During times of uncertainty, we often turn to the experts for guidance in areas of concern, like finances, health, and livelihood. Katie Couric’s Wake-Up Call newsletter (subscribe here) has been seeking out clear and concise answers to pressing questions on such topics from some of our Ally experts.
Lule Demmissie, during her tenure as president of Ally Invest, spoke with Wake-Up Call to discuss the rise in unemployment and ways to prepare if you’re worried about job loss. Read on for helpful information and useful advice — but as a disclaimer, make sure to consult with professionals for questions specific to your own financial situation.
Katie Couric’s Wake-Up Call: In recent weeks, unemployment claims have reached record highs. First things first, can you tell us what these numbers mean right now for the economy?
Lule Demmissie: The spike in unemployment claims during the current pandemic crisis, while unnerving, is not surprising. In the last month, more than 22 million workers have sought unemployment benefits due to coronavirus-related shutdowns. There are now more suddenly jobless Americans than during the Great Recession. But here’s the real challenge: the Great Recession revealed systemic issues with our economy. In today’s scenario, the economy was healthy prior to the pandemic crisis, so the lasting economic impact is tougher to model while things are effectively on “pause” as more than 90% of Americans follow stay-at-home guidelines.
For an economy that overwhelmingly relies on consumers to drive our Gross Domestic Product (consumer spending represents approximately 70% of GDP), these conditions were bound to slow down revenue for many businesses. Extending unemployment insurance benefits to the long-term unemployed boosts spending and creates jobs, which helps us keep the economy strong. In March, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion coronavirus emergency stimulus package. The act expands states’ ability to provide unemployment insurance to many workers affected by COVID-19, including people who aren’t ordinarily eligible for unemployment benefits. The questions now are how long these conditions will last, what will the near-term economic impact be until a vaccine is found, and what will the long-term impact on the economy be once the pandemic is contained. The impact could be deep, but it is also impossible to know what potential “pent up demand” may do to buoy the economy once we are all out of this crisis.
For anyone who has already lost their job: What steps should they take to prepare for this period of uncertainty?
The answer very much depends on your financial and personal life situation. Generally speaking, the first step is to see if you are eligible for unemployment insurance and, if you are, be sure to file for it. Next, determine if you have a savings buffer and calculate how many months of your core expenses it will cover. Call your debtors to ask for some forbearance accommodation – many institutions are trying to help consumers who find themselves in financial straits as a result of this pandemic. Review your monthly budget and look at which expenses you can either freeze or cut out – the key is to drastically reduce your expense footprint during this time. Research how you can secure health insurance for you and your family should you lose it – www.healthcare.gov is one place to start your search.
One last tip – if there is a small expense that gives you pleasure, consider keeping it. Keep an open mind and research free activities that you and your family or friends can partake in to find valves for happiness and togetherness. Many small businesses in our local communities are now offering virtual activities for free or for a small donation. We are more likely to keep to our budgets when we also recognize that happiness, even in small amounts, helps fuel our resilience.
What sort of budgeting or savings tips would you have for someone in this position?
In addition to the tips already mentioned, it’s good to categorize your expenses and then add a “MUST HAVE” and a “NICE TO HAVE” bucket for each category. Common categories include housing, utilities, food, insurance and debt repayment. Again, the key is to drastically reduce your expense footprint during this time. Try to tap into checking and savings before touching qualified accounts like your 401(k) and IRA – there may be taxes, penalties, and interest associated with early withdrawal and you want to avoid taking money away from your “future self” if at all possible.
Similarly, for anyone who might be afraid of losing their job — or seeing a reduction in their income: How could they prepare for this possibility, while still being cognizant of the fact that they do have income coming in?
Many of the tips discussed are valuable to adopt even if you haven’t lost your job. It’s always a good idea to grow your savings buffer for emergencies. In addition, you may want to explore taking advantage of low interest rates to refinance your mortgage or other debt while you are employed. Refinancing your current loans with lower interest rates can save money over time and help you achieve your financial goals more quickly.
Should anyone be worried about losing a job make any changes to their savings or investment?
Research and confirm that your bank and/or investment firms provide you the best rates, free transaction costs when investing and waive “nuisance” fees (especially during this pandemic). One option is to engage with an institution that offers most of its services via digital means. Given you cannot go to a bank office in the current environment, you can access your bank and investment services digitally.
What other tips would you have for anyone struggling with job loss right now?
We are feeling beings and our emotions can range from feeling blue to suffering from depression. It is important that we respect and listen to our emotions. If you suffer from clinical depression, make sure you follow up with your health and/or mental care providers. If you are feeling blue, it is helpful to seek and/or form a community. The worst thing to do is to turn inward and suffer in silence. Even the introverts among us (and I am one) need to remember that forming community (even digital ones) cannot only help us ride through the blues, but they can also be a major source of information and “know how” as we all learn to navigate financial strains. For example, you may learn about digital job opportunities that can help supplement your income. This may also be a good time to “skill up” through digital learning tools for areas of the economy that may have more job opportunities.
Any last thoughts?
Crisis is tough to navigate. It will punch us in the gut and worry us. It can also be a source of learning and transformation. As we all struggle through this pandemic, it is important to give back where we can (if we can afford it), support our local economies, lean on extended family when we need help, strengthen our communities/families and build resilience. The wisdom crisis affords us is the ability to become even more adaptive, focus on the things we can change, and live in the “now” when we can – even if that is a simple “walking trip” between our living room, bathroom and kitchen, listening to the sounds of nature on our device, or practicing our deep breathing. #LivingInTheTimeOfCovid