Money·3 min read

How a Recession Can Affect Your Wallet

September 16, 2020

Add this to the list of things COVID-19 has changed: recessions. The National Bureau of Economic Research says the US economy officially entered one in February. Some experts say the worst is over, but it’ll probably take a while for the country to recover. 

Here’s how recessions usually affect your wallet...and how things are playing out now.

The job market won’t be very friendly. Earlier this year, unemployment was at 50-year lows, and companies had to work hard to impress new talent. The opposite is usually true in a weakened economy because people spend less money. That’s bad for businesses. Unemployment is still high because the pandemic put a LOT of life on hold – leading to a sudden spike of layoffs and furloughs. Even if you’re still working, a high unemployment rate (and more competitive job market) could make it harder to get a raise or new job.

Related: The 411 on Unemployment

Your investments might be feeling blue. Recessions and bear markets (when stock prices fall at least 20% from a recent high) often go least for a while. Back in March, the S&P 500 index hit bear-market territory – but didn’t stay down long. By June, it had recovered all its pandemic losses. Last month, the index hit several new highs – confirming we’re back in a bull market. And that you shouldn’t make money moves based on where you think stock prices are going next.

It may be a good time to buy a home. When times are tough for an extended time, fewer people may be able to afford to take out a new mortgage. That could lead to less competition for homebuyers...and lower prices. These days, a lot of people are still in the market for new homes...thanks, at least in part, to low interest rates. And since pre-pandemic home inventory was already low, there aren’t as many deals out there – yet.

Related: Refinancing or Buying a Home During COVID-19

theSkimm: This recession looks different than others in history. But the best ways to protect your money are the same. Give your emergency savings some TLC by trimming your budget and negotiating where you can. If you can afford it, pay down your high-interest debt. That way, if money's tight, you won’t be forced to rack up more debt or sell your investments before you’re ready.

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