It should not come as a surprise that in 2023, the most popular personal finance topic in Ireland revolves around the impact of inflation and the rising cost of living on consumer behaviour. This trend has been highlighted in the Irish Consumer Insights Pulse Survey 2023 conducted by PwC.
Rising Prices and Changing Consumer Behaviour
The survey reveals that 79% of Irish consumers have altered their non-essential spending in the last six months. This change in behaviour is largely driven by the re-emergence of inflation after decades of very low levels. As a result, Irish consumers are becoming more cautious and mindful of cost and value.
The Shift Towards Value
In response to these cost-of-living challenges, consumers are shifting their consumption habits both in-store and online. The survey shows that 98% of Irish consumers will adopt cost-saving behaviours over the next six months. This includes buying retailers’ own brand products, shopping with retailers offering better value, buying certain products only when they are on promotion or special offer, and switching to a cheaper brand.
Concerns About Personal Financial Situation
The survey also reveals that almost half (45%) of Irish consumers are extremely or very concerned about their personal financial situation. Over three-quarters (79%) said that they have changed their non-essential spending, including 15% who have stopped non-essential spending altogether.
The Future of Personal Finance in Ireland
Looking ahead, the survey predicts that expected spending increases over the next few months will be less than last year in areas such as home improvement, travel, fashion, home entertainment, health and beauty, and luxury/designer goods. At the same time, nearly half (47%) expect to increase spending on grocery.
According to CSO.ie the inflation rate for October 2023 was 5.1%, and on its way down due to the fall in energy process. The average inflation rate for the year 2023 in Ireland is 6.75%.
Inflation can significantly impact your investments in several ways:
1. Erosion of Real Value: The rate of inflation represents the rate at which the real value of an investment is eroded and the loss in spending or purchasing power over time. If your income doesn’t increase by at least the same rate of inflation, you will not be able to buy as many goods.
2. Return on Investment: Inflation tells investors exactly how much of a return (in percentage terms) their investments need to make for them to maintain their standard of living. For example, if a stock returned 4% and inflation was 5%, then the real return on investment would be minus 1% (5% – 4%).
3. Impact on Asset Classes: Inflation has the same effect on liquid assets as any other type of asset, except that liquid assets tend to appreciate in value less over time. This means that, on net, liquid assets are more vulnerable to the negative impact of inflation.
4. Inflation and Interest Rates: Nominal interest rates must keep up with or outpace inflation for an investor to earn a real return. This means investments with lower interest rates are hit harder by the effects of inflation.
5. Effect on Savings: Inflation can shrink your savings even if you’ve secured your funds in a savings account with an average interest rate.
Remember, understanding the relationship between inflation and investments is essential to making informed investing decisions.
As outlined above, inflation can erode the value of your investments over time, so it’s important to have strategies in place to protect your portfolio. Here are some ways to hedge against inflation:
1. Gold: Gold has often been considered a hedge against inflation. Many people have looked to gold as an “alternative currency,” particularly in countries where the native currency is losing value.
2. Commodities: Commodities and inflation have a unique relationship, where commodities are an indicator of inflation to come; as the price of a commodity rises, so does the price of the products that the commodity is used to produce.
3. Property Investments: Property can be a good hedge against inflation because as prices rise, so does the value of your property.
4. Invest in Stocks: Stocks offer the potential for inflation-beating returns. Of course, it also comes with the risk of losing your money. Funds will help you spread the risk better than individual shares.
5. Savings: With the rate of inflation, most people’s savings are effectively losing value. The interest rates on offer will not keep up with the rising cost of living but you should still make sure you are getting as good a return as possible.
6. Cut Regular Costs: If you are on a tight budget, any uptick in prices will put a further squeeze on your spending. Before you cut back, make sure you are getting the best deal on services you are paying for.
Remember, when it comes to investing it is always a good idea to consult with a financial advisor or do some research for the most up-to-date and accurate information.
In conclusion, the most popular personal finance topic in Ireland in 2023 is centred around the impact of rising prices and the cost of living on consumer behaviour. As consumers become more cautious and mindful of cost and value, they are changing their spending habits and seeking ways to save money.
Carey Corbett Financial Solutions are Independent Financial Brokers specialising in pensions, mortgages, investments and retirement planning and can be contacted on 065-6893540