There is little doubt the scientists have been right all along; the world is warming up. However, what is still contested is why exactly the warming is taking place. On one side of the debate are those that argue the change is taking place solely as a result of human activity; on the other side are those that claim other forces could be at play.
Regardless of the opposing arguments, what we know for certain is that human activity plays a significant role in the quality of the air we breathe and the water we drink. Think of smog, acid rain and micro-plastics in our oceans and rivers. Those all occur because of human activity.
As it stands, Governments all over the world are broadly committed to ‘do something about it’. This means that an army of behavioural scientists and economists are being consulted on how best we, the public can be convinced, cajoled, and corralled into living differently. And from a financial wellbeing perspective, this all matters. So, let’s take a closer look at what is taking shape, how it will impact each of us and most importantly, what it may cost us in the long run!
- Fuel. This has been the low-hanging fruit of the climate change debate for some time. We only have to think back to smoggy London, Los Angeles or even Dublin to see that change was needed with home fuel and car emissions, especially when those problems were at their worst. Today, carbon taxes have become embedded and are likely to increase substantially in the years to come. This will mean fewer standard fireplaces and greater reliance on electricity. But with this more limited fuelling option, there are real risks that prices could become more expensive if supply fails to keep up with demand as we shift from solid fuel or even the combustion engine to electricity.
- Home insurance – according to some of the more recent climate-related reports, Ireland is expected to become both wetter and warmer because of climate change. If this does happen, it means that we are likely to see more flooding in areas of the country that are close to water basins or prone to flooding. This will have a direct impact on home insurance claims and the cost of home insurance in general. It is also likely to lead to higher insurance premiums and even some homeowners being refused home insurance entirely, especially if they live in areas that are under constant threat of flooding.
- Retirement – today, most people that sign up for personal retirement plans, be they work-based Occupational Pension Schemes or even Personal Retirement Savings Accounts (PRSA) do so on a ‘defined contribution’ basis. In other words, the final value of the retirement fund is unknown (unlike ‘defined benefit’ accounts where the final benefit is broadly known). As such, the changing investment landscape will continue to impact the ongoing valuations of the ‘defined contribution’ (DC) funds over time due to the changing nature of investment markets, bond markets and the myriad other investments that feed into the overall fund value. Today, climate change is forcing many investment managers to re-evaluate their investment choices, from an industry, sector and even geographical basis to ensure they can continue to deliver growth. Managers that are alert and responsive are most likely to deliver long-term positive returns. Fund managers that are less responsive or adaptable are likely to deliver less robust growth. Ultimately, this will determine the final fund value that people will have available to retire on and impact their financial wellbeing in retirement.
- Food – the Environmental Protection Agency (EPA) estimates that about €700 worth of food is wasted per household in Ireland each year. While food costs continue to be very low relative to average income, it is entirely possible that we are in the closing stages of super-cheap food. This year alone, climate events have resulted in a significant reduction in wheat yields and a surge in wheat futures which have a more direct impact on consumers than prices for corn and soybeans. Across the US, Europe and other parts of the globe, water scarcity is already leading to changing farm production practices. An example is where almond production in the US state of California has been radically reduced in some areas of that state due to acute drought. In sections of the Canadian west, sustained drought has resulted in farmers reducing or even eliminating livestock count. Here in Ireland and across the EU, Common Agriculture Policy (CAP) reforms means that in the coming years, there will be less and less grant provision for intensive farming methods and more money for ‘sustainable’ farming practices that are deemed to be pro-environment. In such a scenario, it is entirely likely that food costs relative to general income will have to increase which will have a direct impact on household budgets and spending habits.
- Income – working from home aligns with environmental causes. After all, do we really need to commute five-days-a-week to the office? For those using a car, most employees say no! But there are some emerging trends that some employers may be inclined to scale income based on employees in or out-of-office frequency. If this becomes the norm, some employees may see a wage cut. However, this may not be all bad news. While their gross income may be reduced, the impact of the cut may be mitigated by reductions in driving, parking and eating out (lunch) costs. Of course, this will all depend on the level of wage reduction and the frequency, and methods of commuting. Perhaps in the future, employers and employees may receive greater tax-relief for working from home as a means of reducing their overall carbon footprint which would help further reduce the final impact of any wage cut.
In life, there is nothing more permanent than change. With extreme climate events occurring more frequently, it means that each one of us needs to consider the possible challenges to our financial wellbeing now and in the future. Doing so can ensure we can plan and become more resilient to weather the challenges.
Frank Conway is founder of MoneyWhizz