Consider This from NPR - A Personal Recession Toolkit
Episode Date: January 31, 2023Signs of a forthcoming recession seem to be everywhere: from grocery stores, where food prices are soaring, to Fortune 500 companies, where workers are being let go by the thousand.Survey after survey... shows fears of recession are high. And if one does come, navigating the downturn can be tricky.NPR's Arezou Rezvani shares advice from economists and personal finance experts on how to prepare for a potential recession.In participating regions, you'll also hear a local news segment to help you make sense of what's going on in your community.Email us at considerthis@npr.org.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy
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Brenton Taylor has been laid off before, a couple of years ago, and it didn't feel good.
I think it always, you know, confuses you. You wonder what you could have done more
and I don't know anyone that hasn't kind of taken that a bit personal.
He and his wife have two young kids.
He is the only source of income for the family.
Every day while I was laid off felt like a race.
There was a clock running and I had to optimize every second of it. I just like
couldn't let myself rest. And so I would say the other emotion that's very strong is just
exhaustion, right? It took a year for Taylor to find a new job. Now he does product marketing
for a cybersecurity company, and he has been watching recent headlines with some trepidation.
News overnight about more layoffs at Amazon.
Microsoft is the latest major tech giant.
Google has announced it is cutting 12,000 jobs across the company.
He feels pretty optimistic that he will be okay.
Even struggling companies can't just stop protecting their networks from hackers. Cybersecurity space is a very strong space where it's not an option in our industry to not spend.
But Taylor knows economists are predicting a recession,
and he remembers what that layoff felt like.
He's preparing for the worst, trying to beef up his emergency fund
that has been hard
with inflation taking a bite out of his paycheck. Whether you're filling up your vehicle because you
drive frequently or you are going to the store, it seems like it disappears quickly. You kind of
blink and you're like, I don't even know where it went to. It just faded away. So Brinton Taylor and
his wife are looking for expenses to cut from the family
budget. He says they cook at home for 90 percent of their meals, try to stretch out their groceries,
go to the store less, and he's thinking hard about his family's one big splurge. They live in the
Fort Collins, Colorado area and they are avid skiers. It's a very expensive sport even if you
have your own gear and you know have a pass and I think that that's kind of weighing on us.
They haven't cut it, not yet, but they are skipping a lot of nice-to-haves.
You know, it'd be great to get, like, a new ski jacket, for example. And we're like, ah, you know, I can get by.
Despite all that, Taylor is still feeling that nagging worry that lots of Americans are
dealing with right now. Is he ready for a recession? I try to make little backup plans for myself so
that I can continue to survive if it takes me longer to find a new role. But I would be kidding
you if I told you that I still don't worry about it. Consider this. Lots of economists say some sort of recession
is likely in the year ahead. We hear what steps financial experts say you can take to better
prepare. From NPR, I'm Mary Louise Kelly. It is Tuesday, January 31st.
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T's and C's apply. It's Consider This from NPR.
Signs of a forthcoming recession seem to be everywhere,
from grocery stores where food prices are soaring
to Fortune 500 companies where workers are being let go by the thousands.
Survey after survey shows fears of recession are high. And if one does come,
navigating the downturn can be tricky. NPR's Arzu Razvani reports on personal finance and housing.
She spoke with my co-host, Elsa Chang, about how you can prepare for a potential recession.
Hey, Arzu.
Hi, Elsa.
So, okay, for starters, how likely is a recession anyway?
And what might it look like this time around, you think?
Well, in a recent poll, the World Economic Forum found that nearly two-thirds of economists believe there will be a recession in 2023.
That said, many economists don't expect it to be anything on the scale of what we experienced
in 2008, which was triggered by
the housing meltdown. My guess is the consensus among most economists, and that is that we will
have a mild recession. That's Teresa Ghilarducci, labor economist and expert in retirement security,
and she thinks this will really boil down to a correction. If you recall, the early days of the
pandemic triggered a series of really unusual
events. Americans initially got money from the government. There were supply chain snags and
shortages. The money people did spend often went towards things that supported sudden lifestyle
changes, everything from exercise bikes to home renovation projects, right? So to keep up with
these consumption changes, many companies went on hiring sprees.
And that first year of the pandemic was also a period of super low interest rates,
housing prices were soaring, the stock market was on a tear. So all those shifts and the unexpected
explosion of activity is why economists like Ghilarducci believe this recession will be a correction and it will be mild. This recession really is a
resetting from the big high and the unusual boom we had at the end of 2020 and 2021. So this is a
coming back to the mean, settling down from the expansion post-pandemic. Interesting. Okay,
a settling down, which doesn't sound terrible.
I mean, it's not like there's something fundamentally wrong with the financial
system or the economy. It's more like a return to equilibrium, right?
That's exactly right. And I mean, just look at all the mixed signals in the economy right now.
You have widespread layoffs, but unemployment is still historically low. U.S. employers have
been adding jobs in recent months.
Home sales have been in decline for 11 months straight, but home prices are still high. So things are just really out of whack at the moment. Totally. So I guess this is all the more reason to
talk about what to do in the coming months. For example, like what does this mean for job security?
Is this just a bad time to look for a new job? Well, it's a time to be very, very careful
to really think about whether the job you're considering is part of an industry that's likely
to be hit. A couple of years ago, a lot of workers, particularly in high-paying tech jobs, for example,
were taking jobs that were offering a significant increase in pay and all these perks like permanent
remote work, and people weren't really thinking about stability. Now, a couple of years later, a lot has changed. Many of those tech jobs are now looking
more vulnerable in any upcoming recession, whereas blue-collar jobs appear a bit safer.
But what's also really interesting about this moment, Elsa, is that the leverage employees
had a couple of years ago when companies were scrambling to hire is now shifting back to the
employer. Here again is Teresa Ghilarducci. In the fall of 2021, any worker could write their
own ticket. And that would be whether or not they were working at the local 7-Eleven or they were
going into the tech field. They could really tell the employer what they wanted their schedule to be.
They wanted more than minimum wage, you know, or they could work from home. We are seeing employers pushing
back a little bit. So upshot is take it slow. Really think about whether that job you're
pursuing is essential enough to keep or maybe dispensable. Okay. Well, this potential recession,
of course, is looming as the price of goods has been increasing a lot in some cases, which is forcing more people to charge more to their credit cards.
So I'm wondering, like, what about that part? Like, how much of an issue is credit card debt for American average credit card user is carrying a balance of about
$5,500, which, according to credit reporting agency TransUnion, is a 13% increase from 2021
balances. And because interest rates have shot up sharply in the last year, any debt that's
accrued could be really expensive if it's not paid off monthly and on time. I talked with Michael
Sullivan, a personal finance consultant at Take Charge America,
and here's what he suggests if you have credit card debt.
What I typically suggest right now
to consumers who are carrying a bunch of it,
who are still working, who still have good credit,
is transfer it to a 0% balance card,
hopefully a 12-month zero balance card,
so that at least you're not getting hit by that interest
and you get a bit of a break. Now, if you can't qualify for that because you don't have great
credit or you lost your job, the next best thing Sullivan and others suggest, whether it's credit
cards or student loan debt, is to call and ask for help. You have to contact your servicer immediately. Always talk
to your lenders because otherwise you're just a number that will declare you in default and
you're going to have serious issues. Getting in default on debt just starts a whole avalanche
of problems. Now that said, if you have to be late on something, student government loans may be the
one to be late on because it's not like debt
associated with a house or a car that can pretty quickly damage your credit score and put you at
risk of losing the roof over your head or your main mode of transportation. It typically takes
a while for servicers to seek a judgment or pursue some kind of legal action. So student loan debt is
one of those things where there's some room to maneuver for a period of time.
That's a good idea.
Well, you know, just listening to you, it feels like so much of this advice really boils down to balancing immediate needs versus long-term planning.
And we often hear how important it is to, like, have cash on hand.
But we're also told that investments in the future, you know, retirement, home ownership, those are really important too.
So how do you weigh saving for emergency funds that would be immediately accessible versus devoting your resources to longer-term investments?
Yeah, all the experts that I spoke with agree that priority number one is building up your emergency savings. You want to make sure you have
at least three months of your income and whatever you typically spend saved up in the event you lose
your job. Once you have that, saving for your retirement is really essential, says Teresa
Ghilarducci, no matter what's going on in the economy. If you save 5% of your salary, even
through the ups and downs, through unemployment, if you save 5%, after your salary, even through the ups and downs, through unemployment,
if you save 5%, after 40 years, you can supplement your Social Security
and be on track to maintain your standard of living.
Keep on saving what you can.
Don't save so much that you might have to withdraw money from your 401k, your IRA.
That's expensive.
So keep it low,
but keep saving. Now, a more near-term investment people may be thinking about is, of course,
housing, since buying a home is still the most straightforward path to building wealth in America.
The market has cooled a lot in the last year because of the sharp increase in interest rates.
Both buyers and sellers have pulled back. They're reluctant to take on more expensive mortgages. I asked Los Angeles-based loan officer Artin
Babayan if he thinks this is a bad time to buy. And here's how he encourages people to think about
this moment. If you were to buy a property, you need to be able to hold onto it through the peaks
and valleys, which means you have to have cash available to weather the storm should there be any issues
with your income or other situations.
If you're a small business owner
and work dries up for a little bit,
you need to be able to have cash
to be able to hold yourself through this situation
because the way I see people lose money in real estate
is when they have to sell.
That has been on my mind
after just buying my first house ever.
We're talking at a time when many companies are in the process of laying off employees. And for those who
think layoffs are coming for them, what do you think the best course of action is? Yeah, this is
a really, really important thing to think about because the planning you do before a layoff can
really make a big difference in how you bounce back. First, you want to schedule medical appointments
while you still have insurance. It can take a while these days because people fell behind on
doctor's visits during the pandemic and there's a backlog. Another really important piece of advice,
get clarity on the status of any money you borrowed from your retirement accounts. It's
not uncommon for people to borrow money from their 401ks to help buy a home, for example.
Here's Tammy Lally, a money coach and financial planner, on that topic.
If you have a 401k loan, you want to ask about how the loan will be treated when you're laid off.
Some employers will give you a grace period to pay the balance. And then
after that time, if the balance is not paid off, it will be considered as a withdrawal and it will
be fully taxed. Yeah. So that could cost you big time. Yeah. Now, if it does happen, if you are
let go, you'll want to file for unemployment immediately because it can take several weeks
to receive benefits. And it may also serve you well to share the news far and wide, which I know may be uncomfortable. But when
I talked to Sarah Roadhorse, co-founder of Onwards HR, which helps companies carry out layoffs,
she told me she's been noticing an interesting trend. One of the fastest way to find your next
job is to post that you just were laid off by a really well-known company and your skills are
sought after.
We've talked to recruiters and they are specifically searching on LinkedIn for people who are doing
those posts and especially how they handle and present themselves on those posts.
If they're respectful to the company that may have laid them off, you know, that just
shows a sense of character that they have.
So no shame.
No shame. Be loud and be proud. There's no shame in being laid off. It happens to the best of us.
Finally, and maybe most important of all, every expert I spoke with told me it's really important
to cut yourself some slack if you do end up losing your job in this recession. It can be a
devastating experience, especially if you're blindsided by it.
And taking some time to seek out counseling, even if you feel like you're okay,
can be essential to mental health and to pursuing that next job opportunity.
NPR's Arzu Razvani, speaking with my colleague Elsa Chang.
It's Consider This from NPR.
I'm Mary Louise Kelly.
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