• Total US consumer debt (which includes installment debt, but not mortgage debt) reached $2.46 Trillion in June 2007, up from $2.398 Trillion at the end of 2006 (Source: Federal Reserve)
• Total US consumer revolving debt reached $904 Billion in June 2007, up from $879 billion at the end of 2006 (Source: Federal Reserve)
• The median U.S. household income is currently $43,200 and the typical family's credit card balance is now almost 5 percent of their annual income. (Source: Federal Reserve)
• Of the households that do owe money on credit cards, the median balance was $2,200 -- meaning half owe more, half less. (Source: MSN Money)
• 8.3 percent of households owe $9,000 or more on their cards (Source: MSN Money)
Go without things in order to get out of debt, cut up your credit cards, etc. The great thing about this is, if consumers help themselves by doing this, they will help the banking industry too. It would flood the banking industry with liquidity at a time when banking liquidity is sorely needed.
I hesitate to make a lot more suggestions for consumers because given the evidence of how much debt most people have accumulated, I believe that paying down debts is going to take most people a long time. Making the assumption that at least your credit card debts are paid and your auto loans (if any) and any other debts are manageable (manageable to me means that your monthly housing expenses [rent or mortgage PITI] + debt payments are at or less than 50% of your income), start putting away money for a rainy day fund. When complete, this fund should contain two to three months net income and should be put into a savings account that can be drawn from in the event of job loss or some other catastrophic event only. It isn’t for a new car or big screen TV. After that is complete, you should make sure that your retirement accounts are adequately funded. That requires the help of a financial advisor.
If you need help with your debts, cannot make the payments, etc., seek the advice of credit counselors.
If your debts are paid, and your rainy day fund is intact and your retirement accounts are properly funded to give you the retirement that you want, then you can consider buying more stuff, big ticket items, etc., if and only if you don’t have to use credit to do it.
This reduced buying and concentration on paying down debts will not only help consumers and banks, it will serve to reduce inflation as well. Moreover, when recovery eventually comes, people will be in the position to participate in it.
One of the things that happens to people when the economy turns negative and their own personal finances suffer is that they tend to have more problems with their physical and mental health, so, on a completely non-financial note, I recommend that everyone who is not already doing so to start taking better care of themselves and exercise. Cut down on fatty and sugary foods and alcohol. Join a community sports league, they are usually not expensive, they last a long time, forge relationships and help you get in shape, not to mention that they are fun.
Someone suggested to me that as a result of rising prices of food, I should tell people to keep a several month supply of food (canned goods and the like) to ensure that they and their families have food in the event of shortages or price increases. I hesitate to advocate hoarding food. I think that would only serve to create panic. What I do recommend is that people start looking at trying to make sure they are getting the most for their money. Look to add more low cost, healthy fruits and vegetables to your diet. Increase your awareness of lower cost foods that you can substitute into your diet if prices start to increase.
Finally, try to use mass transit for at least your commutes to work/school. Explore walking or biking to work. If you cannot do these things everyday, maybe you can bike or walk or take the bus/train once or twice a week. Will your boss let you work from home once or twice a week? All of these things will help cut a significant percentage of costly fuel and other transportation costs from your budget.
2. Suggestions for Businesses and Corporations
CEOs, CFOs and board members should perform a realistic assessment of their businesses right now. Who are your customers? Are your customers consumers who are hurting? Other businesses that are hurting? Are they businesses that are somewhat recession proof? If your business is in the red or on the brink of having a negative cash flow and it is dependant on businesses or consumers that will also be hit hard in this upcoming negative economy it is probably not going to survive the economic bad times ahead. Pursue a merger/acquisition before your company’s worth deteriorates any further or sell off assets or divisions or do whatever it is that is necessary to put your business on a strong footing.
Can you afford to keep your current full time staff? Can you put staff on reduced hours to avoid layoffs? If you lay off significant amounts of your staff will you be in a position to take advantage of the economy when it does turn positive again? I happen to see the revolving door of employment at many firms as very wasteful and inefficient. You hire a ton of people when the economy is strong, it costs a lot of money to recruit and train them, then you usher a similar amount out the door when times get bad and it costs a lot of money to do that too, then you start the cycle over again. Businesses need to find a way to flatten out that cycle. Perhaps offer a significant amount of people half time or furloughs instead? Obviously, businesses are hurting the retail sector if they lay people off which in turn affects other businesses and it eventually affects all firms. If we can find a way to deal with decreases in business income without laying people off it will be better off for everyone.
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