Will you be able to survive a recession? The odds are rising that a recession will arrive sooner rather than later. In fact, here are a few signs a recession could be just around the corner.
—Credit card delinquencies are rising. Credit card debt in America has now topped $1 trillion for the first time ever. Even worse, the rate of card delinquencies has jumped from 1.84% a year ago to 2.77% in the most recent quarter. This is the highest delinquency rate since 2012 — when unemployment was at 8% (vs. the current 3.5%).
—Consumer confidence is plummeting. The most recent Conference Board survey showed a sharp and unexpected confidence decline from 114 to 106. People are more worried about inflation in food and fuel prices, and less sure of future job prospects, according to the survey.
—Student loan repayments have recommenced. The resumption of student loan repayments after a pandemic hiatus could take between $200 and $500 per month out of the budgets of 28 million Americans. That will force them to stop spending on other items.
—Inflation has not been fixed. The Fed has announced it is still worried about inflation and could push rates higher in coming months.
These ingredients and others, including the dramatic slowdown in China, should make you think ahead to how a recession might impact you and your family.
Recession history
It’s been more than a decade since the United States had a severe recession. The sharp 19% drop in GDP (economic growth) in early 2020 at the start of the Pandemic was officially ruled a recession even though the decline happened within three months — February to April, 2020. That economic slump was quickly offset by a slew of Federal spending in the form of stimulus checks and other programs that created a sharp economic rebound.
The “official” designation of a recession is two consecutive quarters of declining growth or GDP. And the last time that happened was the 18-month period between December, 2007 and June, 2009. It was so painful that it was dubbed the “Great Recession.”
Yet an entire generation of today’s young workers — those under age 35 — likely have no adult memory of what it feels like when the economy goes into decline. Stop “quiet quitting” and come into the office when demanded. If you have no job, you’ll have plenty of time to stay home!
The rest of us have survived many recessions in our lifetimes. There were sharp eight-month recessions in 2021 and in the early 1990s. But the impact of a recession on your personal finances depends on where you are in your lifecycle — just starting a career or trying to preserve your capital in retirement. So, your financial strategy must change with the times. A recession might not score a direct hit on you, but it could impact your family, who might turn to you for help when they are suffering.
Recession-proofing your money
The first step in preparing for recession is to take an honest look at your income and debt. If you’re barely paying the monthly minimums, look for another part-time job now to increase your income and apply it to your card payments.
Working Lunch
Consider a one-time balance transfer to give you 18 months of very low card rates — breathing room to pay down your debt. But know that if you don’t pay it down, the rate could jump to 29% when the grace period ends. Find a balance transfer card at www.CreditCards.com.
Start a financial diet. Here’s a test: Could you go an entire week without dining out? That includes everything from restaurants to that $5 latte. Absolutely no food purchases, except groceries to cook at home or create a sack lunch to take to work! Try it for a week.
Could you stop shopping online for one week? No orders! Not even the ones considered necessities. Could you keep yourself from clicking on PayPal, or auto-inserting your stored credit card info? If you can’t pass these two tests, your spending addiction could be as harmful as cigarettes or alcohol!
The other way to protect yourself in a recession is to accumulate cash in savings — Chicken Money! This is kept in safe, liquid insured accounts like money markets and short-term Treasury bills. This shouldn’t interrupt your long-term investment plans, but it will let you sleep without panic selling in case the recession impacts the stock market — which it will, eventually.
Being prepared for the impact of a recession will prevent you from being blind-sided expensively. And that’s The Savage Truth.
(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at TerrySavage.com.)
©2023 Terry Savage. Distributed by Tribune Content Agency, LLC.