Feed The Need

Is Trinidad and Tobago an instant gratification culture?  This question was top of mind as the Institute of Chartered Accountants of Trinidad and Tobago (ICATT) met with Minister in the Ministry of Finance, Conrad Enill, on the 2006 Budget.  In light of the fact that the government has now established comprehensive tax reform to simplify the tax regime (via the $60,000 allowance in lieu of incentives previously offered via Credit Union savings and mortgage payments), the Minister was curious about the effect that it would have on household savings throughout Trinidad and Tobago. 

As a first step towards creating a national dialogue on the subject, ICATT invited the Governor of the Central Bank,  Ewart Williams, to be the keynote speaker at their seminar on “Creating a Mindset of Savings and Investment,” recently held at the Cascadia Hotel and Conference Centre.  While Mr. Williams prefaced his contribution by saying that savings and investment can mean different things to different people, he emphasized that investment is a precondition for economic growth and savings, stating, “A high level of domestic savings is needed to finance the transformation of our economy.”

LOW SAVINGS
From a macro-economic perspective, Trinidad and Tobago has a fairly high level of domestic savings – about 30% of Gross Domestic Product (GDP), compared with an average of 18% for Latin America and the Caribbean.  But don’t start spending those  dollars yet – most of this comprises business savings, or corporate profits, generated largely by the energy sector.  Household savings in TT are actually quite low by international standards – possibly as low as 3%.  A combination of data on consumption and financial savings points to the stark reality that incomes are consumed rather than saved and that there has been a steady rise in household debt.  Bank savings, for instance, are at 39% in Trinidad and Tobago, compared with 84% in Barbados, 48% in El Salvador and 64% in India.   

Easy access to money and relaxation of borrowing restraints may be contributing to our heightened consumer mentality – there has been an exponential increase in credit card debt – and other avenues of financing consumption, such as gaming and money lenders, are alive and well.  An increase in disposable income is an opportunity for saving and Mr. Williams is concerned that we are not using it well.  He sees overwhelming evidence that we have adopted the consumption culture of more industrialized countries like the United States, rather than the emerging Asian economies – household savings comprise just 4% of GDP in the US, while in Asia it is 15%. “There is evidence to suggest that too many of our citizens live beyond their means and do not put enough away for the rainy day,” said the Governor. “Invariably, wage earners do not accumulate sufficient savings for their retirement and this implies a decline in living standards in their golden years, or dependence on their children.  We need to cultivate a savings culture anew.”