Recessions have a silver lining
“More than 11,000 out of 24,000 banks had failed, wiping out depositors’ savings,” according to the National Archives.
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Fast forward to now, and as bad as things are — rising interest rates, high inflation, stock market crashes — the economy hasn’t imploded like it did during the Great Depression.
I have to say this because, as Roosevelt pointed out, fear itself can lead to actions that worsen your finances. While many people suffer, there may be ways to cushion the downside.
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Here are seven silver linings as we head toward a recession.
1. Real estate prices could finally drop to reasonable levels. Yes, mortgage rates are higher, but the upside is that in many markets, sellers have to lower their asking price in order for buyers to qualify for the loans.
With cheap credit gone, there will be fewer bidding wars to drive house prices up.
Mortgage interest rates have exceeded the 6 percent mark for the first time since 2008
2. Interest rates on savings rise. At least one good side of the Federal Reserve’s rate hikes to fight inflation is that banks are paying people more to keep their money. My credit union has a special 20-month offer for a certificate that would pay me a 3 percent annualized return.
“Many potential savers may not have noticed that yields have increased,” said Mark Hamrick, senior economic analyst and head of Bankrate.com’s Washington office.
Look around, said Hamrick.
“Why leave money on the proverbial table when you can have it in your account? The key is to make access to finance a priority when and if an urgent development arises,” he said.
By the way, no, you shouldn’t stop investing in your retirement savings. Historically, the market recovers over time. If you exit now, you’ll miss the rest.
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3. I-bond inflation could go even higher. The Series I Savings Bond was created as a hedge against inflation. By the end of October, the bonds are paying 9.62 percent.
The yield on an I-Bond consists of two components – a fixed interest rate and the inflation rate. The fixed interest rate, which is currently zero percent, applies to the 30-year term of the bond.
6 important things to know about inflation-linked bonds that pay 9.62 percent
The fixed interest rate for newly purchased bonds and the semi-annual inflation rate are announced by the Ministry of Finance in May and November respectively.
If inflation stays high, I-bonds could pay out more in November.
To purchase an electronic I-Bond, you must create an account with TreasuryDirect.gov. Individuals can purchase up to $10,000 in electronic I-Bonds in a calendar year.
4. The dollar is king. Although much is in flux, your dollar can go much further if you have plans to travel abroad. This week, the British pound fell to an all-time low against the dollar.
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5. Unemployment is still relatively low. People with jobs and money to spare can spend on luxuries like vacations.
Despite higher prices and rising interest rates, millions of Americans have taken vacation trips.
More than half of Americans plan to travel for one or both holidays this year, even though airfares will be 43 percent higher than last year, according to Hopper, a travel booking app.
However, according to the Bureau of Labor Statistics, the unemployment rate rose to 3.7 percent. So if you’re worried about your job security or a recession, just cancel your 2023 vacation plans.
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6. Your used car is worth more. If you’re looking to upgrade to a newer car and your car is in reasonably good condition, you’ll get more for your trade-in.
Prices for used cars and trucks rose 7.8 percent, according to the latest data from the US Bureau of Labor Statistics. Unfortunately, new car prices have increased by 10 percent compared to the previous year.
7. Student loan forgiveness is coming. Roosevelt used his executive powers to wage war on the economic plight of the United States.
President Biden is doing something similar by forgiving student loan debt to help troubled borrowers. Biden announced a one-time forgiveness program that would provide up to $10,000 in federal debt for student loans and up to $20,000 for Pell Grant recipients for people who owe $125,000 or less per year or less than $250,000 for married couples earn, will wipe out.
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The Biden administration also announced last year a temporary waiver to help cancel more debt under the government loan forgiveness program.
Act quickly to sign up for the waiver. The closing date for entries is October 31st.
Of course times are tough – and for some people a lot more than for others. But remember, fear will not help you make wise financial decisions.