Recession alarm bells have been ringing over the past few years. If you’re like most Americans, you’re probably wondering if you should be concerned. Before hitting the panic button, take the time to read this article to learn what an economic recession is, what causes it, and how it can impact the health of your wealth.
What Is an Economic Recession?
An economic recession refers to a period of temporary economic decline during which trade and industrial activity are reduced. It is typically recognized after six months of decline or a fall in GDP over two consecutive quarters. Since 1925, the United States has experienced 15 recessions – 11 of those 15 recessions occurred from 1925 to 1981.
- October 1926 – November 1927
- August 1929 – March 1933
- May 1937 – July 1938
- February 1945 – October 1945
- November 1948 – October 1949
- July 1953 – May 1954
- August 1957 – April 1958
- April 1960 – February 1961
- December 1969 – November 1970
- November 1973 – March 1974
- January 1980 – July 1980
- July 1981 – November 1982
- July 1990 – March 1991
- March 2001 – November 2002
- December 2007 – June 2009
What Causes an Economic Recession
Most recessions are caused by a combination of four factors:
- Low consumer confidence: when consumers think the economy is bad, they spend less money.
- High interest rates: reduce the amount of money that can be invested.
Reduced wages: consumers’ paychecks are not adjusted for inflation, resulting in reduced purchasing power.
- Inflation: reduces the amount of goods and services that a consumer can purchase.
What Are the Effects of a Recession?
It should come as no surprise that an economic recession can have devastating effects on the economy and your daily life. People from all walks of life and economic backgrounds are subject to the effects of a recession. Typically, the longer the recession, the more hardships you will face. Let’s take a look at some of the most common effects an economic recession can have on your life.
- Employment: keeping and finding employment becomes harder during an economic recession – companies cut fixed and variable costs to break even and/or grow.
- Debt: net worth tends to decline as loans are acquired to pay for necessities.
- Investments: lack of income can also hinder your ability to make short-term and long-term investments, causing an uncertain financial future.
- Lifestyle changes: reduced income affects your ability to pay for hobbies (e.g., gym membership, vacation, etc.).
Prepare for an Economic Recession
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