Recession - Will it affect you?

Many of the folks I know and work with seem to be totally unconcerned about all the recession talk. It is not the most frequent topic of conversation. In fact, many are not even all that sure what a recession really is. Wikipedia provides this information: In macroeconomics, a recession is a decline in any country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. However, in the United States the official designation of recessions is done by the business-cycle dating committee of the National Bureau of Economic Research (Feldstein, 2007). That Bureau defines a recession more ambiguously as "a significant decline in economic activity spread across the economy, lasting more than a few months."

Like the law of gravity though, you do not need to understand it to be affected by it. The fact is, if we do indeed continue toward a recession, it will affect everyone in our society in some way, though some far more than others. The phenomenon that interests me most though is the way that the media frenzy over certain things seems to push us in the direction of our fears. The mere mention of recession seems to create in us a tendency to take steps that will make a true recession even more likely, like some self-fulfilling prophecy. Many other factors are at play here, of course, but our own fears must certainly take a significant chunk of the blame for the general direction of the economy. It is not at all unusual for the herd to head in some general direction based on some murmurings and grumblings, without any clear vision of just where they are going...or why. (I also happen to believe that the tendency of the workforce to demand more pay and benefits for less and less production pushes us further from stability and closer to recession, but let's save that for another day)

To reduce or minimize the effect that any cycle of the economy might have on you, it would be wise to avoid the herd altogether. The herd of baby boomers have some things in common that are not at all to our advantage. For example, the herd has not planned well for retirement. The herd does not have the reputation for saving. The herd has not typically learned to deny themselves any instant gratification that the media pushes at them. No, as a group, we have not invested in 401K plans or Keoghs or IRA's to the extent we probably should have. We indulged ourselves with bigger and better and newer and more conspicuous "stuff", instead of fixing up what we have or making do with what we have and realizing that we don't necessarily NEED all the things we WANT. As a result, as a herd, baby boomers might be hit pretty hard by a recession, right at a time when they are least prepared to handle it. What about you? Do you have access to liquid assets to cover 3 to 6 months of basic living expenses? Have you made most of your major purchases with cash rather than plastic? Have you learned to identify what you need, and resist at least some of your wants? Are you impressed by all the "bling", or do you still have an appreciation for the simple but elegant things that are designed to serve us well and last a long time?

My wife and I were talking this morning about a new phone being advertised that has a GPS feature. We agreed that it was a really neat idea and that we would like to have one. Then we both quickly realized that the cell phone with a camera in it also seemed like such an important thing to have, that when our phones were due to upgrade, we both got camera phones. The camera feature seemed like such a great idea, but we both quickly found that the novelty didn't last and we rarely have had any reason to use it. To me, that was just one recent example of how the media helped us to waste money on something we at first knew nothing about. Constant advertising helped to create in us a want for this new technology, and then in time we allowed the constant bombardment to change that want into a need. The passage of time, and very little time at that, turned that into "I have no idea why I thought I needed this thing." And it is not just cellphones, it's everything new that is flying at us from every direction.

Will the recession, if there is one, affect you? You bet it will. but how much it will affect you has a lot to do with how you are living your life from day to day. There is a certain protection in simplicity.