Angst and emotional pain aren’t terms normally used to describe the average American, but then again, these aren’t normal times.
So it goes with a nation on edge over the threat of a recession on the horizon. With hard times looming, and only months after the US government signaled “all clear” on the pandemic front, Americans are bracing yet again for a tough slog, this time on the economic front.
That’s the sentiment from a new Bankrate study that shows 69% US adults experiencing high anxiety over the possibility of a recession before the end of 2023. 29% say they’re “very worried.”
There is an upside to a downside scenario. The report noted that 74% are “actively taking steps with their personal finances in anticipation of an economic downturn.”
How are they doing that? The report cites several ways people are coping with a looming economic downturn:
· 47% are spending less on discretionary purchases
· 35% are saving more for emergencies
· 30% are paying down credit card debt
· 24% are looking for additional/more stable income
· 19% are saving more for retirement.
“That still leaves 26% who are doing nothing in anticipation of/to better prepare for an economic recession,” the study noted. “31% who consider themselves unprepared for a recession are currently doing nothing to improve their situations, including 42% who are not at all prepared.”
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The report also cited women, minorities, and lower earners as being particularly worried about a recession.
Why the Angst?
Finance specialists advise nervous consumers not to worry too much about something they can’t control.
“The odds of an imminent recession sway back and forth almost daily, but the reality is a recession is always coming,” said Scott Inman, a financial advisor with GenWealth Financial Advisors. “It’s a natural part of the economic cycle. We should expect it and prepare for it before it is imminent.”
“How big of a household’s financial problem a recession is, depends on how well that household has prepared for it,” Inman added.
There are two significant steps that can prepare for a recession, Inman noted.
“The first is to build a significant cash emergency fund that can be tapped in case one or even both income earners lose their job or see hours reduced,” he said. “Aim for an emergency fund that covers 6 to 12 months of expenses, so your household can continue to run for a period of time.”
That emergency fund is cash – don’t rely on raiding your 401(k) or selling stock when its value is down to pay the bills. “Those strategies are taking one step forward and two steps back,” Inman said.
The second step is to confront debt.
“Don’t take on any new debt right now, and work diligently to pay extra on any debt, so you’re not struggling to keep up if you experience a recession-based loss of income,” Inman added. “Remember that recessions, on average, don’t last very long. The storm you need to weather will likely be temporary. If you’re prepared, a recession may not even derail your long-term financial goals.”
That Horse Has Left the Barn
As far as being nervous about a looming recession, other economic experts say worrying is a waste of time, especially when the proverbial horse has already left the barn.
“We mainly worry about recessions because they lower our standard of living,” said Tomas J. Philipson, an economist at the University of Chicago and former Chairman of the White House Council of Economic Advisors Chair. “But this has already been accomplished through inflation limiting the reach of our paychecks.”
“Consequently, whatever we will call it going forward is less relevant,” Philipson told TheStreet.