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How is the recession affecting you?
What is a recession?
Although the `r` word is often used to describe an economic slow down, economists define a recession as two consecutive quarters of negative growth. This means that for 6 months we have made or produced fewer goods and services and the productive capacity of the economy as measured by GDP, or Gross Domestic Product, has shrunk.
What causes a recession?
Many factors cause a recession and all recessions are different. This recession has been caused by a significant reduction in the ability of banks to lend to businesses and to consumers through personal loans, overdrafts and credit cards, the so-called `credit crunch`. This means that there is less money around to fuel business and consumer spending. This has also impacted on confidence with people reducing spending until they are more confident about jobs and house prices. So less is being made, bought and sold. Hence a recession.
How does this affect us?
As the economy and demand slows down, inflation falls as retailers adjust prices downwards to try to stimulate demand. You can see this along the High St. Governments will reduce interest rates, the cost of money, to encourage businesses and consumers to borrow to spend. But as spending falls there is less need for goods to be made and transported around the country and unemployment, and the fear of unemployment, rises. The fear of unemployment weakens people`s confidence to buy especially high value items like houses and so we see a fall in house prices and in how well off people like feel. Recessions are about confidence as much as economics.
How to survive a recession?
Although the recession will affect people in different ways dependent on their personal circumstances, there are a few principles that we should all follow to ensure we can withstand any shock to our personal finances that may come along:
· It is always prudent to budget carefully and make sure our spending better matches our income
· Avoid expensive borrowing and wherever possible try to pay off loans, starting with the most expensive. Do you know how much you are paying on your credit card?
· Try to have at least 3 months income to hand in a savings account to tide you over any reductions in income
· Keep up to date with priority debts such as housing, heating and council tax. And if you do get into difficulty with these contact your lender immediately, preferably with a detailed proposal.
· And be honest with yourself if you do get into difficulty and seek help and advice as soon as you can.
Finally no recession is forever. At some point, hopefully soon, the green shoots of recovery will appear and life will return to normal. For more information see debt solutions
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