Business Times

Young people spend heavily on non-essentials despite rising living costs

BT Panel discussion
By Jagdish Hathiramani

A Business Times panel discussion in Colombo this week entitled "Inflation and the Consumer", which comprised noted economist Prof. Sirimal Abeyratne, advertising executive Sandya Salgado and Housewives Association representative Amena Mohamedally, has revealed that while many Sri Lankans claimed that they did not have any disposable income, their perception of what construed essential items drastically differed depending on factors such as age, number of dependents, etc.

One finding further suggested that the younger one's age the more likely that items such as beauty products and clothing would take on greater importance than even food, while the savings of this age group was increasingly being spent on what others may consider luxuries, like local and even foreign travel. This may be because this age group often lives at home and does not incur daily cost of living expenses which are a burden to their parents.

Also emerging was that many had taken on some sort of added business, although maybe not a second job, which had the sole purpose of adding to the household income so as to make ends meet. This was especially relevant to women who may not be able to take on full time employment, explaining the spate of in-home beauty shops, caterers, bakeries, daycare, etc. Meanwhile, men would drive trishaws part time, etc. to help ends meet.

Another part of this equation was that cost of living increases and greater inflation mainly affected urbanites as they were overly dependant on buying products while rural segments had a degree of food security that makes them resistant to price increases. Some of the latter segment was indicated as also having more disposable income during times such as the "Maha" season which they spent on consumer durables, gold and property, which they could later pawn when they were strapped for cash. So much so that many banks considered their pawning business to be their core earners.

Meanwhile, urban dwellers are more integrated into the modern economic market so their cost of living depends heavily on market prices. It was also suggested that today food was considered to be a relatively less priority than an area such as education, with parents making sacrifices now to provide for their child's future. Additionally, while the local Consumer Price Index gives 40% weihtage to food, amongst a basket comprising other essentials such as phone charges, etc., the actual amount spend on food on average was much higher than the 40% it is thought to be.

There is also a trend towards "rent seeking" behaviour, according to Prof Abeyratne, of that which calls for earning without contributing to society, this includes people helping you with parking or carrying your bags and even government servants facilitating quicker processing times for public documents, etc. In fact, in public administration rules and procedures have been created with the sole purpose to facilitate this behaviour and create additional, though uneconomic, revenue potential. These opportunities exist because of lots of problems with market fundamentals in the current system.

Another observation was that households were shopping for food items based on daily requirements, subsistence purchasing, and as such as buying smaller fish and 250 grammes of vegetables. This day to day living approach may also be a symptom of more workers who rely on a daily wage and cannot plan spending too far ahead.

Purchases of branded necessities such as soap, etc. are also giving way to non branded, generic substitutes, often those produced by supermarkets, because middle to lower income shoppers are no longer see any quality differences between these types of offerings. Meanwhile, there is a big price gap perceived between branded and generic, “private label" type offerings; and with consumers more price focused, branded products are losing out because of this. Additionally, innovations such as sachets, etc. are also increasingly becoming more popular, at least amongst consumer products companies, to combat this situation.

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