Americans suffer from financial exhaustion

How to know if we are in a recession

A recession is a very real possibility.

As the Federal Reserve aggressively raises rates to combat persistent inflation, the tough stance could come at a price. The stock market crash has already wiped out more than $9 billion in the wealth of American households.

Federal Reserve Chairman Jerome Powell he also warned of the central bank’s next moves to combat rising prices can cause “some pain” ahead.

And yet, 31% of Americans said they are not equipped for an economic downturn and are not actively doing anything to better prepare for one, according to a recent study. Report.

More Personal Finance form:
Inflation and higher rates are a ‘dangerous mix’
How Persistently High Inflation Can Affect Your Tax Bracket
These steps can help you deal with stressful credit card debt

Recession Depression, Recession Fatigue: Whatever you want to call it, the blows to Americans’ financial security keep coming, first with the devastating coronavirus pandemic, followed by the highest inflation in 40 years, and now the risk crescendo of another recession. said analyst Sarah Foster.

“Staying motivated for more than two years to prepare for tough economic times can certainly seem exhausting,” he said.

“That’s not people’s fault, but a response to the overwhelming amount of stress placed on them,” added Jeffrey Galak, an associate professor of marketing at Carnegie Mellon and an expert in consumer behavior.

“People have spent two and a half years dealing with a global pandemic, uncertain financial futures, political turmoil and rising inflation,” he said. “At some point, people are going to run out of willpower to keep making good decisions for their future.”

When broken down by generation, younger adults, or Gen Zers, are more likely to experience “recession fatigue,” compared to millennials, Gen Xers, and baby boomers.

They’re also the group that tends to say the pandemic cut short their formative years and feel slighted by a short-lived “vax hot summer,” Foster said.

“Recession fatigue is the uncomfortable cousin of revenge spending,” he said. “Americans have been deprived of so many activities that bring them joy. It’s like a kind of financial apathy.”

Recession fatigue is the uncomfortable cousin of revenge spending.

Sarah Foster

Bank Rate Analyst

Even if the economy avoids a recession, consumers are already struggling with sky-high prices, and close to half of Americans say they are taking on more and more debt.

If job losses continue, the impact would be widely felt, though each household would experience a setback to a different degree, depending on income, savings and financial situation.

Still, there are several ways to prepare which are universal, according to Foster.

How to prepare for a recession

  1. Optimize your expenses. Take a look at your budget to see where you’re spending your money and whether just a few extra dollars a week can be put in a savings account. “Everything helps, especially as savings rates continue to rise,” Foster said.
  2. Keep extra money in a fun fund. Recessions, or the fear of them, can take a toll on your mental well-being, Foster said, especially if you’re refraining from activities that involve spending money. “Having a fun fund can help you choose what excites you most without completely depriving yourself.”
  3. Cut impulse purchases. Even though more Americans say they’re too tight, they’re also spending more on impulse purchases. Shoppers spend $314, on average, a month on spontaneous purchases, up from $276 in 2021, a recent survey found. Think about these expenses, especially when it comes to big-ticket items, to try to eliminate impulsiveness, Foster advised.
  4. Consider a job change. Despite the slowing economy, the job market remains strong, Foster said, and many workers can take advantage of that. The typical worker who changed jobs between April 2021 and March 2022 saw profits increase by 10%, after accounting for inflation, found the Pew Research Center. Labor bargaining power may be cooling, but it remains strong, for now.
  5. Stay invested. While recent market dips may deter current or potential investors, “stocks are heavily discounted from last year’s all-time highs,” Foster said, “meaning a bear market could be a good opportunity to focus on long-term investment goals.
  6. Find additional income streams. There may be ways to monetize your existing hobbies and interests to help cover the increased cost of living or save extra money. The most lucrative side hustle it can even be done from home, like writing a resume or transcribing audio. Otherwise, consider selling unwanted clothing or household items to free up some funds.
  7. Change your mindset. Instead of focusing on what not to buy, Foster recommends thinking about your long-term goals and how your money can help you reach them. “Whether his goal is to buy a home or retire early, make sure you align that goal with your individual spending habits,” he said.

Subscribe to CNBC on YouTube.

Leave a Comment

Your email address will not be published. Required fields are marked *