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Business News/ Money / Personal Finance/  Unlock 1.0: Will discretionary expenses see a surge?
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Unlock 1.0: Will discretionary expenses see a surge?

Despite Unlock 1.0, financial insecurity in the wake of covid-19 may make people wary of spending on non-essentials and luxuries
  • Behavioural experts, however, say that people in the habit of spending and having enough liquidity may not shy of shopping
  • Monthly rentals at Delhi’s Khan Market stood stable at Rs1,250 per sq ft in the past one year, but still its ranking improved. Photo: HTPremium
    Monthly rentals at Delhi’s Khan Market stood stable at Rs1,250 per sq ft in the past one year, but still its ranking improved. Photo: HT

    As the fourth stretch of covid-19-triggered lockdown across the country came to an end, the ministry of home affairs announced guidelines for a phase-wise reopening of the economy from I June. What has been dubbed as “Unlock 1.0" will see the reopening of places of worship, hotels, restaurants and shopping malls from 8 June.

    While part of the motivation for reopening restaurants and shopping malls is to boost staffing, consumption and discretionary spending for the sake of the economy, are people really willing to spend?

    'Revenge spending' urges

    Based on early trends observed in China as the country eased its lockdown, experts predicted that people might indulge in what is called “revenge spending" once the lockdown is eased (read more here).

    According to behavioural economists, this kind of spending is driven by habit and emotions. Alleviating negative emotions is hard-wired into human nature, and people are likely to spend on feel-good things like shopping.

    “During the lockdown, people could not buy non-essentials or luxury goods. If they were in the habit of regularly buying these items before the lockdown, then they may overspend once things open again because they may feel the need to overcompensate for the pleasure (positive emotion) of buying that was taken away during the lockdown," said Ashlesha Swaminathan, behavioural economist and director, Subliminal Ideas, a behavioral economics research and consulting firm.

    In no mood to spend

    As the lockdown wore on, the toll on the economy hit close to home as many people were laid off or suffered pay cuts. The financial insecurity accompanying this has made people wary of spending on non-essentials and luxuries.

    According to an online survey conducted by social media platform LocalCircles, which received over 24,000 responses from 124 red zones across the country, there had been a clear shift in consumer mindset during the lockdown. The survey showed that 74% of consumers in these zones said they did not intend to spend on non-essentials after the lockdown.

    “Every action has an equal and opposite reaction so it’s normal to think that as the lockdown is lifted, people will take to spending with a vengeance. But these are exceptional circumstances. Many jobs have been lost and those people will not be spending and even the ones who seem financially strong will not spend because they will continue to be cautious in stepping out of their homes and going to public places. So spending may not revert to normalcy as has been witnessed in the past economic downturns," said Biju Dominic, chief executive officer of Final Mile Consulting, a behaviour architecture firm.

    Old habits die hard

    Although the signs point towards a continuing slump in discretionary spending, Swaminathan doesn't think there will be such a drastic shift in people's habits.

    “Surveys can be misleading, since people tend to respond with what is ideal, rather than what is realistic. There are two groups of people: one whose jobs or incomes have not been impacted, and another who have suffered a pay cut or job loss. The first is likely to go back to their usual level of discretionary spending, while the latter will go through a readjustment," she said.

    Since the unlocking will happen in a phased manner, people will have time to readjust. While people might scale back the level of discretionary spending, it’s unlikely that their habits will change suddenly. “Some people have great self-restraint, but for the majority, it will be an exercise in scaling it back if they need to, but they won’t give up on shopping, eating out, or other discretionary spends," Swaminathan added.

    Financial planners, however, advise that it is better to look at your long-term financial situation before starting to spend indiscriminately just because the lockdown is over.

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    Published: 31 May 2020, 04:01 PM IST
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