The word recession is a term you have likely seen often – on the internet and in the news. While economists vary on the definition, there tends to be two factors that they agree on when identifying the economy as being ‘in a recession’: that there is a wide-spread economic decline and that it typically lasts at least two consecutive quarters or more.
You have probably heard the numbers: 80% of Americans believe we are in a recession… 46.2 million Americans lived in poverty in 2010 according to the Census Bureau … 14 million Americans are unemployed …
Yes, you know the numbers. What else do you know? Economists explain that every recession – and it is estimated that there have been as many as 47 in the United States since the late 1700’s — has provided lessons.
If you look at the most recent two recessions, you can see that the causes were vastly different and so were the lessons:
- The recession in 2001 lasted about eight months and was caused by the dot.com bubble and 9/11. People realized that they had to spend a bit smarter – that they had to prioritize personal spending. Here, to, credit card companies were giving everyone cards at high rates. And mortgage lenders were getting creative with financing. People still felt safe in the stock market and housing market in general. And perhaps the greatest factor was that people felt confident that the economy would change.
- Then, in the recession of 2007-2009, which lasted about a year and a half, Americans found out that the housing market … and the stock market … were not safe. People realized that they weren’t able to count on their homes to sustain them and their families. Jobs became just as unstable and unpredictable.
Despite this, the Great Depression (1930-1933), had shown a worse effect on the U.S. people with unemployment at about 25% to the 8.5% of the recent recession. Also, nearly 50% of the banks failed during the depression compared to less than 1% in the recession.
Regarding the future job outlook: According to a recent article by Bloomberg, President Obama’s job plan may help to keep the United States out of a recession in the coming year.
Okay, so what does all of this mean for you today? Likely, you won’t be as carefree with your finances as you once may have been. Scarcity breeds caution. Now is a good time to learn about money management, saving, prioritizing, and budgeting. Don’t fear personal growth or bettering yourself on the job or saving for that dream vacation. Being stingy versus being frugal can create a very stressed life. It is possible to have a pleasant life — even in a recession. It just takes a bit of adjusting to the changes and taking control of your own financial situation.