This week Easy Money spoke with personal finance expert Jean Chatzky, CEO and founder of HerMoney.com and the HerMoney podcast. We discussed what the recession of 2008 can teach us about managing our money today.
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This interview has been lightly edited for style and clarity.
What can we learn from the previous recession that can help us now?
We came out of recession in June of ‘09, but wages didn’t return to their 2007 levels until 2017. The lesson that I think we have to take away from this is that emergency savings are mandatory. They are so important, and trying as hard as possible to live on less is crucial.
Even though indicators may tell you that a recession is over, you have to focus on your personal financial life and you can't get complacent because people say things are turning around. I think there's an interesting parallel in what's going on with social distancing. Things are feeling like they're getting better, but in fact, when you look at the numbers of cases, in some states they're heading up — and they're not heading up slowly. Complacency is what we need to be wary of and I think the same is true with our money.
How can job seekers gain skills during this time?
It’s specific to what you want to do. My suggestion is before you go out and take a course, actually take a look at the jobs you're interested in and figure out the gaps in your skillset.
There's so much available in terms of online education these days, which is one way to do it. You may also think about doing a micro-internship or two in the field that you're interested in. It's not as big of a commitment for the intern, and can give some of the missing skills that they need to find their way back into the workforce.
How do you seek out a micro-internship?
A micro-internship is somewhere between shadowing and an actual internship. They're a little bit more free-flowing and less structured. I wouldn't ask companies necessarily that you're interested in, rather, I would ask the people that you're interested in. If you can isolate individuals rather than trying to go to HR and get somebody on the phone, you can make a personal connection with somebody whose career you want to emulate. Ask them, "Hey, could you allow me to shadow you on several calls to get a sense of what it is you do during the day?"
How are Americans managing their money differently because of the pandemic?
One of the interesting things from the personal savings rate from April was the fact that the savings rate in the U.S. significantly shot up to 33% of discretionary income or disposable income. What that says to me is we are spending a lot less money right now because we’re home now, but that will change when things start opening up. There’s no way a 33% savings rate is sustainable.
I think a lot of people have learned some valuable information about where they were spending their money before the pandemic, where they are spending their money now and what they truly value. We can use that to help tide ourselves through the waiting period or for the next batch of stimulus checks.
The other thing that we've seen is, with the additional $600 a week in unemployment benefits from the government, there are many people who are earning more on unemployment then they were earning at their jobs. That is an opportunity to save a little bit more while those benefits still exist.
How can people set themselves up for success when the economy recovers?
There are two sides to the financial equation: There's money coming in and money going out. Particularly at a time like now where unemployment is raging, the money going out is a lot easier to control. Focus on making sure that you prioritize that emergency stash, continue to cook and not eat out multiple meals. Pay attention to which of your subscriptions you're actually using and get rid of the rest. You have a much better indication right now of what you need and what means something to you. This time has given us a lot of perspective that we just hadn't had before. So hold on to that.
How can they make their money work for them?
It depends what the money's for, and growth may not be everyone’s goal. If the money is truly for emergencies, if the money is truly to get you through this period of unemployment, then growth is not your goal — liquidity is your goal, safety is your goal. That means that money belongs in a savings account and it belongs in a high interest rate savings account. However, it’s not easy to earn much more than 1% on your savings these days.
If the money is for your long-term future, you can invest it in your 401(k) or your individual retirement account, but you have to understand if you're putting it into the stock market, stocks are really volatile these days. We've seen 1,000-point swings on a daily basis, so you need to understand you could lose money as well as make money over the long term. We think you'll make money, but over the short term, it's really, really hard to tell.
What's the biggest financial mistake you've seen other people make?
Not paying attention to their own finances and not realizing that somebody isn’t going to do the work where your finances are concerned. If you're not monitoring your finances, actively setting goals and watching what your money is doing for you, chances are [your money is] not working as hard as it could be.
Image: Nastia Kobzarenko