The last official recession was in ‘01 or so, blink and you missed it, but there have been more severe ones – ’91-’92, the ’83 one, and the ’81 one, not to mention the ’79 one and Whip Inflation Now one during the 70s. Of course when I was a teenager in the 70s, the whole decade was a recession – my parents wouldn’t buy me anything. As a public service here are a few pointers for all you recession newbies.
Cash is king. Have some saved. By cash, I mean the paper stuff or its variant, a government savings bond or t-bill. And some of your own – unemployment only goes so far. Even if you hold gold (admirable), you still need cash – at $1,000/ounce your grocer isn’t able make change. Have a HELOC or credit card, which two years ago was touted by financial writers as being your safety net? Ha ha. Not if the line or your card is being shut down because your lender is undergoing a credit crisis. Cash: accept no substitutes.
If your culture is a shopping culture, you’re going to be in a world of hurt. Especially if you’ve missed pointer one. The malls will sport plenty of sales at first as businesses try to burn off their old inventory, but everyone will be buying cautiously, including inventory buyers – they buy fewer items for the store during a recession to take a “wait and see” attitude. Advertising gets more pointed - not many commercials in the aspirational or the arty style. No “buy this and be cool”, its “buy this or we go under”. Be especially careful who you buy things from. Frauds and scams are rampant during a recession.
Don’t be afraid to be frugal – this is your moment. “Saving” is fashionable in a recession. Spending isn’t. You’re not spending money and your friends aren’t either. I put savings in quotes because “saving” is not really saving, it’s spending less. Not that spending less is bad, but it’s not saving. Saving is when you take some of the paper stuff skating out of your wallet and belting goalies, to put it in the penalty box, otherwise known as a savings account. Don’t be afraid to do that too.
Watch your bank. Bank deposits are insured by the FDIC for 100K, credit union deposits are insured by the NCUA for 100K. In any recession, the weakest businesses fail. If your financial institution fails, it usually gets bought by another or by the FDIC to prevent a “run”. In a recession, it never hurts to have your emergency cash in a couple of places, including a small amount in the Bank of Seely (money at home in the mattress), and to check bank ratings often. I bank with WaMu. Believe me, I’m watching that one.
There’s more to life than money. During boom times it seems that the only important relationships are the ones where money changes hands. During a recession people relationships become more important than money relationships. The finest qualities in people are the cheapest – friendship, generosity (when appropriate), creativity, humility, optimism. Of those, show humility the most. Not wise to let a desperate brother-in-law know about your savings; best to be sympathetic and share only your fiscal troubles.
You’ll find out what your friends are made of. Normally hang out with Joneses’ and the shopping culture and run into tough times? Good luck with them during a recession. It’s a rare spendthrift who can be generous – if he is just keeping up appearances during the boom, how will he do during the bust?
You’ll find out what your friends think of you. A business has one asset that it will hold onto upon the pain of bankruptcy – its good name. Its ability to borrow is directly dependent on its fiscal reputation. So it is with people. In a recession, the reaction frugal friends will give you should you ask for a loan will tell you what they think of your fiscal skills. Would they think: an opportunity to help, or money down a rathole?
Recessions create frugal people. Recessions – the proverbial “rainy day” – are a wake up call. They remind us that the economy runs in cycles, sometimes up, sometimes down. Not everyone takes the wake up call to heart during a recession, but the sharper ones do to be better prepared for the next one. Take the history of a frugal person and you will find many learned their fiscal ways because they or a close relative experienced that rainy day firsthand.
Recessions are nothing to be afraid of for the prepared. Are you prepared?
What a recession can teach you about money
March 16th, 2008 at 07:07 am
March 16th, 2008 at 01:01 pm 1205672474
March 16th, 2008 at 01:14 pm 1205673256
You and I have a similar history (we're approximately the same age), and your post was a great reminder of how much I learned by having powerful memories of WIN, '79, '81 & '83 ... combined w/ the stock market crash of '87 when I was working my first job out of college, fully responsible for paying my own way, and realizing I could lose my job at any moment.
Save ... be frugal ... watch your bank ... Spread your money around.
Anyone in their early-20's right now is being given a great opportunity to learn the exact same lessons.
March 16th, 2008 at 01:42 pm 1205674936
March 16th, 2008 at 03:34 pm 1205681659
March 16th, 2008 at 09:06 pm 1205701590
Baselle, what an excellent and timely post. Your wise advice should not be taken lightly. I love the bank of Seeley though! DH would never buy it.
March 17th, 2008 at 12:26 am 1205713613
Honestly, recessions are kind of relaxing in a weird way. Hype disappears and if you have a weakness for envying people who live large ... well, you remember why you shouldn't.
Small amount = a couple of weeks worth of cash - in the bank of Seely.
March 18th, 2008 at 04:05 am 1205813156
March 22nd, 2008 at 04:31 am 1206160272
March 22nd, 2008 at 05:16 pm 1206206166
I think we are in a better place for any recession that might come than we've ever been in our marriage. Wish I was better prepared - yes I do. But w/food in the pantry and w/no debt except the small remaining mortgage and a decent EF I feel much better than many might.