Journalist Ross Gittins, who has studied economics for 30 years, believes that people are treated more as consumers than citizens these days. Speaking at the Sydney Writers' Festival on 29 May, he warned that there's an inherent danger in contemporary consumerism. People are working too hard, spending too much and getting too much in debt.
While economics textbooks generally assume that people make rational decisions, such as seeking the best value for money or shopping around for the lowest interest rate, they have limited reasoning power in reality, he said. He studies behaviourist economics which takes psychological factors into consideration. "You really have to take account of that type of thing if you want to predict people's behaviour with any degree of accuracy," he said.
He noted that people seek short-cuts to happiness through activities like shopping, eating junk food and chocolate and watching TV. "They are all ways to get that instant hit of pleasure," he said. "They all work, but the problem with them is that they're all completely instant, that the gain that we make, the boost that you get from them, is very, very fleeting." People can get more satisfaction from activities that require more effort, such as reading, gardening or playing sport.
Gittins warned that although Australians have been getting wealthier over the last 20 years, they've also been getting more heavily in debt. During the late 1980s, people saved approximately 15 per cent of their income, but now they spend 2 per cent more than they earn. At the start of the year, Australians had a combined credit card debt of $40 billion.
"I believe that money has become less physical and more conceptual," he said. People used to be paid in cash but are now paid by direct deposit. Over the last decade, banks have been encouraging people to use credit cards for purchases instead of cash, cheque or debit cards. As a result, people exercise less control over their money because it appears less real.
The problem with credit cards, he said, is that they separate the act of buying from the act of paying, so that otherwise sensible adults delude themselves into thinking that they aren't really spending money. People instinctively want immediate gratification while the slower, more rational part of their mind considers how to pay for it.
Gittins recommends that people only use credit cards if they can afford to pay the balance off each month. "If you can't pay off your credit card in full each month, you've got a rod on your back, and the easiest way to get that rod off your back is to cut up the card and just pay the thing off as quickly as possible and switch to using a debit card," he said.
The other major trend is that people are spending more on housing than they used to. While the average size of households has been shrinking over the last 20 - 25 years, and half of all households now comprise only one or two people, the size of houses has been expanding. Gittins attributes this to the community's increase in wealth and falling interest rates.
"Australians - not just Australians, probably most people in developed countries - want to put a lot of their income into the quality of their housing," he said.
Australia is now experiencing the biggest housing boom in history. It's most noticeable in Sydney but is being overtaken by Perth. People are moving to more prestigious suburbs and buying larger houses and as a result, house prices have at least doubled. "This huge increase in the value of our homes is largely illusory. We think it leaves us better off but when you cut through, it doesn't," Gittins said.
Nevertheless, he believes that taking out a mortgage to buy a house is desirable, even though it means going into debt. "I believe there's a lot of 'psychic income' attached to owning your own home that you don't get out of renting," he said.
Gittins wrote a book, Gittinomics, in which he suggests ways that people can better balance their lives. He recommends giving one's partner and children higher priority, slowing down, opting for the simple pleasures in life, watching less TV, taking holidays, getting an enjoyable job and forgetting about vying for social status or trying to keep up with the neighbours.
"There's more to life than work and consumption. All of us know people are more important than things, our relationships are worth more to us than our possessions, but we live in an era where the material is crowding out the human," he says in his book.
