We’re all feeling the impacts of this economic downfall. The average person has no control over the economy but does have the tools and resources to understand what’s going on and how to set themselves up for whatever will occur. Being forward– the direction we’re headed in looks dark. But, on a positive note, Essence Girls United is committed to shedding some light so that you can prepare for what may come.
The current economy explained.
Inflation? Yes. Recession? No.
Inflation is when prices increase and the value of our money decreases. There are multiple ways inflation can occur. One example is when the demand for goods and services exceeds the supply. Because of that, the price of goods and services skyrockets. Another example is when labor prices increase. If paying people to create a product or perform a service costs more, the price will increase, placing a demand on the buyer. The road to inflation differed in both examples, but the result was the same- a higher cost of living. Inflation is natural. The price of goods and services is supposed to increase at the rate of salary and wages. It’s the responsibility of the Federal Reserve [commonly referred to as the Central Bank] to keep that number steady. Unfortunately, that number has spiked, and we all feel that way.
How does the government manage this? “The Fed uses interest rates to control the economy,” says Abbey Omodunbi, Senior Economist at PNC Financial Services. The Fed has been increasing interest rates, making it harder for businesses to borrow money, invest in new projects, and hire more people. “They’ve been raising interest rates to cool the economy since it grew too strongly,” Omodunbi continued. When that occurs, there’s “a pullback in spending,” which the government intentionally sets up to decrease inflation. With the hopes for spending to decline, he projects “the Fed will likely continue to increase interest rates in the near term, and that’s more than likely going to take the US economy into a recession.”
The projected economy explained.
It’s impossible to predict specific dates and times a recession will occur. The National Bureau of Economic Research decides when a recession officially starts, but esteemed economists such as Omodunbi are confident we are headed there. Omodunbi says, “We’re likely to see a significant decline in economic activity in the second half of this year.” A “mild” recession is forecasted. During this time, there will be “a pullback in consumer spending and business investment, declines in the housing sector, and loss of jobs.”
How can we prepare?
Do not panic. Courtney Alev, a Consumer Financial Advocate at Credit Karma, provided the readers at Essence Girls United with the best financial preparation practices. Her first advice is, “There are two key categories Gen Z should keep an eye on – spending and saving. On the spending side, look for ways to cut back on anything frivolous or clearly out of budget. On the saving side, an emergency fund is key. Once you have your budget, see if you can set aside a certain amount regularly. The sooner you start saving, the bigger a cushion you’ll have when an unexpected bill hits before your paycheck arrives.”
Consulting a professional about your finances is always a good idea. Alev recommends “looking for fee-based, fiduciary advisors: they’ll charge a flat fee for a session (versus a percentage of your assets) and are obligated to make the best choices for you.”
Recessions are temporary, but the fruit of your financial habits will impact you forever. Now that you know and understand what is to come, the most you can do is prepare! From one black girl to another, you got this.