What Would a Recession Mean for You

What Would a Recession Mean for You What Would a Recession Mean for You? What Would a Recession Mean for You?If you arent prepared for an economic recession, you could end up losing your job without any kind of financial safety net to catch you.Have you heard rumblings that a new recession is on its way? If so, it’s something you’ll want to be ready for. And even a recession isn’t just around the bend, you’ll still want to be prepared when one inevitably shows up. Here’s what you need to know about how recessions work, and what you need to do in order to weather the next one that arrives.What is a recession?“A recession refers to the continued contraction of a countrys economy over a prolonged period of time, usually six months or more.” said Joe Bailey, Operations Manager at  My Trading Skills (@MyTradingSkills), a financial trading courses provider.“During a recession, consumption and demand for goods and services continue to gradually decline over a six month period. Unemployment, on the other hand, begins to rise as demand and consumpt ion fall. A fall in manufacturing, retail sales, and real GDP are also strong indicators that a country is in recession.”“Recessions are cyclical, so although there is never a set date that can be predicted, they are always just around the corner,” added financial analyst Dennis Shirshikov of  FitSmallBusiness.com (@FitSmallBiz).While there are many factors in the economy that can lead to a recession, Shirshikov pointed to an access of available credit as one of the main triggers. As an economy gains steam, credit gets easier to access. But at a certain point, it gets a little too easy.“This happens because times are good, so naturally, people get married, start businesses, buy houses, and spend a little more than they make. The money the one individual spends is the income of another individual, so income grows too. This leads to a sense of security that things are getting better and its ok to borrow and spend a little more,” said Shirshikov.“Just like no individual can borrow forever, the economy as a whole can have too much outstanding credit. First, a couple of people miss payments, then a couple declares bankruptcy, then a local business cant afford to stay open. Eventually, this cycle spreads and is known by economists as a cycle of deleveraging. In other words, the credit starts drying up, banks are less likely to lend, and people cant get access to more credit.”The most recent recession in the U.S. economy was a big one: The Great Recession lasted from 2007 to 2009 and brought down the global economy along with it. That recession was caused by the subprime mortgage crisisâ€"a massive overextension of credit, just like Shirshikov laid out.What would a new recession mean for you?Unless you’ve pulled a Ron Swanson and youve got millions of dollars in various precious metals and gemstones buried in around your propertyâ€"guarded by traps, no lessâ€"than a recession is likely going to leave you worse off. And the more financially unstable yo u are, the more likely that a recession will wreak havoc on your life.“The rising rates of unemployment are one of the major effects that recession has on the citizens,” explained Bailey. “High levels of unemployment mean more people are unable to meet their basic needs such as housing, food, clothes, and education. As a result, people lose their homes and their cars. Young graduates are unable to find jobs, and this completely throws off their careers. Businesses often experience a drop in profits, with many of them having to declare bankruptcy.“Another recession would increase homelessness, a profound housing crisis with home foreclosures and high rates of unemployment,” said Chad Dion Lassiter, MSW, Executive Director of  the Pennsylvania  Human Relations Commission. “Most recent college graduates would suffer as well under the pressure of attempting to balance looking for a job during a recession and paying back student loans.”And if you’re hoping that the effect s will be short-lasting, you probably won’t be so lucky. According to Ashvin Chheda, ChFC ®, CLU ®, President of  Opes One Advisors in Addison, Texas, you could be feeling the aftershocks from a coming recession for a long time afterward.“There could be mid to longer-term impacts on the average family,” said Chheda. For instance, early childhood education could be compromised, health care for families could be compromised, more specifically preventative care and/or vision/dental care. There could be housing implications (loss of home due to inability to pay the mortgage, downsizing of rental home/apartments are examples). There might be a longer-term delay or abandonment of college for older children. ““In many cases, there is a measurable shortfall to funding for retirement; retirement funding is a function of saving! Similarly, there could be an early hardship drawdown of retirement assets that will have to be replenished later. In more severe cases, there are impacts to the standard of nutrition for families due to a much more constrained budget.”“In essence,” he concluded, “the standard of living for families will be compromised due to loss or reduction of wages.”Finally, Dion Lassiter highlighted the psychological effects that recessions can have on many people, problems that all-too-often go unacknowledged. The factors he listed included “high rates of anxiety, hypertension, depression, mood disorders and the potential for maladaptive ways of coping under economic distress.”In summary: The effects of a recession can range from “not great” to “catastrophic.” It will depend on your individual situation: A reduction in retirement savings or going a year without a raise is one thing, losing a job or home is entirely another. But the more prepared you are, financially, the better you’ll be able to weather this time of uncertainty.How can you prepare?Even if you don’t think a recession is around the corner, you should still be planning for one to happen eventually. Economies can’t grow forever, which means that recessions are inevitable.“While economic recessions are few and far between, they do occur periodically and are part of economic cycles,” said Chheda. “Personal planning to mitigate the effects of a recession are important and every family should have a plan!First things first, you want to be prepared for the emergenciesâ€"not just from a recession, but from unexpected expenses like medical bills and car repairs. And if you want to be prepared for emergencies, the best way to do that is with … an emergency fund!“Set up an emergency fund,” urged Bailey, “and build it up to a point where it can be able to cover ones basic expenses for more than three months.” You can find more information in our blog post about how to start building an emergency fund.But your preparations shouldn’t stop there. Bailey also recommended that you pay down your debts, “as this will help you gradu ally reduce your monthly expenses.”“Besides savings and debt reduction,” added Shirshikov, “you should work to have an extra source of income. Whether its a side job, a hobby, or an independent role like real estate, having an option if something happens never hurts.“Finally, if you see your friends and neighbors taking on debt for new houses and parties, remember all of that needs to be repaid,” he added. “So move against the trend.While most solutions involve planning for the worst, you should also look at ways that you can prepare for the best. In other words, the more valuable you are as an employeeâ€"both in terms of work ethic and skill-setâ€"the less likely you are to feel the brunt of recession-aided layoffs.“There are other things that people should do to mitigate the impact of a recession which in many ways is tied to their ability to hold on to their employment,” said Chheda. “Investing in ones own education; career growth is important. Companies gener ally try to avoid laying-off their top talent, and if they do, those same individuals will find it easier to get re-hired.”“We cannot predict when a recession will occur,” concluded Bailey, “but everyday people can prepare adequately for one by building up a healthy emergency fund, finding more sources of income other than their main jobs, and paying down their current debts as much as possible before a recession begins to bite.”Is a new recession on the way?Recently, there has been a fair amount of ink and pixels spilled by national news organizations over the possibility of a recession in the near future. And these fears come with an extra level of worry: While the economy overall has recovered somewhat following the Great Recession, many of those gains haven’t extended to lower- and middle-class households.“Another recession would be more than devastating for our economy specifically for the middle and lower classesâ€"not to mention the permanent underclass that exp eriences deep povertyâ€"that would only further increase the rates of despair, hopelessness and a profound sense of nihilism,” said Dion Lassiter.“Many of the before mentioned are still trying to recover from the last recession that devastated them and rendered many of them the faces in the bottom of the well where capitalism increases opportunities for the oligarchs and the plutocrats and renders them non-persons and non-entities against the backdrop of the great wells of democracy,” he added.There are many different factors that could contribute to a recession, including interest rate hikes from the Federal Reserve and the Trump administration’s ongoing trade war with China. One indicator of recession, an economic phenomena known as an inverted yield curve (which we won’t explain here), has already come to pass.But as we said earlier in the piece: Even a recession doesn’t happen this year or next year or the year after that, one will happen eventually. And when it does , you’ll want to be ready. Otherwise, you could end up relying on short-term  no credit check loans  like  payday loans,  cash advances, and  title loans  to make ends meet.To learn more about managing your finances long-term, check out these related posts and articles from OppLoans:Building Your Financial Life: Budgeting for BeginnersSave More Money with These 40 Expert TipsFrom Budget to Baller: 6 Tips to Grow Your MoneySo You’ve Maxed out Your Credit Cards … Now What?Do you have a   personal finance question youd like us to answer? Let us know! You can find us  on  Facebook  and  Twitter.  |  InstagramContributorsJoe Bailey is the Operations Manager at  My Trading Skills (@MyTradingSkills), a financial trading courses provider. His experience includes web development, UX and conversion rate optimization for both B2B and B2C.As President of  Opes One Advisors, Ashvin Chheda, ChFC, CLU, works closely with clients and focuses on customizing financial advice and strategies for each client’s unique needs. In addition, he holds the investment related Series 7, 63, and 66 licenses, the Registered Principal Series 24 license, and the Group 1 Life, Health and Disability insurance license. He is a Registered Representative Investment Advisor of Park Avenue Securities, Financial Representative of Guardian.Chad Dion Lassiter began serving as the Executive Director of  Pennsylvania  Human Relations Commission on May 24, 2018.   He is nationally recognized in the fields of American race relations and violence prevention among African-American males.   Prior to accepting his post at PHRC, Chad D. Lassiter was a Visiting Scholar at West Chester University in the Undergraduate School of Social Work and Lecturer at the University of Pennsylvania, where he was the 2008 recipient of the Dr. Martin Luther King, Jr. Community Involvement Award. He is a former research fellow at the W.E.B. DuBois Collective Research Institute at the University of Pennsylvania Graduate Sc hool of Education, where he worked on two national research projects, P.L.A.A.Y. (Preventing Long Term Anger and Aggression in Youth) and H.I.P.P. (Health Information Providers and Promoters).  Mr. Lassiter received his Master’s Degree from the University of Pennsylvania Graduate School of Social Work, where he was the A. Phillip Randolph Award winner in 2001.Dennis Shirshikov is a Financial Analyst with  FitSmallBusiness.com (@FitSmallBiz). Dennis earned an MS with an emphasis in Financial Risk Modeling and spend most of his career working with startups. When not helping small businesses and teaching Economics to college students at CUNY Queens College.