Recently I have been left pondering whether day to day life is actually becoming cheaper, not more expensive over time.
I wonder if it engrained in us to think that everything we spend money on will always cost more. I wonder if it is possible to think that it will actually become cheaper?
While it's not a difficult concept to get your head around - it just means that things will cost less next year - the consequences of things becoming cheaper or society thinking they will be can be disastrous for an economy.
But the more I think, the more I keep coming back to one question.
Will technology lead us to a point where our general day to day living costs go down in value significantly over the coming years?
The internet has changed everything. Information, ideas, innovation, money and collaboration are coming together on a scale that no one has ever had to comprehend. Technology is taking no prisoners and is attacking every industry, every job and everything in our lives. Every day I hear about something new and think "wow what an idea". But they are not usually ideas, they have already been developed and completely destroyed the marketplace they are playing in. Using technology to make it easier, more efficient and more effective.
What is also interesting is that someone somewhere else in the world has had the very same idea and building the same thing. Serendipity?
Whether that be in Beirut, Berlin or Brisbane, people are developing and creating things to make something better and it's the same problem someone else is trying to fix.
So with all this innovation, I believe that we are actually heading for cheaper costs to live and not just a little but a lot. This is not what any government, corporation, economy or worker wants.
Governments want inflation to inflate it's debt away, grow the economy and tax revenue by keeping unemployment low. Corporations love it because they can sell at higher prices and make more money. You want it so your salary rises faster than what your bills so you can save and invest in assets that grow.
So at the risk of being told I'm crazy I think it's an important idea to consider. My job is to help my clients prepare for the future on a daily basis. The one thing we do know is that the way the world is today won't be the same in 2045, like it wasn't in 1985 or 1955.
We also know that interest rates are at all time lows all over the world with the lowest inflation for a very long time. There's many countries in the world with a very similar problem and no one really has an answer?
If we look at the spending for most Australians and anyone in fact, we spend our money mainly across these areas
2. Food + Alcohol
4. Utility Bills
8. Medical + Insurance
If I may look at housing first. We have arguably the most unaffordable housing on earth in Sydney and Melbourne.
The major part of the cost is the land value. This has been rising significantly from the pressure to live in the suburbs surrounding CBDs due to work commitments. As the cities, in particular Melbourne and Sydney become more clogged, it continues to create even more pressure on the inner city suburbs land values as it takes even longer to get to work form outer suburbs. This constant and growing pressure cooker has pushed prices up to immense levels. Sure they will continue if we have to stay living close to the city, but will you need to work near CBD forever?
Will new internet technology create new work environments in spots all over town and make working from home or local co-working spaces a better option for all. Will video conferencing, project managements tools, make going to an office inefficient.
Will future workplaces have rooms available for people to stay overnight. It's already common to live in the country areas and to stay at a hotel or AirBNB for one night a week. AirBNB have revolutionised what it means to travel for work regularly.
There will likely be a continued influx of apartments and affordable housing for cities. As long as there is an increase in supply that outstrips demand and population growth at least. Apartments become cheaper. Technology is making building cheaper and apartments are being built with sliding walls and better utilisation of spaces. A one bed apartment that turns in to a two bed on the switch of a button. It won't just stop at apartments. Houses will be cheaper and faster way to build as you can see with 3D printed houses already building houses in days not months. So if the pressure to live in the city is not there and we have so much land in Australia - can the cost of housing dramatically fall?
If we then look at food and alcohol. Wine is cheaper than ever. Food varies but with the help of technology creating much more efficient farming methods, transport costs dropping and automated farming why can't it become cheaper?
Automated home vegetable patches and ways to grow our own food in community green spaces exist.
A big cost for families has been transport. In a lot of families it is arguable whether they need a car, let alone two or three. Car-share businesses are popping up daily. If you live in the city, UBER is taking over the world and when driverless cars come out, the price is meant to collapse in cost. It's already cheap and 80% of the cost goes to the driver who will no longer exist. If you need a car, you only have to look at the cost to buy and fuel cars today. If you own a hybrid it is "almost" free.
Public transport will also become cheaper as it becomes more efficient with technology. The cost to build, maintain and run should be reduced as human hours drop. What if need to fly interstate, low cost airlines mean it is now $100 to fly return from Melbourne to Sydney.
So what about the bills?
The major costs are gas, electric and technology. If you look at other cities around the world, Solar has finally taken off after the cost to produce sunk. It is very cheap to setup and almost have no electricity bills - we might all have a Tesla Powerwall. What about the phone line, well that's gone and Skype makes it free. If you look at technology in our lives - the TV, iPhone, Computer - these are all tiny costs nowadays. No more paying $3,500 for a TV and Computer. You can get a good one for $500 each.
Holidays!! I recently booked flights return to London for $1,000. What was the cost in the mid 1990s $2,500? We are also staying at AirBNB in central London and many other places for a fraction of the cost of hotels and we have friends in many cities that are happy to share.
Ok, what about education is going through the roof? Yes, private school fees for children and universities keep on going up but what about the internet. Universities are going online and producing degrees at lower costs. Private schooling may not be so important if you live in the more rural parts outside a capital cities and better online teaching tools are available. Is the teacher that important now or is the internet better?
Moving on to entertainment. This will always be one with the biggest bell curve - some people spend very little and go camping, others like to stay at luxurious hotels and go to $1,000 a dinner restaurants. There's no right or wrong but this is dropping too. Things like netflix, virtual reality and who knows what else make it more affordable than spending money on DVDs. Who knows what is possible here but I don't think it will be expensive... for long.
I won't mention clothing but it's also down to ridiculous prices. While they sadly do not factor in the environmental externalities you can get all you need for very minimal cost nowadays. It's scary how low cost low cost shopping is.
The final bit is Health & Insurance - this has been going through the roof year after year. But why is that? Ageing population, reliance on doctors and insurance company monopolies. Will the younger generation always be forced to pay for the older generation health bills? Should private hospital visits cost $3,000 for a night? Will specialist doctors be needed or will technology create surgeons, will you be able to get a doctor via video conferencing.
The more you look at life, the cost is going down not up. Where it ends no one knows but we are becoming more efficient as a society and that does not do well for prices.
No government or company wants deflation but really when you look at the economy we have the lowest inflation in decades and prices are going backwards.
All the technology I have spoken about already exists. It's something we all need to be aware of and be thinking about before our job just go.
So if you're planning for retirement maybe you do not $100,000 a year in todays terms. Maybe you need something much less. You should also realise that if prices are going down, so will investment returns over time.
Many say, it's below long term averages or what happens when things return to to normality. What if nothing is really normal nowadays, everything is changing and it will never stop.