Each week, millions of American citizens are losing their jobs as a result of COVID-19. On April 2, the Department of Labor reported that up to 10 million Americans filed for unemployment in the two weeks before the report was released. Black communities have historically been hit especially hard during recessions, and the numbers show this time is no different.
In February, the unemployment rate amongst African Americans was at 5.8 percent — it has since jumped to 19 percent. Analysts say these numbers would have been even higher if the website hadn’t crashed due to a high increase in web traffic. These numbers are on track to surpass those of the Great Depression, which is known as one of the greatest economic downturns in history, topping the 2008 recession.
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The National Bureau of Economic Research (NBER) defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months.” If people are not working, then they’re not spending, which means there’s less of a need for production since goods and services aren’t in high demand. On April 6, New York City extended its shelter in place order through May 15 in alignment with other states including, Delaware, Washington, D.C., and others. The impact of coronavirus is causing job loss at a rapid rate across the country, with states such as Pennsylvania, Ohio and Massachusetts leading the surge in unemployment rates.
With all the unknowns happening in our world due to this current crisis, R29Unbothered spoke with a finance expert to explore how one can prepare for a potential recession. We reached out to certified financial education instructor Jamila Souffrant, who saved and invested $169,000 in two years with her husband, purchased her first real estate property at 22, and is currently debt free. Jamila is also the host of the Journey to Launch podcast, where she shares what she’s learned about finance through her own personal trial and error.
Here’s some of her advice on what we can do now to prepare.
R29Unbothered: What are some things people can do now to protect themselves if they lose their job?
Jamila Souffrant: Immediate steps would be to get a hold of your current cash flow. Get an understanding of what your income is, what your potential income is going to be and what's going out. Are you overspending? Are you within your limits? Know your income, your outflow, how much money you owe, and to whom you owe. If the recession hits or something crazy happens, how would you be able to withstand this? And you want to make sure you have some sort of emergency fund. We don't know where things are going to be in three months to six months.
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What is an emergency fund?
A cash cushion in case of a job loss or income stoppage. And the way to do that is to look at your budget, your income, outflow, what can you cut out. While a lot of people's jobs are in jeopardy, there are also some people who are able to earn extra money now. Are there any ways you can make extra money? Emergency fund can be three to six months worth of expenses that can cover you if you lose your job. So really the key is to make sure you can pay your current living expenses.
Should people still be paying off debt?
The goal is to pay off your debt eventually. But if you are needing to keep more cash on hand, save versus sending it to debt that you can restructure. Lenders are working with people now because they realize the financial strain that a lot of their borrowers are under. So you could potentially call your credit card companies, home loan companies and car companies, and they may be able to work with you — meaning put your debt payments on hold or renegotiate something where instead of sending the payment to your debt company, you can keep that payment for cash on hand, but you have to talk to them first. A lot of companies are working with people because they understand a lot of people are facing the same challenges right now.
If there are less jobs on the market, how can people find extra work?
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Make sure you're keeping up to date with any relationships you have. Your network is really important. I think in the time of potential recessions, who you know and how you can help each other is really important. Because it's usually the people who know someone who maybe can get you in at a potential job. Or there's someone hiring and you know the person on the team. That’s why you get the first look. It’s really beneficial.
What brings you hope in this current situation?
Understand that there is a light at the end of the tunnel. History has shown us that, and hopefully that keeps people hopeful about their future. We've been in predicaments like this, as a society before the economy tanked and jobs were low or the confidence in the economy was low, and we've always bounced back as a country.
Even before 2008, if you went back to the beginning of the stock market, we've had crashes, we've had the great depression, we've had similar things happen and we've always bounced back. I'm no psychic, but based on the past, it will bounce back and there are a lot of people who are able start their millionaire journey investing at this point, even if it's $5, $10. I think this is a perfect time for those who can to really start to educate themselves and to invest a little bit. But if you can't do that, really your priority is to make sure you can pay your essential expenses and that your mental health is okay.