7 Tips on How To Navigate Your Way Through a Recession

CHRISTIANE AMANPOUR: Now, with record high inflation rates around the world and skyrocketing gas prices, the risk of a recession is on the minds of many people. In a recent article for The Washington Post, financial columnist, Michelle Singletary offers seven ways to prepare for one. And she is joining Michel Martin to explain.

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MICHEL MARTIN, CONTRIBUTOR: Thanks, Christiane. Michelle Singletary, thank you so much for joining us once again.

MICHELLE SINGLETARY, PERSONAL FINANCE COLUMNIST, THE WASHINGTON POST: My pleasure, as always.

MARTIN: So, before we get into kind of what to do, let’s start with the what, which is just, you know, how bad is it out here? I mean, how bad is it for the average consumer right now?

SINGLETARY: I think there is two Americas, really. There are some people who it is stretching them, but they are OK. And then, there are many Americans where this is the difference between having two meals a day and three meals a day. Or there may be filling their gas tank up halfway, hoping that will help get them through the week to get to work. And so, you know — and because their wages were already low and even our wages have increased, it still didn’t increase in a way to keep pace with this inflation that we have. And so, we still have repercussions from the pandemic, which is why we’ve got this high inflation and the possibility of a recession. We’re not quite sure yet. And it will be a while before we know for sure if we are in a recession. And so, that side of America’s is – – they are suffering. They were suffering before, and this just compounds it.

MARTIN: I want to ask, you know, why though? I recognize that you’re a personal analyst, not an economist. But do you have an opinion about that?

SINGLETARY: You know, I think it’s still the pandemic. I mean, we — economies across the world were shut down. Plants were shut down. People were sent home. People stayed home so that they could live, literally, in many cases, if they had, you know, secondary illness — you know, health issues. And so, now, you know, we’ve reopened, plants are trying to get back up. People started to buy stuff and they want stuff, and they are out there. And so, companies, yes, they are taking advantage of that. But on the back side of that, they have to pay higher fuel costs. People want more wages, as they should, rightfully so. So, it really is — it’s like everything is sort of happening at once, a tsunami of stuff that is converging to happen at the same time. And I’m not sure there is any one — we are trying to find blame because in our human brain we’ve got to say, somebody is at fault for this. You’ve got to figure this out. But when it came to the stimulus payments at that time, we knew that if we didn’t get people money, kids would go hungry. People would be put out — people would have been put out of their homes. And so, to go back now to say, we shouldn’t have given people all this money, I think is not right. And even the unemployment payments, boosting those for people who couldn’t work, we — and why couldn’t they work? Because they didn’t want to get corona virus. They didn’t want to give it to somebody else. And I think it’s unfair to blame the fact that we tried to help millions of Americans during one of the most devastating crises in this — that we have experienced in decades.

MARTIN: And so, now, I think we can turn to what should happen now, like what are some of the moves that people should take to try to cope with this. I do want to start with the stock market. I want to say, again, if people need to hear us say this, the stock market is not the economy. OK.

SINGLETARY: Right.

MARTIN: It’s not. But a lot of people are in the stock market. It’s not — you know, I’m just talking about high rollers and people who, you know, live off their, you know, clip coupons to use, kind of an antiquated phrase. You’re talking about people who have their pension money in the stock market because that is what their companies directed them to do or people who use the stock market to pay for college tuition and — what about people looking at these numbers, they’re looking at their 401k or their 401b and they’re seeing these numbers shrank, and it feels terrible. What should they do? What should they do? Let’s just start there.

SINGLETARY: You can’t do anything for the most part. And I know that sounds counterintuitive. And I try to remind people of the great recession, when the market was just devastated and people panicked and pulled out and then they lost. On the upside, when there was the recovery, and it was like two years, and people started to recover. But if you jumped out, you panicked, you lost on that recovery, only about half of America is actually in the stock market. So, you are right, we cannot gauge on how well we are doing by with the stock market is doing. And many low-income families are not in the stock market. So, we got to remember that. But if you have got a 401k and you’ve got time, you’re in your 20s and 30s and 40s, 50s and even 60s, you will be OK. Historically, the market recovers from this and gives back those losses that were on paper. And if you know that, you can stay steady. And I’m not telling you don’t panic, don’t scream. Scream if you have to. But don’t act on that.

MARTIN: So, people who are in retirement, who were here, pulling that money out for college tuition, what’s your message to them?

SINGLETARY: During the two years of the pandemic, from 2020 to really, the end of last year, the market gave extraordinary gains. It’s taking some of that back but you are still ahead. You got to remember that, you are still ahead. And you are right, the risk of investing is that you could lose your money or you won’t get as much of a gain as you hoped for. But there — what’s the alternative? Keep it in your mattress? No. Put it in a savings account? No. I mean, that’s like 1 percent. You are not going to keep pace with inflation. So, that’s the risk we have to take. That is the system that we have. And because we don’t have a great safety net, we’ve got to pay for our own health care, you know, Social Security is there and it has helped millions of seniors not live in poverty but just above that. And so, unless we are going to increase Social Security to the point where people don’t worry about investing, this is the system that we have. And so, what I tell people is that you keep saving in your retirement account, you keep putting that money in, and if you’ve got time, the market will recover. If you are in retirement, you are not going to take all your money out because you’re not going go use all that money in the few years that it takes for the economy to recover. And if you are in your 60s or even 70s, you still could have 20, 30, in some cases 40 more years to live off of that money. And so, that’s 20, 30, 40 years for you to get gains that will make you even out for what is happening right now. And so, what you could do is when we come out of this, the one thing you should do is super say so you won’t have — you want to have savings that can carry you through one or two years of a market downturn. And that does mean still making some sacrifices. But, you know, have that cash, liquid (ph) over some place and then, you can pull from that instead of your retirement account when the market goes down. Because guess what? It will go down again. And you want to have that safety net. And it may mean you don’t buy as big a house, you keep your car for longer, maybe — your kids go to state school or maybe go to community college and go to — you know, finish up at a university, these are all strategies if you don’t have the money to do all the things that you want to do, it’s a lesson that a lot of people don’t want to hear. But you can get through this with some strategic moves with your money.

MARTIN: So, let’s talk about some of those other moves, just apart from the stock market. What are some of other things that you encourage people to do or to having their brains right now? I mean, I think the first lesson that you are saying is don’t panic.

SINGLETARY: Yes. I came from a low-income background. I have more now, but I know what it’s like to be hungry, literally. I know what it’s like to be worried about, are you going to make it? And so, I don’t want to say to folks, you don’t worry, don’t panic because it’s a natural feeling, you got to feel what you feel. What you don’t do is act on that. And so, one of the things is, if you are putting money in your retirement, keep doing it. In fact, increase it. If you’ve got room in your budget, like, say you are working from home, so you don’t have all this commuter cost, take that extra money and actually boost what you are putting into your retirement. Right now, the thing — the key thing is dollar cost averaging. What that means is you put a set amount of money in regularly, which is what you do with your 401k. If you don’t have a 401k that you work, you can still put money in a traditional IRA. So, set that up, go to your local bank or credit union, they will help you set that up and you could put a regular amount of money. If you don’t have a lot, just start with whatever you have. $25, $100. Just start what you can. And then, be a super saver. It is so hard for me to get people to save when they actually have money. Because they think their paycheck is always going to be there or the economy is always going to be OK. And then, they’re shocked when it’s not. So, save as much as you can. Cut as much as you can to put that money for the times like we have right now.

MARTIN: What about credit card debt? I mean, one of the things that did happen during the COVID crisis is that a lot of people did pay down credit card debt.

SINGLETARY: They sure did.

MARTIN: In order to recover, I think people started to spend again and they were spending (INAUDIBLE). We said, people wanted to travel. People wanted to see their family members who live across the country. What about credit card debt?

SINGLETARY: I was so pleased to hear that people pay down their debt in the pandemic, because they went shopping, they went places. And now, that debt is going up and you’ve got to get control of that. Get rid of it, as much — I mean, all of it if you can. Because the Fed has already said, listen, we have to cool inflation and we are going to raise rates. They are telling you that. And that should be your calling card to say, I’m going to get rid of this debt. Because it is the most expensive debt. So, you are not just paying higher interest on new stuff, you are paying higher interest on old stuff that you’ve already purchased and maybe you don’t have any more. Michelle, you know I hate that so much. Here is why. In times like this, the more that you have, the less you can weather the storm. Because you have already purchased and maybe you don’t even have anymore. So, I — you know, I hate — you know, Michel, we talked about this, I hate debt so much. And here’s why. Because in times like this, the more debt you have, the less you can weather this storm because you have so much demand on your income. But if you don’t have that debt, you can weather it a little bit longer. Maybe not all of it, but a little bit longer.

MARTIN: What’s your take on debt consolidation loans? I’m starting to see more ads for those. What’s your take on that?

SINGLETARY: I think it’s a strategic move if how — if the reason that you got in debt is resolved. So, if you were a spend threat, meaning you spend a lot and you just over did it and you haven’t changed that way, what happens is, people who get a debt consolidation, they take all that debt, put it on that loan, and then they charge up bills (ph) cards again. But if it’s because you are out of work, on some medical expenses, then I think a debt consolidation loan or transferring the money to a 0 percent card for, you know, 12 months or 18 months, is smart if you stick to that plan to pay it off. And with the consolidation loan, you are seeing that because they — the companies know people are now spending, because credit card debt is going up, and they are getting in trouble. But you have to be very careful that you don’t just focus on the interest rate in your monthly payments because you might have — you know, maybe your credit card debt all comes to $400 or $500, $600 a month and the consolidation loans is always just $100 a month but it’s for like 10 or 15 years. So, you end up paying actually more than keeping that credit card debt. So, just pay attention to the rate, pay attention to the terms and make sure that you do the math so that you don’t actually end up paying more because you stretched that debt out. Don’t focus on just the monthly payments. And a lot of people do do that. But it is a very strategic move if your habits are in check and you can pretty reasonably assume that you can pay it off during the time period that they give you, either the consolidation loan or the 0 percent credit card transfer balance.

MARTIN: What about getting more income? I know that that sounds like a ridiculous idea for some people. But what about getting additional income? Is the economy in a place where that idea is relevant?

SINGLETARY: Well, actually, now is a great time to get a second job if you have the capacity and the time. I mean, unemployment is very low. And if you have been anywhere, there are help wanted signs all over. A lot of those jobs are service related or lower paying, but if you have the time or — you know, and the capacity, because, as you say, some of your job — some people are working jobs where they just can’t take on a second job. They’re just — it’s — they’ve got little kids or they are taking care of elderly parents. It’s unreasonable. But there are a lot of people who could take advantage of that. Get a gig job, drive for uber or a lift or, you know, deliver meals. Or if you’ve got a skill, you know, you are a teacher, you can tutor maybe or you’re great at music, teach some music classes. Or maybe you are great with excel, you can create some videos online to help people. Like I still need to take, you know, a class in excel. My husband is great at it, I’m not. So, yes, it definitely. And when you get that job, if you don’t have to use that money, stockpile that savings in case the economy gets worse and you lose your job or there’s a disruption in your income within your household, then you can use that savings. Don’t use that extra money to elevate your lifestyle.

MARTIN: And what about from a public policy standpoint? I mean, obviously, this is a very polarized political environment. You know, anything you say, somebody is going to attack you. Anything you do, somebody is going to attack you. But are there things from a policy standpoint that you think should be considered? For example, the administration is talking about gas tax holiday.

SINGLETARY: Yes. You know —

MARTIN: Which — some states have already instituted for a limited period of time, waving the collection of the gas tax. Of course, you know, some people have passed on those savings to consumers, some haven’t. But what’s your take on that? It’s something from a public policy standpoint that you think should be on the table?

SINGLETARY: And I think — like, for example, when we did the advanced child tax credit, we found out that it really helped to give people that advance they were going to get when they file their returns, so that on a monthly basis — and families use that money for exactly what was intended, to buy food, to keep — you know, help with the rent. And doing that, I think — stretching it out and reupping on that, you know, we had six months of advanced child tax credits, let’s continue to do that. It worked. The safety net, you know, if we can do something about health care, it’s one of the biggest expenses for so many people. So, from a policy point of view, it’s hard to do it while we are in this because everybody is scrambling. But when we come out on the other side, we do need to address health care, we do need to address how do we help working families, how do — you know, increase the minimum wage, you know, all those kinds of things to put them in place before we get to this position. Social Security, it’s going to — it’s not going to have enough money at some point. We’ve got to address that, so we make sure that the seniors are taken care of. I mean, we don’t want to get to a point where Social Security payments are reduced because Congress didn’t act on that. So, in the middle of this, it’s going to be hard to get anything done. Because once we come through this, I think Congress and various state legislators need to put some things in place to create a safety net for those who are struggling. And on a personal level, if you have extra, this is the time to help your neighbor. Help your family. If you know somebody is struggling and you’ve got extra, help them out until policy catches up to create a system that you don’t have to do that.

MARTIN: Michelle Singletary, thank you so much for talking to us once again.

SINGLETARY: You are welcome. Thank you for having me.