People undergo from monetary burnout

A recession is a very real possibility.

With the Federal Reserve aggressively raising interest rates to combat persistent inflation, the tough stance may come at a price. Already, falling stock markets have wiped out more than $9 trillion in US household wealth.

Fed Chair Jerome Powell also warned that the central bank’s upcoming moves to combat rising prices could cause “some pain”.

And yet 31% of Americans say they are not prepared for an economic downturn and are not actively doing anything to better prepare for it, according to a recent report.

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“Recessionary depression, recession fatigue – whatever you want to call it, the impact on Americans’ financial security keeps coming, first with the devastating coronavirus pandemic, followed by 40 years of high inflation and now the growing risk of another downturn.” said analyst Sarah Foster.

“Keeping up the motivation for more than two years to prepare for tough economic times can undoubtedly feel exhausting,” she said.

“This is not a human error, but rather a response to the overwhelming stress they are under,” added Jeffrey Galak, associate professor of marketing at Carnegie Mellon and an expert on consumer behavior.

“People have spent two and a half years coping with a global pandemic, uncertain financial future, political turmoil and rising inflation,” he said. “At some point people will run out of will to keep making good decisions about their future.”

When broken down by generation, younger adults or Gen Zers are more likely to experience “recession fatigue” compared to Millennials, Gen Xers and Baby Boomers.

They’re also the group inclined to say the pandemic has interrupted their formative years and are offended by a short-lived “hot vax summer,” Foster said.

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

Recession fatigue is revenge spending’s nasty cousin.

Sarah Forest

bank rate analyst

Even as the economy avoids a recession, consumers are already struggling in the face of sky-high prices, and nearly half of Americans say they are spiraling into debt.

If there were job losses, the impact would be widespread, but each household would suffer a setback of varying degrees depending on their income, savings and financial position.

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

How to prepare for a recession

  1. Optimize your spending. Take a look at your budget to see what you’re spending your money on and if just a few extra dollars a week can be put into a savings account. “Every bit helps, especially as savings rates continue to rise,” Foster said.
  2. Put extra money in a fun fund. Recessions, or the fear of them, can affect your mental well-being, Foster said, especially if you cut yourself off from activities that involve spending money. “A fun fund can help you choose what excites you most without completely depriving yourself.”
  3. Reduce impulse purchases. Even as more Americans say they’re too skinny, they’re also spending more on impulse purchases. Shoppers spend an average of $314 a month on impulse purchases, up from $276 in 2021, a recent survey found. Think about those expenses, especially when it comes to large articles, to try to eliminate impulsiveness, Foster advised.
  4. Consider changing jobs. Despite a slowing economy, the job market is still strong, Foster said, and many workers could use that to their advantage. The typical worker who changed jobs between April 2021 and March 2022 saw a 10% jump in earnings after adjusting for inflation, the Pew Research Center found. Workers’ bargaining power may be cooling, but it remains strong — for now.
  5. Stay invested. While recent market slumps may deter current or potential investors, “stocks are heavily discounted from last year’s record highs,” Foster said, “meaning a declining market could be a good opportunity to focus on long-term investment goals.” “
  6. Find additional revenue streams. There may be ways to monetize your existing hobbies and interests to either meet the rising cost of living or save extra money. The most lucrative side hustles can even be done from home, e.g. B. writing resumes or transcribing audio. Otherwise, consider selling unwanted clothing or household goods to free up some money.
  7. Change the way you think. Rather than focusing on what not to 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 to retire early, make sure you balance that goal with your individual spending habits,” she said.

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