There is no disputing that we are living in strange and unusual times. Across the world, citizens are in lockdown, home-working, furloughed, laid-off, or just plain uncertain about what their lives will look like next month – let alone next quarter.
For many, the wellbeing of society’s most vulnerable people causes a great deal of concern. So too do fears regarding the fate of our health services. On a personal level, however, the futures of our jobs and our finances are key areas of anxiety and stress…
While we don’t know for certain what the future holds regarding our employment and income, what we do know is that following the Covid-19 crisis, global economies will experience recession. Recession often results in increased levels of unemployment, while credit becomes less accessible.
Although interest rates on financial products such as mortgages often fall, these typically climb as countries recover from recession. This means that products such as adjustable rate mortgages (which change in tandem with the market) can present a risky proposition for home-buyers.
In short, protecting your finances through a global pandemic and a recession is a very challenging prospect. Why financial literacy is important during such a time is clear. The more you know about personal finance, the better you can prepare for financial uncertainty – and navigate changes to your households income and outgoings. You can learn more about financial literacy here courtesy of the Money Academy’s four financial pillars.
Key money lessons for recession
If you’d like to increase your financial literacy to help support your finances during this period of uncertainty and recession, there are three key areas to focus on…
Understanding how to save is a crucial cornerstone of financial literacy, especially during a time of economic uncertainty. Having a better grasp of this financial skill will allow you to nurture a “buffer” fund to protect you in the event of job losses or other financial hardships.
It will also allow you to save towards your financial goals, such as buying a property or supporting your youngster through university. Boosting your financial literacy around topics such as how much to save, how to save and where to deposit your savings will all prove invaluable during this time. If you’re keen to learn more about how to save money, you’ll also need to read up on budgeting…
Tightening your budget (and learning how to do this) will be a vital part of managing your money effectively and responsibly during this period of turbulence. Although many of our outgoings have fallen (no more dinners out, new outfits or holidays!), with reduced job security, saving every possible penny really matters.
To boost your budgeting know-how, check out budgeting apps, dig into your accounts to find out where your expenditure could be reduced and develop a rigorous budget you can easily maintain.
Whether you have existing debts or are considering borrowing money during this period, understanding debt is a very important part of financial literacy. Having this information will allow you to make educated decisions about how you prioritise repayments, whether you borrow at this time and what financial products you use.
Enhanced understanding of debt will also help give you a clear picture of what repayments you’ll need to make – and whether or not this will be manageable for you in the current circumstances.
Video – What is Personal Finance?
Interesting related article: “What does budget mean?“