Financial repression and furniture

Many people take for granted that when they are going to the bank to open a savings account, of whatsoever type, the interest rate that its investment will yield won’t be inferior to the rate of inflation. This would at least assure the savings’ purchasing power over time. Another thing that many take for granted is the fact that from time to time some neighbor can leave furniture or a house appliance in the street -because she moved and couldn’t take it with her, couldn’t sell it or has bought something newer and no longer it needs it- hoping that other person that could need it will take it.

Depending where one lives these facts can sound not so familiar. In many countries, in where some form of financial repression exists, savings accounts generate interests almost always below the rate of inflation. It is then when the options of saving for the poor and middle segments of society tend to depart from what financial institutions offer. This is so common that many persons live their entire life without a savings account, although they have saved.

I proceed to present some modalities of saving in urban zones. In countries with this problem there’s usually an informal dollarization, that’s why the first option for saving tends to be the purchase of the North American currency to keep it at home, commonly underneath the mattress. When one has saved enough, one can embark in the following alternative for saving, i.e. buying house appliances or furniture. Chairs, tables, refrigerators, music systems, television sets and other articles in good state will almost never be found laying in the street so that some other person can take them for free because these goods are means for saving and will be sold to the maximum possible price when liquidity is needed. The following stages for saving are buying cars (without concerning the antiquity or state) and finally real estate (even the humblest hut can be bought for this purpose). Only the well off segments of society will be able to escape from the financial repression saving in foreign accounts.

Technorati Tags: Dollarization, Financial+Repression, Inflation, Interest+Rates, Less+Developed+Countries, Liquidity, Savings