This is How a Recession Affects Your Money | theSkimm

Editor's note: this article was updated on Apr. 29, 2020. The word "recession" probably doesn’t bring up fun memories. Oh heyy, 2008. Now, after more than a decade of good times, it’s back in a lot of headlines. Both the Federal Reserve Chairman and International Monetary Fund chief have said we might be in a new one. The American economy's performance so far this year (and predictions for the future) suggest they're likely right. Psst...a recession is a big decline in economic activity that lasts at least a few months.

Here’s how that could affect your money.

The job market won’t be as friendly. A few months ago, it was an employee's market. Unemployment was super low, and companies had to work hard to impress new talent. The opposite is true during a recession. In a weakened economy, consumer confidence is low and people spend less money. That’s bad news for businesses. Which helps explain the layoffs, furloughs, and hiring freezes we're seeing now. And could make it a tough time to get a raise or new job.

Related: What the Coronavirus Could Mean for Your Wallet

Your investments might be feeling blue for a while. Recessions and bear markets (when stock prices fall at least 20% from a recent high) usually go together. If you have a 401(k) or other investment account, your balance might see a drop. If you don’t need your money for a while, try to stay cool. The sun might not come out tomorrow...but chances are good it will eventually. On avg, bear markets last just over a year. And prices recover in less than two.

Related: What Bear Markets Could Mean for Your Wallet

It may be a good time to buy a home. When times are tough, some homeowners may be more motivated to sell ASAP. So if you’re a potential buyer, you might be able to find a good house for cheap. Just make sure buying a home fits into your long-term financial plans. And that your budget can handle the big expense.

theSkimm: There are different definitions for the word "recession," but it looks like we're either in one or heading for it. So you probably want to make some money moves. Like paying down high-interest debt and giving your emergency savings some TLC. That way, if money's tight, you won’t be forced to rack up new debt or sell your investments if the market stays in the red.


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