How does a recession affect me?

How does a recession affect me? During a recession, there is a risk of losing your job, decreasing home and car prices, decreasing the value of your stock portfolio, and increasing interest rates.

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1. How a recession affects your job?

During a recession, unemployment of the country is increasing. People decrease the demand for the goods and services that they need during a recession. So, business organizations decrease their output level and finally, they lay off the employees and decrease the wages of the employees. So, people have a risk of losing their jobs.

During a recession period, there is no guarantee that any job is safe and secured. But the probability of losing the jobs employees may differ from industry to industry. People who work in industries like tourism and hospitality have a higher risk of losing jobs while people who work in industries like healthcare have a lower risk of losing jobs.

So, if you work in a less risky industry, you have a recession-proof job. A recession proof job means a job that has higher demand even in the recession period. To read more, kindly click on “13 recession proof jobs for the coming recession”

2. How a recession affects your home and car price?

Recessions result in more unemployment and decreased consumer confidence, which lowers home demand. So, price of the homes is decreasing. This is advantageous if you’re purchasing a house, but disadvantageous if you’re selling one.

As more people choose to fix their older cars and trucks rather than purchase new ones during a recession, car prices tend to decline. Many people will trade in for more fuel-efficient cars, sell their second cars, and be less likely to invest in large purchases. So, if you have a fuel-efficient car, it is a good asset. Further, if you wish to buy a car, the recession period is the best period.

3. How a recession affects your stocks?

During a recession period, stock prices are decreasing. Because investors put their money out when they noticed that there is a recession. People start selling their stocks because they desire cash and safety. As a result, when share prices fall, there are significant sell-offs. This implies that stock prices will decline for even firms with great financial standing.

As an example, in the year 2009 (during the great recession period) the worst S&P 500 decline in our lifetime happened. Especially in the March of 2009, the stock index has fallen from 55 percent from its peak point. When companies decreased their income, stocks dropped as investors heard this bad news.

So, if you are an investor in the stock market, you will tend to sell the stocks that you have bought. You’ll feel the pain when you see everything in the red and your stock portfolio will decline.

4. How a recession affects bonds?

During the bull market, you are less interested in investing in government bonds. But when there is a recession, your interest to invest in bonds are increasing. Because you are prefer less risky investments during a recession. You are comfortable with government bonds during a recession since it is very safe than investing in stock market. A recession will result in a lot of volatility in the stock market. Even financially sound businesses will experience share price declines.

5. How a recession affects bank savings?

During a recession, usually the interest rates are fallen. Because when economy is in a recession, the central bank (Ex: Federal Reserve Bank, Bank of England) apply expansionary monetary policy. This will decrease your interest income of the savings accounts.

But the year 2022 and 2023 buck the normal trend a bit. Although there is a global recession, many countries increase interest rates. Because many countries have fallen in to inflationary recession situation (Stagflation) now.

According to IMF global recession prediction, global growth will remain at 3.2 percent in 2022, but that it will decline to 2.7 percent in 2023.To read more, kindly click on “Global Recession Prediction by IMF and World Bank”

According to the median prediction of policymakers, the Fed now anticipates that the rate will end in 2023 in a range of 5% to 5.25%. To read more, kindly click on “Fed interest rate 2023: will be in the range of 5% to 5.25%”

The Monetary Policy Committee (MPC) of the Bank of England stated on December 15 that it has increased bank rate (interest rate) to 3.5%, up 0.5 percentage points. Bank of England interest rate will be 5.2% in the fourth quarter of 2023. To read more, kindly click on “Bank of England interest rate will be 5.2% in 2023”

Although there is no direct relationship between the interest rate at the central bank and deposit rates, banks are consistently raising the annual percentage yields (APYs) they offer on deposit accounts, such as savings accounts, money market accounts, and certificates of deposit (CDs). So,  you will receive higher interest income for your savings. In theory, a rate rise should lead to higher interest on savings accounts. The latest eight base rate increases, however, have not been quickly passed on to savings by many institutions. To read more, kindly click on “How does increasing fed interest rate affect you?”

6. How a recession affects credit cards

Credit cards are impacted in numerous ways during a recession. When compared to other forms of debt, credit card interest rates are high, and carrying a balance can be stressful for many people.

During a recession period, if central bank increases the interest rate, credit card interest rates will also be increased. You have a risk of losing your job also. As a result of this, you may not able to pay back the credit card payments and you may become bankrupt.