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Americans are suffering from financial burnout




Americans are suffering from financial burnout

A recession is a very real possibility.

As the Federal Reserve aggressively raises interest rates to combat persistent inflation, that tough stance may come at a price. Already, falling stock markets have wiped out more than $9 trillion in wealth from American households.

Fed Chairman Jerome Powell also warned that the central bank̵[ads1]7;s upcoming moves to combat soaring rates could cause “some pain” ahead.

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

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“Recession depression, recession fatigue — whatever you want to call it, the hits to Americans’ financial security keep coming, first with the devastating coronavirus pandemic, followed by 40-year high inflation and now the growing risk of another downturn,” said Bankrate.com analyst Sarah Foster.

“Sustaining the motivation for two-plus years to prepare for tough economic times can no doubt feel exhausting,” she said.

“It’s not people’s fault as much as a response to the overwhelming amount of stress placed on them,” added Jeffrey Galak, an associate professor of marketing at Carnegie Mellon and an expert on consumer behavior.

“People have spent 2½ years dealing with a global pandemic, uncertain financial future, political turmoil and rising inflation,” he said. “At some point, people will run out of will to continue making good choices for the 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 most likely to say the pandemic interrupted their formative years and feel slighted by a short-lived “hot wax summer,” Foster said.

“Recession fatigue is the difficult cousin of revenge spending,” she said. “Americans were deprived of so many activities that brought them joy. It’s kind of like economic apathy.”

Recession fatigue is the difficult cousin of revenge spending.

Sarah Foster

Bank rate analyst

Even as the economy skirts a recession, consumers are already struggling in the face of skyrocketing prices, and nearly half of Americans say they are falling deeper into debt.

If job losses follow, the impact will be widely felt, although each household will experience a decline to a different degree, depending on income, savings and financial position.

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

How to prepare for a recession

  1. Streamline your consumption. Take a look at your budget to see where you’re spending your money and if just a few extra dollars a week could be put into a savings account. “Every little bit helps, especially as savings rates continue to rise,” Foster said.
  2. Save extra money in a fun fund. Recessions, or the fear of them, can take a toll on your mental well-being, Foster said, especially if you cut yourself off from activities that involve spending money. “Having a fun fund can help you pick and choose what excites you most without completely depriving yourself.”
  3. Cut impulse purchases. Although more Americans say they are too thin, they also spend 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 through those expenses, especially big-ticket items, to try to cut out the impulsiveness, Foster advised.
  4. Consider changing jobs. Despite a slowing economy, the job market remains strong, Foster said, and many workers can use that to their advantage. The typical worker who changed jobs between April 2021 and March 2022 saw earnings jump 10%, after adjusting for inflation, the Pew Research Center found. Labor’s bargaining power may be cooling, but it’s still strong — for now.
  5. Stay invested. While recent dips in the market may deter current or potential investors, “stocks are down sharply from last year’s record highs,” Foster said, “which means a bear market can be a good opportunity to focus on long-term investment goals.”
  6. Find additional income streams. There may be ways to monetize your existing hobbies and interests to either help cover the rising cost of living or save extra money. The most lucrative side hustles can even be done from home, such as continuing to write or transcribe audio. Otherwise, consider selling unwanted clothing or household items to free up some funds.
  7. Change your mindset. Instead of focusing on what you shouldn’t 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 house or retire early, be sure to align that goal with your individual spending habits,” she said.

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