Listen to fears amid an economic crisis

Dear Pete,

Other than the stock market and the occasional reemployment surge, it doesn’t feel like our economy is heading in the right direction. I’ve been through a recession or two, and this one seems as bad, if not worse than all of the other ones. Is it possible we’re looking at years, as opposed to months, to get this thing back on track? I don’t think the stock market and its swift recovery is telling the real story.

Kris, Philadelphia

Peter Dunn: With so many elements of American life heading in the wrong direction, it’s challenging to know what is heading in the right direction. We’re all trying to read the tea leaves and find meaning in realities that might not have meaning below the surface. And to be fair, every recession or rough economic time feels different from the previous one.

Before we get too far, it’s important for you to know my mind-set in answering your particular question. I’m neither an optimist nor a pessimist. My goal is always realism, but more importantly, I’d like to focus on the action we must all take to protect ourselves from whatever is next.

Let’s list the positive signs and the negative signs, and see if we can discern anything from those particular lists: First, the good.

As you mentioned, the stock market seems to be doing relatively fine. It took roughly 148 days for the market to recover from a massive drop from its Feb. 19 record high. That’s shockingly fast, although the Fed’s impact on the market prices with its monetary policy, potentially tells most of the story there.

The unemployment rate looks to be leveling off, but it feels a bit gross to celebrate that when so many Americans are still left on the sidelines. I do firmly believe we’re headed toward a “K shaped” recovery. This means particular industries will recover rather swiftly, while other industries will continue to struggle, if not decline further. I also think it’s fair to assume Americans’ personal finances will experience a similar divergence. The wealth gap is real, and it will likely widen.

Now for the negatives.

The wave of layoffs on the horizon is a bit terrifying. The airline industry alone is slated to cuts tens of thousands of jobs as of October 1, as government aid dries up. That industry’s layoffs could send ripple effects through others, big and small. That doesn’t give me confidence in the overall economy’s ability to recover quickly.

So there’s a small taste of the good and the bad. The real question is though, what are we gonna do about it?

The two bumpers for our financial decision-making are fear and greed. This has long been the case. When life and our personal economies are going well, we tend to loosen the purse strings and accumulate things. And when we’re spooked by the signs of the global economy or cognizant of the realities of our personal economies, our spending becomes much more judicious.

Many of us are in a hurry to get back to normal, but we need to ensure our desire to carry on, business as usual, doesn’t suppress our natural inclination to seek stability and prudence. Of course, you’re scared. You need to use your current level of hyperawareness to assess the specific threats the economy poses to your personal finances. Understandable fear, without action, or at least a period contemplation, makes the situation worse, not better.

Will your fears lead you to spend less and save more money? If so, that’s a reasonable plan. If you possess all these fears and you choose instead to avoid thinking about how you can mitigate these risks, then you’re ignoring reality.

What really matters is how you use your level-headed assessment to prepare your finances for whatever’s next.