The coronavirus financial impact on US households has been big and has exposed many weaknesses that show people were not ready for another recession.
Have you been impacted by the coronavirus? Chances are, in one way or another—you have.
The last recession was hard for Americans but we’re seeing the coronavirus have an even bigger impact on US households.
Industry experts predicted a recession would happen. Some even predicted it would happen many years ago. Even I talked about it in 2018 wondering when it was going to happen because the economy was well overdue for a recession.
Now, here we are in 2020 and it has happened. I doubt very many people thought it would be this bad. Or that a virus 1,000 times smaller than a grain of sand would have triggered it.
What is the impact?
In March, over 7.1 million people filed for unemployment. This is the largest number in one month since January 1975.
During the biggest week, almost 3.3M Americans filed for unemployment benefits. That’s by far the largest weekly unemployment on record — it’s nearly 5X larger than the previous record of 695K, set in 1982.
“A definite and unmistakable sign the United States has entered a recession,” Chief Economist Scott Anderson of Bank of the West
US employers have added jobs to the economy for a record 113 months straight — and that streak ended in March. This is the first really concrete news we have about the economic pain caused by COVID-19.
Why is this such a big deal?
The outbreak could trigger more than 10 million layoffs, largely in the second quarter, as the 3.5% unemployment rate, a 50-year low, climbs above 10%, estimated Mark Zandi, chief economist of Moody’s Analytics.
When you think about the number of individuals and families this is impacting, it’s going to take some time to get back to “normal”. Husbands and wives losing their jobs, recent college grads not being able to find employment and many small businesses shutting their doors for good.
We’ll probably continue to see small businesses shut their doors. With the economy being so good for so many years, the small businesses that have been scraping by for years, making just enough to cover their overhead and sometimes not even that, aren’t going to make it. If they weren’t profitable then, why would they be profitable now?
With 30.2 million small businesses that make up 99.9% of all businesses in the US, they’re all starting to feel the economic impact.
How is it different this time?
Leading up to 2020, many people thought “it’s different this time.” The economy is too strong, businesses are growing too fast and the future outlook is too great to experience another recession.
The truth is things aren’t any different than the past. We have always seen ups and downs in the economy. When things are good, people get greedy. When things are bad, people get fearful and buy up all the toilet paper. This is nothing new and we will continue to see this cycle happen over and over again.
The biggest thing we can do is prepare ourselves to weather any storm that will come our way. But not everyone is so prepared.
US Households Struggles
Are US households prepared for another recession? Were they prepared to meet the challenge of the coronavirus?
The answer is no.
Things like cash flow management, paying ongoing bills, and saving for emergencies are all areas that people have really struggle in.
Before all of this happened, 1 in 3 Americans were living paycheck to paycheck and 70% couldn’t afford an unexpected $400 expense without having to borrow money from another source.
People are setting aside less money in short-term savings and are less confident that their insurance coverage is sufficient, making them more vulnerable in the event of a recession.
When times are good, Americans tend to save less and borrow more. When times are bad, they tend to save more and borrow less. You can see that the national savings rate has steadily declined since the 1960s and before the 2008 financial crisis, the savings rate was at an all-time low at about 2%. Once things turned south, you saw a major increase in the amount of income saved, which has since declined after the economy has been so good for the past 11 years. We’ll see a pretty big spike in 2020 and going forward for the next few years.
Cash Flow Management
Americans have always struggled with cash flow management which sets the foundation for a financially healthy life. When money is mismanaged, people are more likely to save less, pay higher interest in debt and are less likely to reach their financial goals.
Most people haven’t been given the right tools to manage their money properly. Creating and sticking to a budget, especially when you add others into the mix, can be a challenging task. Luckily, there are current tools and new tools to make budgeting easier. Qube Money is a budgeting/banking tool that makes it easy to give every dollar a job and spend with intention. People who use this spending app save on average $440 per month and are more likely to pay off debt and reach their financial goals.
Meeting Ongoing Bills
71% of Americans were financially vulnerable or financially coping before the crisis hit the US according to the US 2019 Financial Health Pulse report. Many people struggled to meet a lot of their ongoing bills and felt as if they were just scraping by each month.
Now that we’ve seen the impact this pandemic has caused, nearly all Americans are having a difficult meeting their ongoing bills. This is why we’ve seen many government assistance programs available to a wide range of citizens such as the stimulus check and tapping into your 401(k) with no penalty.
Emergency Funds or Lack Thereof
Nearly half of Americans would have a difficult time coming up with $400 for an unexpected emergency expense. That doesn’t mean they don’t have $400 somewhere but that they would have to borrow to meet that expense.
It’s not easy for most people to set aside money for emergencies because guess what? Emergencies are all around us. Forgot to get that dress for your friend’s wedding? Emergency! Don’t have enough cash for your weekend getaway? Emergency!
What we have here is not a savings problem, but a financial behavior problem. For things to change, behavior has to change at a deeper level than simply setting aside funds for an emergency. If you do, it’ll most likely get spent.
Recessions can sometimes be a good thing because it causes people to take a step back and focus on the important things. They may realize they squandered away their income for so long and became completely disorganized and now it’s time to put things in order. Not just with their personal finances, but also their businesses.
Impact on Small Business Owners
96% of small businesses say they have felt the impact of the coronavirus. The other 4% are most likely booming in this economic environment because they’re meeting the needs of consumers and businesses at this time.
Think of all the small shops that have been operating for many years and now is the time to shut the doors. Even in my own city, I’ve seen small businesses and restaurants that have been in operation for years and are now having closing sales and laying off their employees. Things are really hard right now for many small businesses. I can assure you however that it won’t be like this forever.
When will things get better?
“As sure as the spring will follow the winter, prosperity and economic growth will follow a recession.” – Bo Bennett
We’ve seen things like this happen in the past and this time is no different. Our situation may continue to worsen, no one knows when things will start to get better. But we do know without a shadow of a doubt that things will get better. They always do. And when you look at a chart of our economy over 100 years this will look like a small dip that quickly returned back to normal.
What are federal, state, and local governments trying to do?
The $2T economic stimulus bill, that has recently become law is the federal government’s response to the COVID-19 impact. It includes incentives for businesses not to lay off workers and extra funds for those who need to file for unemployment benefits. It also included sending Americans and their children who make less than a certain amount of income a check to help stimulate spending again. Some are critics of this new bill that this won’t cause the main root of the problem which is the spread of the virus but may help keep big and small companies in business.
Where to go for help
One of the best resources for financial counseling and coaching for over 30 years is AFCPE. Get in contact with a financial counselor and they will be able to help you out in many ways. I’ve been a financial counselor for over 3 years and have been blessed to help so many individuals and families. Most, if not all, financial counselors are offering virtual appointments. If you’re in serious need of help or just need someone to talk to, check out AFCPE.
Instead of going into too much detail for help, I found a really comprehensive list of places you can go. This article from Money Crashers is a great place to get started as well as this article from Possible Finance.
Few people expected the coronavirus to have such a large impact on US households and businesses. When things in the economy are good, they’re good. When things in the economy are bad, they’re bad. We’re really starting to feel the impacts the coronavirus has caused.
As hard as it is to believe, things will get better and “as sure as the spring will follow the winter, prosperity and economic growth will follow a recession.