PREPARING FOR A RECESSION

If you stay ready…you don’t have to get ready!!  Whether or not a recession occurs, certain personal actions will be beneficial for your future.

Job loss is the most common effect of a recession. This can occur due to a layoff, furlough, or company failure.  With many people all experiencing job loss, finding a new job is difficult. For those who keep their jobs, they may experience pay cuts, reduced benefits, and no pay raises. Another major concern is the decline in value of stocks, bonds, real estate, and other assets. 

To be ready to cope if an economic downturn occurs, consider these financial strategies:

  • Monitor your monthly expenses. Know what it costs to live so there are no surprises. Be ready to pay items that occur only once a year.
  • Cut unnecessary spending. Look back at your spending to see what you could have done without. Add up what you could have avoided to make sure you spend less than you make. Possible areas to cut include cable TV, streaming services, gym membership, online music subscriptions, and a less expensive cellphone plan.
  • Start or expand your emergency fund.  No matter how small, be sure to set aside funds for poor economic times. To build your fund, have an amount automatically deposited in a saving account each month.   
  • Budget everything. Telling your money where it will go keeps you in control.    
  • Avoid debt. Just like saving, paying off debt can start small.
  • Be in contact with others to discuss possible late payments, reduced costs, cancel services, and other actions to cope financially.
  • Maintain retirement savings. Keep contributing to your retirement fund so it will be there when you need it. 

For career planning during times of recession, consider the following actions:

  • Inventory your skills, especially those that relate to essential work for your current employers and other organizations. 
  • Expand your skills through online certifications, courses, and training programs. 
  • Be adaptable. Step up to take on tasks needed within your company. 
  • Network for freelance work. Connect with others in your industry for consulting opportunities.
  • Be prepared for the unexpected. Despite taking these actions, a layoff may still occur. If that happens, expand your skills, update your resume, and connect to others through LinkedIn and community service activities.

For additional information on financial planning during a recession,

Source #1

Source #2

Teaching Suggestions

  • Have students research current economic conditions to determine the status of employment and inflation.
  • Have students create a podcast to encourage others to act on the suggestions in the article.

Discussion Questions 

  1. What are the benefits of these actions during every type of economic situation?
  2. Describe actions a person might take to better understand potential career opportunities.

BUILDING WEALTH

A research study that surveyed over 10,000 millionaires resulted in the following findings to help guide others to achieve a comfortable financial security:

  • 79 percent of the respondents did not receive any inheritance; 80 percent were from families at or below a middle-class income level.
    Conclusion:Building wealth is within your control and doesn’t depend on being born into a rich family.
  • 33 percent never made more than $100,000 a year; 31 percent made around $100,000.
    Conclusion: Wise spending, saving, and investing are more important than your salary level.
  • 94 percent live on less than they make; 75 percent reported never having a credit card balance.  
    Conclusion: Stay out of debt and keep expenses below your income to build a financial foundation.
  • 75 percent of those in the study indicated consistent investing over a long period of time as the reason for their financial success; 80 percent invested in their company’s 401(k) plan; none said one individual stock investment was a big factor in their financial success. 
    Conclusion: You don’t need to find that one stock that will make you rich. Invest consistently in broad-market index funds over a long period of time.

88 percent of those who responded graduated from college, compared to 38 percent of the general population. And over half (52%) of the millionaires in the study earned a master’s or doctoral degree, compared to 13% of the general population. Almost two-thirds (62%) graduated from public state schools, while only 8 percent went to a prestigious private school.

Most of the 10,000 millionaires studied achieved their wealth through consistent investing, avoiding credit card debt, and smart spending, along with…no lottery tickets… no inheritances…no six-figure incomes…no lucky stock picks. 

Even when millionaires don’t have to worry about money anymore, they’re still careful about their spending. Over 80 percent reported using a grocery list in some format.

For additional information on building wealth, click here.

Teaching Suggestions

  • Have students talk to others to obtain information about actions they take to achieve long-term financial security.
  • Have students create an oral presentation or podcast that reports the findings of the study summarized in this article.

Discussion Questions 

  1. What actions do you believe to be most important for building wealth?
  2. Describe how you might communicate to others suggested actions for improved long-term financial security.

FINANCIAL EMERGENCY KIT

In case of a natural disaster or a cyber-attack, a financial emergency kit allows you to keep running your life. These documents would prepare you for the what-ifs of life. Bottom of Form

The kit starts with knowing where your vital paperwork is stored, and where are copies kept. Two suggested storage methods are: (1) a portable, fireproof, waterproof safe, and (2) digital storage with an electronic record of account numbers and sensitive information. This information can then be accessed on your phone. Also backup your data on both an external hard drive and on a cloud service.

The important documents that you should have in both a physical and digital format are:

  • Insurance policies, insurance contact information; prescriptions, medical records
  • Birth and marriage certificates; passports; driver’s license; Social Security cards
  • Mortgage information; car registration
  • Recent tax returns; employment information
  • Wills and deeds; stocks, bonds and other negotiable certificates
  • Bank, savings. Investment, and retirement account numbers
  • Pet medical records; pet identification tags
  • Recent utility bill, school registration to prove your legal place of residence

In addition to your financial documents, also plan to have these items in your emergency kit:

  1. Water; non-perishable food; first aid kit; multi-purpose tool
  2. Flashlight; battery-powered radio; extra batteries; cellphone, charger
  3. Medications, medical items; sanitation, personal hygiene items
  4. Extra cash; contact information of family and friends
  5. Emergency blankets; maps of the area

Consider a hand-crank flashlight and radio to be able to use and charge when there’s no power.

To connect with family and others in emergency times, text instead of calling to avoid network congestion.  Use apps, social media when cell networks are overloaded.  Update your voicemail message to tell your location and status.

Be prepared with these simple things that require minimal money and a small-time investment.

For additional information on financial emergency kits, click here.

Teaching Suggestions

  • Have students identify situations in which this type of emergency kit would be appropriate.
  • Have students create a visual proposal (poster or slide presentation) to communicate the elements of an emergency kit.

Discussion Questions 

  1. What are reasons people might give for not preparing an emergency kit?
  2. Describe methods that might be used to store financial documents for emergency situations.

MONEY TIPS FOR YOUR FIRST JOB

As young people get their first full-time job with a substantial paycheck, their money management activities need to be reconsidered, which include: 

1. Automate your savings. For unexpected expenses and major purchases, set aside a specific percentage or amount of your income from every paycheck. These funds should be directed to one or more dedicated accounts.  

2. Make use of different accounts. This money management strategy can help you plan for different savings goals and can prevent spending money planned for a specific purpose. Consider using a checking account to pay regular expenses, along with one or more savings accounts.

3. Start retirement saving. Start with 3 to 5 percent of your gross income, increasing to 15 percent as soon as you get raises and bonuses. These funds may be in a company-sponsored 401(k) or a personal IRA or Roth IRA.

4. Pay off debt. If you have college debt, create a plan to pay it off, especially credit card debt. Set a goal to become debt free in your 20s.

5. Practice wise spending. Minimize your transportation, housing, and clothing expenses.

For additional information on money tips for your first job, click here.

Teaching Suggestions

  • Have students talk to others to obtain money management suggestions to implement when completing college and starting work.
  • Have students create a personal plan for improved money management.

Discussion Questions 

  1. Why do people start taking on more debt when starting work?
  2. Describe money management actions you might take as you complete college.

STUDENT MONEY SURVEY

Limited knowledge of personal finance and weak financial literacy skills are some of the concerns expressed by college students in a survey conducted by WalletHub. Findings in this study included:

  • Nearly all (93 percent) of the students surveyed expressed concern about the economy.
  • After graduation, the two major worries of students are not finding a job (36 percent) and educational loan debt (30 percent).
  • One-fifth of students expressed a belief that a college education is less important since the COVID-19 pandemic.
  • About half (52 percent) of the students responding voiced a concern that they were not learning enough about personal finance in school.
  • As a result of the pandemic, the three major financial lessons learned were: (1) having emergency savings (44 percent); (2) not going into debt (23 percent); and (3) having a steady job (22 percent).

Some suggestions to address these concerns include:

  • Financial anxiety can be reduced with simple personal finance actions: track your spending, cut back on unnecessary items, shop wisely, maintain a workable budget, pay off debts, and increase the amount in your emergency fund. Most importantly, emphasize the enjoyment of your connections and relationships with family and friends rather than on material items. 
  • Various career paths may not require a college degree; consider online courses, certification programs, trade schools, and other educational/training options.
  • Be creative in your savings efforts with: (1) saving $5 a day instead of $150 a month; (2) using “no buy” days to save money; (3) paying for your drinks (or snacks) at home by set­ting aside the “price” in savings; (4) visualizing a savings goal and budget categories with a photo or post-It notes as a reminder; (5) create, or locate onlinea poster that displays savings and debt categories to track your progress; (6) placing your credit card in a bag or container of water and place it in the freezer to avoid impulse purchases, then defrost it under warm water when you need to pay for an emergency.
  • When applying and interviewing, clearly communicate the connection between your skills and experiences with the current and future needs of the job position and company. This requires strong research of the company and industry trends but will allow a person to better connect with their prospective employer. Also, be ready to talk about research projects, team experiences, and creative problem-solving.
  • Although an increased number of personal finance classes are becoming available in schools, also seek out financial literacy education through community-based workshops, church outreach programs, and neighborhood organizations.

This research was the result of a nationally representative online survey of over 250 respondents. Responses were normalized so the sample would reflect U.S. demographics.

For additional information on the student money survey, click here.

Teaching Suggestions

  • Have students talk to others to determine if their opinions are similar to those presented in this article.
  • Have students create a role-playing drama that communicates actions to avoid various personal financial difficulties and career planning mistakes.

Discussion Questions 

  1. Which of the survey results are similar to your current attitudes and experiences?
  2. What additional money and career topics not covered in this survey do you believe are of current concern for students and others?

END-OF-YEAR MONEY CHECKLIST

As we approach the end of the year, consider these actions to help create the foundation for financial success in 2022:

  • Review spending for the year. Comparing your actual spending with budgeted amounts will help you plan spending for the coming year. For the upcoming year, track spending with an app, spreadsheet file, Google doc, or a written record.
  • Use flexible spending account funds.  Be sure to spend any money in a flexible spending account on qualified medical expenses before the end of the year, or those funds might be lost. However, due to COVID-19, you may be allowed to roll over the full balance into next year. Contact your benefits department to see if you qualify.  
  • Donate to charity. This will not only create a tax saving, but will also help people in your community and around the world.
  • Create a backup plan. Review the beneficiaries on your financial accounts. You should have a durable power of attorney to handle your financial activities if you are not able to do so.  A health-care proxy (power of attorney) is someone to speak on your behalf regarding medical care when you are not able to do so. A will sets how your assets will be distributed after you die.
  • Consider increased retirement contributions. With increased limits for 2022, plan to increase the amount set aside for long-term financial security while reducing current taxes.
  • Conduct a life audit.  Start with identifying your short-term and long-term goals with sticky notes or index cards.  Then, sort your goals by category, such as personal development, work/career, financial, travel, family, community service, and health. Next, organize within a category based on time of accomplishment, which might include: now/soon, always/everyday, later this year, the next year or two, and someday. Take photos of your notes, place them in a visible location, or use an app such as OneNote as a reminder of these targets. Finally, reflect on your goals by determining why you have certain goals and what actions you need to take. Be sure to set deadlines. Also consider how your goals relate to the type of life you desire for yourself.  Do your goals reflect your beliefs, values, work situation, and personal relationships?

For additional information on year-end financial planning, click here.

Teaching Suggestions

  • Have students talk to others about recommended financial actions to take before the end of the year.
  • Have students create an action plan and timeline for a specific goal.

Discussion Questions 

  1. What attitudes, behaviors, and circumstances might restrict a person from taking certain year-end actions?
  2. Describe information sources and personal contacts that might be used to obtain guidance for achieving a specific goal. 

STIMULUS CHECKS USE

As a result of the economic difficulties during the COVID pandemic, many Americans received government stimulus checks. These payments were designed to minimize or avoid financial difficulties.  

Recipients of the first two stimulus checks used the majority of funds for daily living expenses with food and utilities as the top items. Those who received the third check had some significant changes in their use of the money.  An increased portion was used to pay off debt and for savings, including money set aside for an emergency fund. This trend indicated that many households experienced improved financial stability. However, among lower-income groups the third stimulus check was still needed for monthly bills and day-to-day essentials.  

People continue to be in need of a cash cushion. Financial advisors recommend using money from stimulus checks or tax refunds to pay off high-interest debt and for an increased savings account.  While many households have are better off than they’ve ever been and improving further, millions of others face ongoing financial hardship.  

For additional information on stimulus check use, click here.

Teaching Suggestions

  • Have students talk to those who received stimulus checks to obtain information how the money was used.
  • Have students describe a research system that might be used to determine the spending, saving, investing, and credit use habits of various groups of consumers.

Discussion Questions 

  1. What are reasons people are unable or unwilling to practice wise money management?
  2. Describe actions that might be taken to prepare for unexpected financial difficulties.

SINGLE PARENT MONEY MANAGEMENT

A mother or father raising children without assistance from a partner can create financial difficulties.  To avoid fear, frustration, and anger, consider these actions:

  1. Assess your situation. Determine your monthly after-tax income, monthly bills, money in savings, and money saved for retirement. Knowing these amounts will provide a starting point and foundation of where you need to go.
  2. Cut unnecessary spending through wiser shopping, lower household expenses, and not buying certain items that you can do without.
  3. Plan for additional income. Consider your current work situation, a new job, a raise or promotion, overtime pay, a second, part-time job, freelance work, or items that you might sell.
  4. Seek extra income sources. Additional income can result from skills and interests you may overlook. Consider new job training, or starting your own business. More income will also mean additional savings for financial goals.
  5. Create an emergency fund. To be ready for financial struggles (job loss, home or car repairs, medical expenses), have a cash cushion to cover three to six months of expenses.
  6. Save for retirement. Additional amounts might be needed for long-term financial security if you had to split retirement funds with an ex-spouse or partner. Budget a monthly amount for your retirement fund.

You may feel overwhelmed at times, but don’t get discouraged. Start saving a small amount, such as one percent of your income for emergencies and one percent (or more) for retirement.  Then in a few months, increase the percent of income you are saving.

Continually track your spending, and review your budget and financial goals. This action is especially vital if you are self-employed with a fluctuating income. Save more in higher-income months to be ready for lower-income months.

Also, lower your expectations to match the reality of your income situation and household needs. Finally, make a commitment to work hard, not give up, and support your children, emotionally and physically.

 

For additional information on single parent money management, click here.

Teaching Suggestions

  • Have students talk to single parents for additional financial suggestions.
  • Have students create a plan for specific money management actions for single parents.

Discussion Questions 

  1. What are reasons that single parents might encounter financial difficulties?
  2. Describe shopping and income actions a single parent might take to reduce spending and increase income.

Should you Pay Off Your Mortgage Early?

Traditional wisdom encourages you to pay off your mortgage faster by taking a 15-year mortgage instead of 30 years, or by paying an additional principal amount each month. However, these actions have risks. If you encounter financial difficulties and don’t have an emergency (reserve) fund, you could face foreclosure. Be sure your emergency fund has enough to cover several months of mortgage payments to avoid losing your home.

Some financial advisors suggest that if your reserve fund earns a rate greater than your mortgage rate (also taking into account tax benefits), you may decide to invest rather than pay down your mortgage. This approach could give more flexibility when encountering an economic downturn, which might include refinancing your mortgage at a lower interest rate.

Also, beware of organizations promising to help you make additional mortgage payments. You can do this on your own, without the fee they will likely charge.

For additional information on paying off your mortgage early, click here.

Teaching Suggestions

  • Have students talk to others about the benefits and drawbacks of paying off a mortgage early.
  • Have students develop a visual to compare paying off a mortgage early with saving and investing additional funds instead.

Discussion Questions 

  1. What are the benefits and drawbacks of paying off a mortgage early?
  2. Describe actions to take when trying to decide if to pay off a mortgage early.

PERSONAL FINANCE KPIs

Most every organization uses metrics to determine success.  Also referred to as key perfor­mance indicators (KPIs), these numeric measurements can be used to assess financial success and progress toward goals. When selecting personal financial KPIs, be sure to: (1) identify what’s important to you for your financial goals; (2) create a system to track your progress, in writing, with a computer file, or an app; (3) involve all household members in the decision process.

Some common KPIs you might consider monitoring include:

  • Credit score, which is affected by missed debt payments and involves your ability to access loans in the future.
  • Savings rate is vital for future major purchases and planning for retirement. Financial advisors recommend saving 10-15 percent of your income.
  • Discretionary spending measures a person’s level of expenses related to meals out, fancy clothes, vacations, and other non-necessities, so money can be saved for more important goals.
  • Net worth (total assets minus total liabilities) measures financial health progress, which can increase by paying off debts and increasing saving and investing.

More creative KPIs are available for advanced personal financial planning. The Financial Health Index combines several financial metrics to provide a measure of overall financial health. The Financial Independence Number indicates the amount of money needed to live off the investment returns of your net worth. Living Within Means Index measures if necessary expenses are covered by a person’s income.

For additional information on KPIs for personal finance, go to:

Article #1

Article #2

Teaching Suggestions

  • Have students create a visual design that might be used to monitor progress for one or more personal finance key performance indicators.
  • Have students talk to others about actions they take to monitor their financial progress.
  • Refer students to the Road Map/Dashboard feature at the end of each chapter of Personal Finance or Focus on Personal Finance to view additional examples of key performance indicators.

Discussion Questions 

  1. What are the benefits and limitations of personal finance KPIs?
  2. What are other KPIs that might be valuable indicators of personal finance success?