Long-Term Financial Impact of COVID-19
As bad as the economy is right now due to the COVID outbreak in the United States, many economists are predicting that the long-term outlook is much bleaker. Congress and the Federal Reserve’s efforts at stimulus and interest rate management have done much to keep the economy and stock market afloat; however, small businesses – the backbone of America’s employment growth – are closing every day. As consumer spending reduces further, the impact will likely affect Wall Street. Consequently, share prices may soon begin correcting to reflect the future more so than the present.
It should come as no surprise, then, that 88 percent of respondents admit they are worried about their finances, according to a recent survey conducted by the National Endowment for Financial Education.
This economic decline has presented an interesting mix of demographics who have been or will be affected the most over the long term. For instance, many low-income workers have remained employed throughout the pandemic because their jobs are considered “essential services.” This includes check-out clerks at grocery stores, laborers who work outdoor jobs, nurses, orderlies, and nursing home attendants.
By contrast, many white-collar business owners – such as physicians and dentists– closed shop for a few months and/or have reduced the number of patients they see. Alas, 79 percent of those surveyed with a household income of more than $100,000 a year said they were at least somewhat concerned about their financial situation.
Millennials are the generation most likely to change the way they manage their finances in the future. Although many have remained employed in white-collar jobs – primarily due to their technology-enhanced skills and knowledge – they have reason to be concerned. After all, this generation has already lived through the market downturn following 9/11, the Great Recession, and now a historic economic decline caused by the coronavirus. After finally gaining a foothold in their careers, this recent downturn obliterated the last five years’ worth of economic growth. Going forward, finance experts predict that these young adults will be more focused on stock-piling savings, buying modest homes when the real estate market corrects, and generally working on a long-term plan for financial stability.
While those strategies are mostly good, it’s a shame this generation had to learn the hard way – all while encumbered with historically unprecedented student loan debt. However, as these lessons are passed down through generations – much the way the Great Depression had a lasting impact on the Silent Generation – U.S. populations may see higher savings rates at the expense of lower GDP growth.
For households recovering from financial stress or looking to create a plan for stronger financial resiliency no matter what the future holds, consider the following strategies:
- First priority: Save from three to six months’ worth of liquid, emergency funds should you encounter a large expense, such as an auto repair or a temporary loss of income.
- Learn how to budget effectively, which includes examining if you overpay for basic household needs or do not know how much of your income is spent superfluously every month.
- Take stock of the full scope of your financial resources, including:
- Savings accounts
- Investment accounts
- Retirement accounts
- Health savings accounts
- College savings accounts
- Whole life insurance
- Real property
- Structured settlements
- Vehicles (auto, boat, motorcycle, recreational)
- Art, jewelry, wine, or other high-value collectibles
- Expensive furnishings and household items
- Develop a Plan B to help supplement any income loss right now, a Plan C to help bolster your savings rate once you’re back to full income, and a Plan D strategy for income replacement in case you’re ever in a situation like this again.
Financial setbacks will come and go; it’s the lessons we learn from them that should have the most staying power.