Recession — if that’s a word that sends a shiver down your spine, you’re not alone. A new survey from DepositAccounts, a LendingTree company, found that four in 10 people have lost sleep worrying about a potential recession, and even more say their finances will be “destroyed” if one hits within the next year.
For many people who endured the financial crisis of 2008, this worrying is not unwarranted. One report found that during the Great Recession, 8.8 million jobs and $19.2 trillion of household wealth were lost between the peak of the economy before the recession and the lowest point of the crisis. The U.S economy is presently experiencing the longest expansion in history, and concerns about a forthcoming recession are never far from the headlines.
There’s a silver lining to all this stress: Our survey of over 1,000 Americans found that a large percentage of respondents are taking steps now to protect their finances in the face of a possible recession. However, not all of the steps being taken are rooted in solid financial advice — read on to discover how you can make the right moves before recession strikes.
- 51% of Americans say their finances will be “destroyed” if a recession hits within the next year. For millennial respondents, that figure spikes to 2 in 3.
- High earners aren’t exempt from worrying, either: 52% of those making more than $100,000 said if a recession hits within the next year, their finances will be destroyed.
- People are stressing when they should be sleeping: 4 in 10 respondents say they have lost sleep worrying about a potential recession.
- 42% think the next recession will be worse than the 2008 recession. However, age plays a role in how people think about a potential recession: 51% of millennials believe the next recession will be worse than the last, compared with only 32% of baby boomers.
- 44% have proactively taken actions to prepare for a recession. The most common courses of action were cutting back spending (40%) and paying down debt (37%).
- 1 in 4 plan on withdrawing cash from deposit accounts to protect themselves from a recession, including nearly 40% of millennials.
Recessions and financial well-being
Recessions can cause a lot of damage, especially to your personal finances. The U.S. National Bureau of Economic Research defines a recession as a significant decline in economic activity across the economy, lasting more than a few months, visible in GDP data and other measures. Recessions are part of the regular cycle of economic expansion and contraction, and Americans are very concerned about the next one.
For millennials — people ages 23 to 38 — a staggering 64% say that their finances would be destroyed if a recession were to hit in the next year. That’s compared with 48% of people in Gen X and 38% of baby boomers who say the same.
Wealthy Americans also say a recession would derail their finances, showing even money is not a deterrent to the havoc caused by an economic downturn. A stunning 52% of Americans in households who make $100,000 or more a year say a recession in the next year would be a financial disaster for them, compared with 62% of households who make between $25,000 to $34,999 a year.
In fact, our survey even found that 40% of people are losing sleep over the thought of a possible recession. That might be because an even bigger majority of survey respondents — 43% — think that the next recession will be even worse than the one in 2008. It’s worth noting, though, that number varies significantly by generation; 51% of millennials think the next recession will be worse than ‘08, while only 32% of baby boomers hold that same belief.
Recessions and job security
Financial ruin isn’t the only result of a recession that people are stressing over; many are also worried about what it could mean for their jobs. The survey found that 34% of people are worried they will lose their job during a recession. That feeling is shared amongst people of different income levels, including 34% of households who make at least $100,000 a year and 31% of households who make less than $25,000 a year.
However, the level of fear about job security in a recession varies among the generations. A whopping 47% of millennials fear for their jobs in the next recession, compared with just 14% of baby boomers.
When you look at the generational makeup of the workforce, the survey’s findings make logical sense. According to BLS data — which uses slightly different age brackets than us to determine generations — millennials (ages 25 to 34) had an 83% 84% labor participation rate in 2018, compared to 40% of baby boomers (ages 55 and older).
What aspect worries survey respondents the most about a potential recession, though, is being unable to afford monthly bills (30%), followed by losing their job (12%), losing their home (12%), not being able to pay debts (11%), losing money in the stock market (10%) and their partner losing their job (6%).
How people are preparing for a recession
The silver lining of our survey is that people aren’t just stressing over a potential recession, but are preparing for it. An impressive 44% of Americans say they have taken steps to prepare for a potential recession, including 49% of millennials.
The most common action people are taking to prepare for a potential recession, the survey found, is cutting back on spending (40%), followed by paying down debt (37%), building up emergency savings (30%), sticking to a budget (30%), getting a side gig to diversify income (13%), adjusting their investment portfolio (8%) and increasing job performance (8%).
However, not all the money moves people are planning to make to prepare for a potential recession are financially sound. The survey reveals that 25% of people plan to withdraw money from their deposit accounts to prepare for a potential recession, including 37% of millennials, 24% of Gen Xers and 10% of baby boomers.
How should you financially prepare for a recession?
While an alarming percentage of Americans plan on withdrawing money from deposit accounts to prepare for a recession, you might not want to join them in doing so. When the stock market is going through a tumultuous time, you might be tempted to rebalance your investments or even take money out of the market. But draining your deposit accounts during hard times is counterproductive.
Deposit accounts are actually considered relatively safe spots to stash your cash during times of trouble. While they generally won’t give you big returns, your money is typically FDIC-insured and will grow at a steady, albeit slow, pace. Plus, if you withdraw your deposits too early, you could get slapped with a fee or penalty.
Instead, prepare yourself for a possible recession by taking steps like:
- Paying off high-interest debt.
- Building your emergency savings fund — aim to save three to six months’ of living expenses.
- Review your investing strategy, and stick with it. However, if you notice your asset allocation of stocks, bonds and other securities has begun to stray too far from your original investing strategy, consider rebalancing your portfolio.
- If you really can’t stomach such a sharp downturn, consider readjusting your portfolio to be more conservative, with equal parts stocks and bonds.
- Set aside cash for short-term needs. For example, if you know your dog needs surgery within the next year, instead of having that cash invested in the stock market, have it in a more accessible account where it won’t lose value if the economy takes a downturn.
- Diversify your income with a side gig – this can help cushion the blow if you do end up losing your job.
- Take a deep breath. It can be tempting to want to get out of the investing game when the economy goes south, but look at the bigger picture. Don’t act impulsively on fear.
DepositAccounts by LendingTree commissioned Qualtrics to conduct an online survey of 1,045 Americans, with the sample base proportioned to represent the overall population. The survey was fielded Oct. 1-3, 2019. For this survey, we defined Gen Z as ages 18 to 22, millennials as ages 23 to 38, Gen X as ages 39 to 53 and baby boomers as ages 54 to 73.