my two cents
By Charlotte Cowles, the Cut’s financial-advice columnist. In addition to “My Two Cents,” she writes about work and parenting for the site. Previously, she was the senior features editor at Harper's Bazaar and a senior editor at the Cut. She was also the editorial director for MM.LaFleur. Her work has also been published in Glamour, Art in America, Politico, and other places.
Photo-Illustration: by The Cut; Photos: Getty Images
Look, the economy has been weird for a while now. I can’t pretend to know exactly what’s going on or, more important, what will happen in the future, but I do know it’s unsettling to leave the grocery store wondering how the hell you just spent $40 on mediocre salad ingredients and some chicken. These are mysterious and confusing times, and I don’t have all the answers.
Based on history, things will probably get worse before they stabilize. The Fed is trying to fight inflation by raising interest rates — part of its job — which has had the unfortunate side effect of triggering recessions in the past. Of course, there are other ominous forces at play, too, like supply-chain problems and COVID and the war in Ukraine. No one can predict a recession for sure, but the odds are pretty high.
That’s scary to think about, especially considering that the last big recession (i.e., the Great one) cost millions of people their jobs and their homes. But the lessons from previous recessions can make the next one a little easier to handle, whenever it hits. (And not just “save more money,” although that undeniably helps those who can afford to do it.) I spoke to several financial experts about putting this moment in context, what to remind yourself of when things look hairy, and the mistakes to avoid.
Resist the urge to take drastic action.
When things feel precarious or a recession actually happens, it’s natural to want to do something — liquidate your 401(k), hoard beans, buy random stocks you read about online. Things are urgently bad, and you can’t just sit there! But actually, you probably should: “People tend to want to make big moves when they’re anxious, but it’s almost always better not to,” says Megan McCoy, a financial counselor and professor of financial planning at Kansas State University. “No one makes great choices when they’re panicking, and economic scarcity is known for triggering irrational actions that don’t serve you best in the long run.”
One example of this is the rush to buy homes, which started during the earliest days of the pandemic (technically, the last recession). “I spend a lot of time telling my clients, ‘No, don’t buy a house. Don’t buy an apartment. Stay put if you can — real estate is crazy right now,’” says Georgia Lee Hussey, a certified financial advisor and founder of Modernist Financial. “They’re trying to anchor themselves to deal with their anxiety, which is completely understandable, but that doesn’t mean you should act on it.”
A better way to channel that stress is to take stock of your spending. “The only thing you can really control right now is your cash flow from day to day,” she adds. “If you’re feeling pressured to act, get one of those tracking apps and gamify it for yourself. Knowing where all your money is going and seeing where you can save are good uses of that impulse.”
You may have to improvise.
I’ve written before about how to prepare for a recession, and it certainly helps to have an emergency fund to fall back on. But the truth is that most people don’t. If that’s you, now isn’t the time to beat yourself up about it.
“If job loss does occur, be ready to make adjustments and remember that they are temporary,” says Dr. Preston Cherry, a certified financial planner and head of the financial-planning program at the University of Wisconsin. “You can take an alternative job you may not be thrilled about or sell some belongings. You’re just filling the gap and managing the moment.”
I don’t want to minimize how difficult those things can be. During the Great Recession, I lost my job and, after doing some depressing temp work, eventually found a new position that wasn’t a great fit (I stayed for over a year because health insurance!). I don’t want to do that again, but there’s some comfort in knowing I could if I had to.
Beware the get-rich-quick schemes.
When people are nervous and desperate, they turn to the internet — where bizarre scams proliferate. “Especially at the beginning of the pandemic, when emotions were running high, I saw a lot of things online that were too good to be true,” says Dr. Cherry. “Some are more legitimate than others, but the important thing is that there’s no magic wand for making money.” Some obvious examples: random cryptocurrencies and meme stocks, which, well, you know how that went. A similar thing happened in 2008, especially with scammers posing as government officers requesting financial information as a precondition for receiving tax refunds — and then opening credit cards in their names.
Even if you come across an “investment opportunity” that sounds aboveboard (and may be, technically), it’s usually not good to experiment with your money during a volatile time. You’re better off putting any funds you’ll need in the near future somewhere boring and safe where you can access them, Dr. Cherry adds.
Don’t be afraid to seize the moment.
No one wants to profit off widespread misfortune and economic suffering. But if you’re one of the lucky ones who can afford it, investing your long-term savings (read: not your emergency fund) in the market during a downturn can be extremely smart. “Putting money into mutual funds when the market is down — that’s the dream,” says McCoy. “It’s not sexy to buy stocks now, but during every recession, some people have made a ton of money by thinking big picture.”
Remember that the economy will recover.
When the economy takes a dive, it can seem as if our entire financial system is crumbling and we’ll be burning our worthless dollar bills to cook our food. And hey, maybe that will happen someday —but in the near future, it’s much more likely that things will bounce back. That’s because recessions are, unfortunately, a normal part of how our economy functions. They have occurred about once or twice a decade for the past 70 years. And there’s no reason to think the next downturn will be an exceptionally painful one — like, say, 2008’s, which was the worst in almost a century.
“It’s easy to anchor our minds to the Great Recession and worry that things will get that bad again, but the economy is very different now, and there are a lot of promising signals,” says Dr. Cherry. “Not all recessions are created equal.”
This may not be a ton of comfort if you’re stressed about losing your job and taking care of yourself and your loved ones. But it is important to keep an eye on the bigger picture, which is that these downturns do pass.
Charlotte Cowles, the Cut’s financial-advice columnist, answers readers’ personal questions about personal finance. Email your money conundrums to[email protected]
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