension and/or other income in later years of life), but will they have a steady supply of firewood or gas?   To be fully adequate, retirement-planning and pensions must be satisfactory in all three dimensions: (1) absolute amount, (2) relative amount (e.g., suited to the local cost of living; inflation-proof), and (3) duration (e.g., from retirement to death).

Thirsting for some sun-rays of hope behind such darkening economic clouds, what are the options for workers and for countries amidst these major social and economic trends sweeping the globe?   For workers, the three main strategies are: (1) reduce expenses/spending; (2) find ways to earn extra income(s); and/or (3) save/invest more.   For countries, the three main strategies are: (1) increase the rates of contribution to Social Security systems; (2) broaden the base of contributors; and/or (3) defer the qualifying pensionable age.   In subsequent articles, we shall explore each of these six strategies in some detail, learning from the best case-studies of people and places that are succeeding, while noticing the lessons to be learned from those that have failed . . . or that are on a course to failure.



In the sweep of millennia of human history, social-security systems (also called national insurance-schemes) are a relatively recent invention.   However, from the perspective of our own lifetimes, they have a long history, they are a normal part of the economy, and they feature broadly in our thinking and planning, either directly or indirectly.   In the U.S.A., for instance, Social Security arose from the terrible social and economic costs to tens of millions of families during the Great Depression of the 1930s.   Over the next half a century, most countries introduced similar programmes to provide welfare-assistance to various categories of persons, ranging from the unemployed, to the sick, to the poor, to the young, to the elderly, to expectant mothers, and to the retired.

Meanwhile, enormous changes have occurred in the economic landscape.   Unlike our grandparents’ generation, the majority of workers no longer have long-term employment with one employer.   Young workers often struggle just to get a job . . . any job.   Others have jobs that keep changing every few years, often punctuated by periods of unemployment, creating a tapestry of complexity and uncertainty over their careers.

Another big change is that a large and growing number of jobs are short-term, part-time, and/or treated as independent contracts rather than as traditional employee-jobs.  This is often the case even though the workers dress, speak, and look just like normal employees would e.g., wearing a corporate uniform.   Several times, in recent years, law-courts have found in favour of groups of workers, deeming that they were more employees than independent service-providers and ought to be treated as such by their employers.   E.g., Consider the important case of Sagicor Life Inc. versus its insurance-agents, whom judges found to be employees by virtue of the fact that they represented only one company and sold only that company’s products, rather than being independent brokers, for instance, who represent various companies and products.   In too many cases, businesses have taken advantage of workers, and cut corners to save their own short-term costs, boosting profits at the expense of social responsibility and economic fairness.   For example, treating workers as being independent contractors means that the employers take no responsibility for their statutory obligations, including income-taxes, and contributions to Social Security or National Insurance.

The third change is that there is enormous pressure on workers to assume all or most of the risks of the economy and of their own retirement.   The power of labour-unions has diminished in many countries and the percentage of organized labour has fallen well beneath historical norms (e.g., up to 50% to 80% of workers in some industries during the 1950s and 1960s).   In the past ten years, over 90% of the economic gains have gone to the top 10% of households.   Even within that privileged stratum, the majority of benefits have accrued to the top 1%, the percentile that represents the parallel dream-world of billionaires and multimillionaires.   For most families, economic recessions, market-crashes, and unemployment are frequent occurrences and even a present reality; by contrast, for the highly favoured 1%, such phenomena are trivial in their direct impact or appear to be non-existent.

Compounding these problems is the increasing inequity facing workers.   Instead of paying their workers better, most of the S. & P. 500 companies have chosen to boost dividends to shareholders, to repurchase their shares, and to give enormous pay-packages to C.E.O.s and other senior executives that are already outrageously overpaid (e.g., 100 to 1,000 times the average salary).   Alarming examples include: (1) Apple Inc.’s announcement this year that it will spend U.S.$100 billion on share-repurchases; (2) The Walton dynasty collectively has net worth in the tens of billions of dollars but the majority of Wal-Mart’s 2 million workers have low wages and struggle financially; (3) many front-line workers at Disney World are at or near the minimum wage and cannot afford decent housing or three meals a day, but the C.E.O. of the parent-company, Walt Disney, was reported in one year to have received a compensation-package worth over U.S.$100 million.

Strikingly, the tax-cuts in the U.S.A. this past year have overwhelmingly favoured large corporations and the ultra-wealthy, while providing little or no net economic benefits to the middle class, whose incomes, in real terms, have hardly improved since the 1960s.   Governments have a vital role in social justice and economic fairness.  Tax-policies are a primary driver for giving incentives to righteous conduct, while providing a robust safety-net for those in the bottom 50% of the income-distribution within the population.

It is not a problem that the rich become richer or that those who take risks and form successful businesses become wealthy.   What is a major problem is every one of those instances of governments and corporations that are perpetuating policies that directly disenfranchise the majority while adding excessive benefits to those who need them least.   For instance, it is patently immoral to be quibbling about raising the minimum wage to $15 per hour, or to be making it more and more difficult to get social welfare (e.g., housing assistance and food-support for poor families), while giving multi-million-dollar pay-packages and benefits to elected politicians and to senior corporate executives.   Nor can it be acceptable any longer to tolerate huge severance-packages and golden parachutes for top executives while eroding (a) workers’ rights, (b) the role of labour-unions, (c) safety-standards and workplace-conditions, and (d) paid leave for public holidays, for serious illnesses, and for new parents.