Description: Such a slowdown in economic activities may last for some quarters thereby completely hampering the growth of an economy. In such a situation, economic indicators such as GDP, corporate profits, employments, etc., fall.
This creates a mess in the entire economy. To tackle the menace, economies generally react by loosening their monetary policies by infusing more money into the system, i.e., by increasing the money supply.
This is done by reducing the interest rates. Increased spending by the government and decreased taxation are also considered good answers for this problem.
People often say a recession is when the GDP growth rate is negative for two consecutive quarters or more. But a recession can quietly begin before the quarterly gross domestic product reports are out. That's why the National Bureau of Economic Research measures the other four factors. That data comes out monthly. When these economic indicators decline, so will GDP.
A recession is usually underway when there are several quarters of slowing but still positive growth. Often a quarter of negative growth will occur, followed by positive growth for several quarters, and then another quarter of negative growth.The first sign of an impending recession occurs in one of the leading economic indicators such as manufacturing jobs . Manufacturers receive large orders months in advance. That's measured by the durable goods order report . If that declines over time, so will factory jobs. When manufacturers stop hiring, it means other sectors of the economy will slow.
A fall-off in consumer demand is normally the culprit behind slowing growth. As sales drop off, businesses stop expanding. Soon afterward they stop hiring new workers. By this time, the recession is usually underway.
A recession is when the economy contracts for at least two consecutive quarters. There's a drop in the following five economic indicators: real GDP , income, employment, manufacturing , and retail sales.
During any recession, news stories about unemployment figures take center stage while the families dealing with the recession suffer, often quietly. People work hard just to stay afloat in hopes that the economy will turn around soon, but often to no avail.
While many families do their best to carry on as if nothing is wrong with the world, recessions can have a profound effect on their day-to-day interactions and the way they live. Families may not be able to avoid the effects of the recession, but they can make changes that can improve their situations and help them prepare for the future, while they wait for an economic upswing.
Below are some of the ways that recessions have an effect on families, and the ways to combat those effects.
The Effect of the Recession on Families
Jobs and Employment
Job loss affects the stability of families and individuals. Our status, self-worth, health, and well-being can be drastically impacted by the
loss of a job . While many who lose their jobs use the time for growth and exploration, many suffer with depression, alcoholism, and denial.
With unemployment rates running extremely high during a recession, individuals and families struggle to find work to pay the bills each month. The inability to find work can be frustrating, terrifying, and depressing, and can lead to even more problems. When a parent is unemployed, things can seem bleak.
Tips and Strategies:
Short-term solutions might include filing an unemployment claim, borrowing money from friends or family, and taking a lower-paying job.
Long-term solutions can include working closely with headhunters and recruiters to find a higher-paying job, going back to school while on unemployment , and relocating. The relationships fostered with headhunters can help with a job search, but the process takes time.
Instead of waiting for the perfect job to appear, consider taking a part-time job to bring in some income while working with a headhunter to find the right career. Going back to school for additional studies can also help with a job search. It might be time to transition to a new line of work. Choose new career paths wisely, based on the job market and the outlooks for great career fields .
Moving to a new town for a job can open up new career opportunities as well. Relocating shouldn’t be seen as a last resort. In fact, being open to job opportunities in different areas and can significantly widen a job search.
Family Life
The stress of not finding work, and a loss of income, can lead to damaging inter-family relationships that can take years to mend. Sometimes families must borrow money from relatives or friends, which can result in tense situations.
Some families must change their plans, sell their homes, switch schools, and cancel vacations. In other households, there is even an unfortunate increase in child abuse cases .
Tips and Strategies:
Families can work together to cope with the changes brought on by an economic downswing. In fact, a recession may positively impact a family, as families tend to stay home together, and spend more time together.
Instead of pricey nights out at restaurants, take the family to a local park for an evening picnic or have a cheap family game night . Avoid hotels during a weekend trip in favor of camping in the woods. Instead of buying more video games, take children hiking and fishing.
Look at the experience as an opportunity to spend more time with the children, and make the most of the time spent as a family.
Lifestyle Changes
Reduced income leads to reduced entertainment, dining, and extracurricular activity expenses. People cut back on extras during a recession, so many families must make drastic changes to their pre-recession lifestyle. This means fewer trips, shared experiences, and missed opportunities because of a lack of funds.
Tips and Strategies:
The lifestyle changes brought about by a recession will include a period of adjustment. Families must allow themselves time to adapt, and understand that children may not fully understand the financial implications affecting the family. Talk with children about how things will change, and be realistic about expenditures and outcomes. It’s a great time to teach your kids about money management .
Don’t build up expectations about what might change in the future. After a period of unemployment, belt-tightening may still be necessary, as the impacts of unemployment can be far-reaching. Instead, focus on changes that need to happen now, and how the family can make the best of the situation.
Investing
Family budgets may not accommodate short and long-term non-residential investments during a recession. Families may put investment accounts on hold, hoping to play catch-up at a later date. Families may also be tempted to invest money because of the reduced expense of stocks, but without any expendable income, investing may not be feasible.
This can have devastating effects on retirement accounts and savings accounts. It may also become necessary to tap into investments and retirement funds for cash.
Tips and Strategies:
Using retirement funds to pay bills should be a last resort, because of the retirement account tax penalties and the loss of future income. If using money earmarked for retirement or college funds becomes unavoidable, withdraw small amounts, and only use the money to pay essential bills, like the mortgage, car payments, and utilities.
Business Opportunities
Entrepreneurs may have a lack of funds available for borrowing or starting new companies during a recession. Innovation often comes from the small business segment, but a lack of funding, coupled with a downturn in spending, may make small business owners nervous and unwilling to take big risks.
For unemployed entrepreneurs looking to start a new venture, this lack of funding can really hamper their chances of success.
Tips and Strategies:
This is likely not the right time to start a new business, and the business idea may need to be put on hold. Continue to research new ideas, and look for investors or business partners, but focus efforts on earning an immediate income to support the family.
Real Estate Value
Many families depend on the value of their homes as part of their retirement plan. During a recession, however, real estate values fall drastically and foreclosures increase, forcing many families out of their homes. Real estate can no longer be viewed as a safe investment during an economic downturn.
Tips and Strategies:
Over time, real estate values may turn around, so families should try to maintain ownership of their homes if at all possible. Homeowners may be able to avoid foreclosure by refinancing mortgages.
Education
Many families cannot afford to send their children to college during a recession. Furthermore, the college experience changes for many students who do attend, as universities fill classes with too many students, or cut classes, majors, and staff, all while increasing tuition.
Tips and Strategies:
Families may need to rethink college plans during a recession, and should look into alternative ways to pay for school in order to save money. Most college students receive some sort of financial aid, or work while they are in school.
Prospective students can apply for student loans, college scholarships , and grants, attend a community college , and participate in work-study programs to pay for school.
Credit and Debt
During a recession, families must still pay the household bills, and try to get out of debt.
Bankruptcy, judgments, and late payments can all hurt your credit score .
Your credit history impacts credit card and loan interest rates, insurance rates, and even job opportunities, as some companies review applicants’ credit histories.
Tips and Strategies:
Families should prioritize expenses and pay bills in order of importance . Some bills can be paid late, but other bills must be paid on time in order to avoid foreclosure, eviction, or property repossession.
Recessions can lead to a reduction in borrowing, and families may become more fiscally responsible following an economic downturn. Less debt and more responsibility can lead to smarter money management, and a stress-free financial life.
Determining Necessity
Families must understand the difference between needs and wants during a recession. Families need a safe place to live, clothing, food, and access to affordable health care. As priorities shift for many families during an economic downturn, they can focus on the necessities, and learn more about their innate survival skills.
Tips and Strategies:
Learning how to prioritize expenses, adapting to a loss of critical income, and making lifestyle changes will be hard. Families can cope during this period of adjustment by relying on each other, becoming a true support network. Celebrate successes as a family, and acknowledge each others’ efforts to become solvent. Take control of the situation to reduce the negative impacts of the recession, and to set a good example for the rest of the family.
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