How an Economic Recession Could Affect You

Remember though, the 600 dollar rebate only helps the economy if you use it to buy USA products. Paying off debt, saving, investing, or buying Chinese products doesn't help the economy. This is why many believe it isn't not going to help.

Start thinking about your personal brand and how you can set yourself up for success in a recession now and in the future. It's hard to predict the future, so you must always network and meet new people than can support you during these times.

Brandon, I agree, spend your tax rebate. I took it a step further by saying spend it on career or personal development, which goes to Dan's point.

What do you mean by US products? Toyota is not a US brand, but still employs about 40,000 US workers. Putting a down payment on a Camry would probably help the US economy.

It's hard to say what will happen, but young people should start paying attention to how the economy could affect their careers and finances.

Remember that us HR folks can't advise you where to put your money BUT we probably have info about what funds / portfolios are aggressive versus conservative and an Employee Assistance Plan that can put you in touch with a financial advisor.

Monica – You should probably not tell your readers to spend $600 that they don't have yet before the stimulus bill has even been passed. Remember, we have a bicameral legislature and the Senate has to pass a similarly worded bill. It's not enough for the White House and House of Representatives to approve the bill.

BrandonA – Paying off debt, saving, investing, and buying Chinese goods all help the economy, though perhaps not as directly as buying … um … apple pies.

(1) Americans are over-leveraged, with people defaulting on mortgage payments and credit card debt left and right. In the long run, it might be good if most people view any tax rebate windfall as an opportunity to pay down debt. Hopefully this indicates a fundamental change in the way people think and prioritize debt.

(2) Saving certainly helps the economy. Money doesn't just sit in a bank when someone deposits it. The bank lends it out, and through the reserve lending process actually creates money. The money could also add to capital expansion if it goes to, say, a small business looking for funding.

(3) Investing in an IPO or debt issuance directly helps the issuing company to raise funds and thus stimulate the economy. Investing in a secondary market is less helpful, but whenever you buy a share of any security, you're giving money to the person who's selling the security. That person could very well spend the money on the economy, thus generating growth.

(4) Buying Chinese goods have a complex effect on the economy. But history and economic research proves that "Buy American" generally doesn't make the economy better than it would be with free trade. It's naive to think that boycotting imports would help the economy. At best, it will prop up non-competitive US industries and companies. At worst, it would create a global backlash against American goods, destroy US jobs dependent on imports and trades, and force American consumers to pay more for goods. On the other hand, buying foreign goods puts dollars in the hands of international consumers, who can turn around and buy American goods or invest the money in US Treasury bonds or at least generate some good will towards future trade.

Short of sticking the tax rebate under their mattress, consumers can't really make the economy worse than it already is. Most actions will at least help a little.

Recession,
This will come and pass for invesment in your 401K should be a constant place for finances.
This tax rebate is a good offer though.

HR Wench –

good point. I wrote about the economic recession on my own website and linked to a great book called A Random Walk Guide To Investing, which is a good starter book for the casual investor. I have found that HR is a great resource for people who are confused about how the 401K works and one-on-one meetings are extremely useful in understanding a company's policies.

Lily -

This article went through several revisions, and in one of them I did qualify that statement "It looks like many of us will probably be getting…" Maybe I just need to learn to edit =D.

I think you bring up some interesting points. I myself am very confused about what kind of spending/saving/investing "helps" the economy. I'll have to check out your website though since it sounds like you really know your stuff. Thanks for sharing!

Michael -

I completely agree that investing is an ongoing thing. I work with financial markets every day and there is no way to predict the stock market – at least no one has found a way yet. I've been investing in my own 401K since day one, but many of my friends don't, and I would guess many of the EE readers don't either. A recession might be an incentive for people to start because the stock market as a whole is going down.

Thank you for your comments!

[...] Investing zen for young professionals during recession fears. [...]

Monica, some solid advice here. I'm particularly glad to see you call out 401(k) programs as a bit of fiscal wisdom. I think many of us–GenY and others–struggle to understand how a pessimistic, "down" market full of bad financial news can be a good time to buy. (If it was a good time to buy, it wouldn't be a "down" market, right?) It feels backwards to a lot of people, and fairly so. But you put it succinctly and well:

" … now is the best time to either start or raise your contributions because stock prices are going down, meaning you'll get more shares for your money."

I've suggested thinking of it as a "going-out-of-business sale" for the stock market. When you buy a $1000 sofa for $300, it doesn't change the actual value of the sofa; it only means you got it for less than it was worth. Putting your money into your 401(k) duirng a "down" market will generally work the same way.