Americans are suffering from financial exhaustion

How to know if we are in a recession

A recession is a very real possibility.

As the Federal Reserve aggressively raises rates to fight persistent inflation, this tough stance may come at a price. Already, plunging stock markets have wiped out more than $9 trillion in US household wealth.

Fed Chairman Jerome Powell also warned that the central bank’s upcoming moves to tackle soaring prices could cause “pain” in the future.

And yet, 31% of Americans said they weren’t equipped for an economic downturn and weren’t actively doing anything to better prepare for it, according to a recent report from Bankrate.com.

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“Recession depression, recession fatigue – whatever you call it, the blows to Americans’ financial security continue to occur, first with the devastating coronavirus pandemic, followed by inflation high for 40 years and now the growing risk of another downturn,” said Sarah Foster, an analyst at Bankrate.com.

“Maintaining motivation for more than two years to prepare for tough economic times can definitely feel exhausting,” she said.

“It’s not people’s fault, but rather a response to the overwhelming stress placed on them,” added Jeffrey Galak, Carnegie Mellon associate professor of marketing and consumer behavior expert.

“People have spent 2½ years dealing with a global pandemic, an uncertain financial future, political unrest and rising inflation,” he said. “At some point, people will lack the will to continue making good choices for their future.”

When broken down by generation, young adults, or Gen Zers, are more likely to experience “recession fatigue,” compared to millennials, Gen Xers and baby boomers.

They’re also the group that tends to say the pandemic interrupted their formative years and feel slighted by a short-lived “vax hot summer,” Foster said.

“Recession fatigue is the troublesome cousin of revenge spending,” she said. “Americans have been deprived of so many activities that bring them joy. It’s kind of like financial apathy.”

Recession fatigue is the troublesome cousin of revenge spending.

Sarah Foster

Discount rate analyst

Even though the economy avoids a recession, consumers are already struggling with exorbitant prices, and nearly half of Americans say they are taking on more debt.

If job losses ensue, the impact will be felt widely, although each household will experience a setback to a different degree, depending on their income, savings and financial situation.

Still, there are several ways to prepare that are universal, according to Foster.

How to prepare for a recession

  1. Streamline your expenses. Take a look at your budget to see where you’re spending your money and if just a few extra dollars a week can be put into a savings account. “Every little bit counts, especially as savings rates continue to rise,” Foster said.
  2. Hide extra money in a fun fund. Recessions, or the fear of them, can hurt your mental well-being, Foster said, especially if you cut yourself off from activities that involve spending money. “Having a fun fund can help you choose what you’re most passionate about without totally depriving yourself.”
  3. Cut impulse purchases. Even though more and more Americans say they are overstretched, they are also spending more on impulse purchases. Shoppers spend an average of $314 per month on impulse purchases, up from $276 in 2021, according to a recent survey. Think about those expenses, especially when it comes to big-ticket items, to try to eliminate impulsiveness, Foster advised.
  4. Consider a job change. Despite the slowing economy, the job market is still strong, Foster said, and many workers can use that to their advantage. The typical worker who changed jobs between April 2021 and March 2022 saw their earnings jump 10%, after adjusting for inflation, the Pew Research Center found. Workers’ bargaining power may be diminishing, but it’s still strong – for now.
  5. Stay invested. While recent market declines may deter current or potential investors, “equities are heavily discounted from last year’s highs,” Foster said, “meaning a bear market could be a good opportunity. to focus on long-term investment goals.
  6. Find additional sources of income. There may be ways to monetize your existing hobbies and interests to help cover the rising cost of living or save some extra cash. The most lucrative side jobs can even be done from home, like resume writing or audio transcription. Alternatively, consider selling unwanted clothes or household items to free up funds.
  7. Change your mindset. Rather than focusing on what you shouldn’t buy, Foster recommends thinking about your long-term goals and how your money can help you get there. “Whether your goal is to buy a home or retire early, be sure to align that goal with your individual spending habits,” she said.

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