Economists have come to the conclusion that within the next calendar year, there is a 96% chance that the United States is going to experience a recession. The term recession is defined as “a significant decline in economic activity that lasts for months or even years.” According to a July 2022 Forbes article written by David Rodeck, “Experts declare a recession when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period.”
This might sound extremely scary, and it is for everyone, but especially as a college student; one that might be struggling to even be able to pay tuition, pay for food, afford the rising gas prices or simply make ends meet as it is. Most of us don’t know anything about financial literacy, as we were not taught in schools or by our parental figures, therefore the last thing we understand is how to prepare to provide for ourselves during harder times. Understanding finances is not easy and not everyone has the privilege to even manage them around and be able to “prepare” for anything. Even in those cases, we can always reset priorities and understand a little bit more of what we can do to not be caught by surprise completely and have absolutely no clue.
During a recession, due to the decline of the economy, interest tends to go up, and so do prices of pretty much anything and everything. So, what are the things that people should be doing to “prepare” for a recession?
There are a few things experts recommend: First, avoid large purchases like a house or a car unless it is extremely necessary. Always keep in mind that it is best to have all savings on a high yield savings account, which is a savings account that has a higher interest rate for you to gain. Second, the experts suggest building up an emergency fund; an emergency fund consists of about 3 months of expenses. Every single living expense is added up together and combined to equal the 3 months in case of emergency. This includes things such as being laid off, etc. This way you are prepared to live 3 months without having to worry about having 100% of your usual income. The third recommendation experts have is to concentrate on paying off high interest debt. Experts state that during a recession, interest tends to rise and so can your credit card debt or any high interest debt you hold. If you can, paying off your credit cards can be a step as well. Experts also urge people to polish up their resumes. During recessions, people tend to get laid off or lose their jobs. Having your resume ready and on hand could be helpful to rapidly acquire another job. Lastly, diversify your income. If possible, look for different streams of income so if you lose one, you do not lose the entirety of money coming in.
This all might sound even scarier knowing that making ends meet is already hard enough. How is one even supposed to add all of their expenses up into two months? It can be hard, but trying to have a backup, even if it is two weeks of expenses, that’s a backup that can help out when needed. Building our savings and our credit scores especially as we are younger is extremely important to set up ourselves financially for a much more secure future. None of this is mandatory, extremely necessary or shameful to not be able to do. However, understanding the situation and trying our best is more than enough, and sometimes, all we are able to do.