Oran Hall | How general elections affect your personal financial plan

By the end of 2024, more than 60 countries with close to a half of the world’s population will have had general elections, leading in some cases to significant changes. Jamaica’s is due by September, 2025.

Although many people choose not to participate, elections can lead to far-reaching changes. One important change is the ability of people to effectively plan and manage their personal and financial affairs.

How governments see and address the affairs of a country depends heavily on the philosophies of the political parties which form them. The differences in how they see the priorities of the country tend to shape their policies and strategies, which ultimately affect matters such as personal financial planning. Such policies can affect investments, savings, estate planning, retirement planning, and insurance.

Expectations play a key role in how people make decisions. Elections often cause financial markets to become volatile due to the uncertainty leading up to them. Some people may become more conservative, others more aggressive, depending on what they expect the outcome to be.

They tend to consider how the likely policies of the party most likely to win will affect their well-being and make adjustments if necessary. Sometimes, therefore, financial markets may begin to rise or fall in anticipation of the expected result, but the changes may be temporary. How long-term the market response is, depends on which party wins.

Changes in financial markets, nonetheless, tend to affect the performance of investment portfolios, both short-term and long-term.

The taxation policy of a government can have a negative or positive effect on investment strategy and returns. Changes in capital gains tax, tax on dividends and interest income influence how people invest in terms of the instruments they choose and in the proportion of their funds that they place in them. Investors also assess whether they should focus on investing more in the local market or in the international market in light of the policies at home.

Corporate taxes also matter. They determine the level of net profit of listed companies, which can influence the attractiveness of ordinary stock to investors. Taxes on inputs also bear on how well companies do and the kinds of returns investors can expect from them.

Expectations in relation to exchange rate policy and the actual exchange rate policy after the election also bear on how people invest and the proportion of their funds that they put into local instruments as against instruments in the international market.

People care about who forms the government when they make savings decisions. They care about taxes on savings, deposit insurance schemes to protect their savings, and whether their savings are taxed, and at what rate.

People also care about interest rate policy because it affects the returns on savings as well as on bonds, debentures and money market instruments, such as treasury bills. It also bears on the extent to which they can afford a mortgage for residential or investment purposes.

Government policy also has a bearing on estate planning because it can affect how easily and at what cost people can transfer property to their heirs in their life time or after death, for instance, based on transfer tax and stamp duty rates.

Government policy also affects retirees in terms of how it treats tax on pensions, allowances for old age, and taxes on pension contributions. Its tax posture on investment income can also help or harm retirees.

Considering that health-related expenses for senior citizens tend to be high, government programmes to cushion these expenses can also make a difference. What the contending parties promise in relation to these and other important matters can determine how people vote.

The fiscal policy of a government, relating to its spending and how it raises money to support its spending impacts how the economy performs, including the generation of employment, which has much to do with what people have to spend, save and invest.

On the other hand, its approach to taxation may impair the ability of some citizens to spend, save and invest, for example, value added taxes, like the general consumption tax, have the potential to seriously affect low-income earners negatively, making it more difficult to save.

In our local context, the contending forces for political power do not necessarily spell out in fulsome detail all the policies they intend to pursue, but their manifestos do give some clue. Granted, some may never see the light of day. Additionally, some policies are framed in response to developments during their term of office.

Potential voters are also able to make a decision based on past performance, often by considering how a government has previously managed matters such as inflation, job creation, the creation of social safety net programmes to benefit the less fortunate, education, and affordable health care, which all have some bearing on people’s current and future well-being.

General elections are what we use to give power to political parties to form the government in a democratic country. What governments do matters as it affects the current and future personal and financial lives of the citizens for good or bad. Ultimately, the decisions made at the polling booth help to shape the personal financial planning landscape.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.finviser.jm@gmail.com