I rarely open with a quote, but this one is too fitting to bury further down:

Folks, interesting times are here.

…did you think ‘Tell me something I don’t know!’ possibly accompanied by an eye roll?

Well, buckle up. We’re taking a stroll down ‘what if?’ lane for Australian personal finance and it’s not pretty.

As usual, a warning:

READ THIS FIRST:
THIS IS NOT FINANCIAL ADVICE

I’m not a qualified financial professional. There’s plenty I get wrong. The repercussions for mistakes are lessened by my financial situation. Good chance you’re not in the same position as me.

Further, this post may be terrifying for some folks. It could be triggering for others. Exit at any time with my blessing.

Whether anxiousness starts clawing at your belly or you scoff at my ignorance, please follow that timeless advice from Douglas Adams’ Hitchhikers Guide to the Galaxy and DON’T PANIC.

The sky is not imminently at threat of landing on your head.

You have time to think this through then seek professional advice and/or counselling (though please listen to actual scientists, not conspiracy theorists!) If you choose to act on something you read here or elsewhere, you have time to do so in a calm, controlled manner.

If you’re not cool with any of that, now’s the time to close this tab.

Still here? Off we go…

Let’s start with something two thirds of Australians probably should have by virtue of home ownership: property insurance.

Property insurance is getting more expensive…

…and harder to come by.

In some areas of Australia, property is already becoming difficult to insure, or outright uninsurable. For example: areas of New South Wales following flooding and parts of Victoria due to fire risk.

This will only get worse as the rate and intensity of disasters like floods, fires and cyclones increase thanks to climate change. The global science community agrees this is highly probable if we don’t stop extracting and burning fossil fuels rapidly (not happening fast enough - yet).

As property insurance becomes less viable, mortgage availability could worsen given being able to insure a property is usually a condition of being able to get a mortgage.

When mortgages aren’t available, people have to buy property with cash.

This means the potential buyer pool of an uninsurable property shrinks to those with enough cash to buy it. Not good news for the price of that property. That’s if the price doesn’t drop to near-zero because no one wants to buy in a risky location.

The mortgage loan book of our Big Banks (ANZ, CBA, Macquarie, NAB and Westpac) matter to anyone holding shares in them, because that’s a big part of how banks make money given they’re businesses selling debt.

Fewer mortgages = less profit.

Most Australians own shares in these banks via superannuation (super) and index shares like exchange traded funds (ETFs) or listed investment companies (LICs).

(Side note: yes, even a lot of self-labelled ‘ethical’ index funds hold banks, though whether banking is ethical in general is a debate for another day - see Banking and Financial Advice Royal Commission 2017 and the resulting astronomical fines. And that’s before you consider all five finance the fossil fuels putting us in this situation at the time of writing. But I digress…)

Given the Big Banks make up five of Australia’s Top 10 listed companies by size (a.k.a. market capitalisation) a decline in profitability triggered by shrinking mortgage books could have flow-on effects in the stock market and therefore to retirement funds and investment outside super.

Before you panic: we have one of the safest banking systems in the world, and we are proactive in protecting it.

But no one’s got a playbook for how this - our economic and financial systems - will pan out if climate change continues at its current rate and the first teetering domino of property insurance isn’t righted.

We can only guess.

…but frankly, that’s going to seem minor if we end up with food and water shortages.

As I like to remind everyone: if our financial system is collapsing due to climate change, you may have bigger fish to fry than accessing the government’s $250k guarantee on cash in banks via the financial claims scheme (FCS).

Like, access to food and water.

Hard to worry about your super balance when you’re hungry or thirsty, except if you’re wondering how much food and water you can buy with what you’ve got.

With climate change and pollution, our existing farmland quality is declining so we’re having to expand into natural areas. Water suitable for farming and drinking is becoming rarer. Rising sea levels increase the salinity of water under the soil. Check out the IPCC special report site for more details on all this.

Crop failures are a potential outcome as biodiversity suffers. The likelihood only gets higher if climate change induced disaster is bad enough to topple property insurance.

Further, it’s possible we’ve exceeded the carrying capacity of our planet for so long that we’ve pushed it past the point of natural recovery. So, even if we stop now, it might not be able to sustain the population it was originally able to carry with our current technology.

Without dramatic changes to make how we allocate resources (including money) more equitable and improvements to food production and farming technology, we could be in trouble (understatement).

Let there be no doubt in my stance on this.

If you think this kind of future has moved from the realm of dystopian fiction to an actual possibility in our lifetimes, there’s only one logical thing to do right now:

Keep carbon in the ground

We have to do whatever we can to stop the progress of climate change induced by increased greenhouse gas levels in our atmosphere.

That means we have to do whatever is in our power to cease exploring, developing and extracting fossil fuels (oil, gas and coal) for good, with minimal heed to the financial cost.

We need to do it in as equitable and kind a manner as possible, but it needs to happen.

Now.

Like, we seriously can’t afford to f*** around on this any longer.

We’ve breached six, possibly seven, of the nine planetary boundaries that make life sustainable already. Colonies on Mars are centuries away, and who’d give up the lush paradise of Earth for that barren red hellscape? (If you said ‘Me!’, I think you’re crazy but more power to you for your adventurous nature).

There’s no viable Planet B in our lifetimes. We’re playing roulette with the future of humanity as a race.

The shift from venture capital (pure extractive) to impact capital (semi-extractive with some willingness to sacrifice returns for doing good) to systemic investing (recreating the systems that make life worth living in a sustainable way) is happening, but it’ll be for (almost) nothing if we don’t slow climate change down rapidly.

Fortunately plenty of awesome organisations and politicians are working on this, but we’re not there yet.

(While I’m on this topic, a moment of mourning please for the day Roger Cook, the WA Labor Premier, put pressure on Labor Prime Minister Anthony Albanese to squash the nature positive changes to the environmental protection act that would have prevented our new Environment Minister Murray Watt approving Woodside’s North-West Shelf project. WA Labor, you lost my vote that day.)

Now I’ve had my fossil fuels soapbox moment, I promised you a look at personal finance.

Here it is:

What does all this mean for your money, in the next 10 to 20 years?

The possibilities arising from insurance collapse have had me thinking.

Not just for my money, either.

I teach people about this stuff through Money School. I want to make sure what I’m teaching is balanced, fair and factual. That includes getting real about what unchecked climate change could cause.

So, is investing in shares and property inside and outside super riskier now, in general, if you take a one-to-two-decade view and believe climate change is taking a wrecking ball to our economy?

Likewise, are company bonds in banks riskier than they were if property insurance might slow down mortgage lending?

The short answer is: maybe.

I can’t see it being completely unaffected. System collapse is possible, though I’d like to think we aren’t idiotic enough to get to that point.

Hold on, I’ll just check my crystal ball…

Damn. It appears to be broken.

Maybe because it’s just a light fitting I borrowed from my house for this photoshoot back in 2020. Oh, and because time machines don’t actually exist.

Perhaps more useful than hypothesising is:

What is a person to do if they want to continue investing (or at least preserve their wealth) but are worried about the potential cascade that starts with climate change induced uninsurability of property?

Base case: Carry on regardless

Maybe you change your finances so you’re not supporting fossil fuels directly or indirectly. You might do what you can to decarbonise your life. Cue solar panels, batteries, electric cars, no more flying and all that jazz.

But you could just carry on as you have been, focusing on your net equity and income from dividends, coupons, interest and/or rent.

In short, hope for the best and change nothing. Or, you might tweak. Change your portfolio mix, for example. Treasury bonds might look more appealing perhaps. You might develop a sudden interest in hedging.

I know plenty of people who think this climate change palaver is all just noise and the traditional rules of finance will continue to apply ad infinitum. They have their spiels on the self-correcting nature of index funds and super portfolio composition etc.

You would not be alone if you think this way.

I make no comment on the company you’re keeping.

I don’t agree with this approach, but you are of course entitled to any opinion you can justify with independent, verified data and research. And no, reading articles like this or watching YouTube videos is not research. I’m talking the academic kind.

If you don’t agree either, there are a few ideas bouncing around the online chats on what to do if you don’t believe the status quo will continue.

Most involve selling some or all of your assets then one or more of:

• putting the cash in the bank earning interest

• pulling the cash out of the bank and putting it in a safe

• converting the cash to gold and putting it in a safe

• converting the cash to cryptocurrency

Some diehard market forces capitalists are chasing the best returns one might expect to get in this kind of future by investing in things like water rights and futures. I find that too mercenary to contemplate. I imagine folks buying up water rights are the ones building bunkers between flights on their private jets, i.e. covering their own asses while continuing to f*** things up for the rest of us instead of trying to fix things. Massive ick from me.

Anyway, let’s look at the former four ideas…

Idea 1: Cash in the bank?

You might be tempted to put it all in a bank as cash, noting you’re covered by the government’s financial claims scheme (FCS) for up to $250k per person per authorised deposit-taking institution (ADI) in the event of bank collapse.

…but not fast. You need to consider the potential effect of bank bail-in laws, even if you later discard them as improbable.

Bank bail-in laws exist to protect Australia from the threat of financial system collapse. They are, in general, considered a good thing.

There is concern that banks could convert deposits into shares via bank bail-in laws, leaving a person with 20 per cent of their saved cash and 80 per cent converted into shares in the bank, so the bank can use the capital to keep afloat.

The Australian Prudential Regulation Authority (APRA) argues this is not possible.

They say there’s no way the existing laws would allow financial institutions to convert cash deposits. But the bank bail-in bit of the law itself doesn’t explicitly state it prohibits this. There’s a few legal opinions that it’s not clear enough to categorically exclude the possibility. This ABC article gives an excellent round-up of the different arguments.

An amendment was proposed to Parliament in 2020 to amend the Banking Act to explicitly state APRA’s position, for the avoidance of doubt and to boost confidence. It did not pass.

On balance, it looks unlikely that bank bail-in would touch your deposit, but who knows? I just hope I never find out.

If you’re satisfied bank bail-in isn’t a risk, remember you may go backwards in terms of real buying power for your cash if inflation, fees and tax on interest exceed the benefit of your interest rate. You might look at term deposits to get a better rate than the standard savings account.

Still, even if you’re going a bit backwards in terms of buying power, you might find it’s worth it for peace of mind - like buying good sleep.

Just please do me a favour and at least think about which bank/s you use, as the majors all fund fossil fuels at the time of writing.

If you don’t want it in the bank, you might look at the next idea…

Idea 2: Cash in a safe?

Do you take cash out of the bank and pop it in a safe at home?

People keeping large wads of cash in their houses worries me, and not just because of the vent system incident in Season 1 of Breaking Bad.

What if you lose the key and/or code to the safe?

What if you forget where you buried it (yes, some people actually bury these things)?

What if it’s washed away in a flood, never to be seen again?

What if a particularly determined thief takes the thing out of your house while you’re away for the weekend, along with a piece of your wall?

Once your money is converted from ones and zeros into cold hard cash - a.k.a. fiat money - it can be lost, destroyed or stolen.

(Incidentally, this is my biggest problem with the cash stuffing trend).

Further, it’s no longer covered by the FCS because it’s not in a bank.

Even if your safe is fire-proof and secure so your risk of loss by theft or disaster is low, inflation is definitely working against you. Without earning interest, it’s working faster than it does on cash in the bank. It might be negligible for a year or two, but a decade down the track you risk having significantly reduced your buying power.

So, maybe you consider converting the cash into something more likely to hold or grow in value…

Idea 3: Gold in a safe?

Gold, long considered a financial safe haven, is often flocked to during times of uncertainty.

The theory goes that gold:

• has historically held its value during times of economic uncertainty

• is protected from inflation because you can’t print more of it like you can with fiat - at least, I don’t think the alchemists have mastered it yet!

• it is shiny and pretty, so has an appeal beyond just being a store of value

And look, the price of gold over the last 20 years has increased, though there have been dips along the way:

…but you still can’t eat it.

If you’re carrying bars of bullion into your house for safe keeping, the threats of loss and theft apply as they do for cash. I guess a fire would just melt the stuff, but good luck getting it out of the carpet after a bushfire.

(Actually, this is where my chemical engineering background might be of use!)

If holding your wealth in its physical form appeals, you could do worse than gold.

But perhaps you’re not ready to give up on the electronic versions of money just yet. In which case, cryptocurrency might just catch your attention…

Idea 4: Convert to crypto?

Bitcoin, Ethereum, Ripple and a thousand other coins await you on the cryptocurrency exchanges. They’re fun, they’re bold, they fight the system (apparently).

Crypto can look really appealing to some:

• Using blockchain technology, it eliminates the need for third parties like banks to track what goes where. That record - the ledger - is all wrapped up in the encryption process

• It’s hard to lie because the ledger is distributed. To cover your tracks, you’d have to edit everyone’s copy of the ledger. Good luck with that.

• It’s outside government control. Power to the people! Down with government, especially taxes!

Of course, this last point is tongue in cheek. This factor allows it to fund terrorism. That’s only an upside for the baddies.

It’s also why crypto is firmly in the speculating bucket for me, rather than investing.

Your crypto is not covered by Australian law and consumer protections the way other investments like cash and shares are covered. It’s not covered by the FCS. If your crypto is hacked or stolen, good luck getting any help to get it back. There’s no recourse if some dodgy crypto investor cooks up a ‘pump and dump’ scheme, destroying the price and therefore the ‘wealth’ of all the non-whales.

It’s the wild west, baby. Get your own gun and watch your own back.

(If you must crypto, this translates to cold wallets and excellent record keeping. Also, don’t let your hard drive end up in landfill with a few hundred million in Bitcoin sitting on it).

And don’t kid yourself that it’s about to be deemed something other than property and therefore not taxable thanks to a recent court case. The Victorian judge rejected the lawyer’s defence. It’s still considered property, folks.

Look, when there’s a government backed crypto - an eAUD - that doesn’t consume masses of energy to run, I’m here for it. It should reduce the cost of using the finance system to consumers. It could reduce opportunities for fraud and allow more thorough auditing.

Till then, I’d sooner buy tulip bulbs than throw all my wealth into a crypto exchange.

So, what do you think?

Am I crazy to even be thinking this way?

(Not about fossil fuels. If you’re here to argue that point, this article is not for you and I recommend jogging on).

I admit I’ve wondered over the last nine months as this has been bouncing around in my head and in my journals.

What I wouldn’t give for the chance to talk to my mum about it.

Interesting times indeed.