As the unemployment rate plummeted in April 2020, the words “economic depression” came out in hushed tones. The world waited to see how markets would respond. Would we all see in living color what our grandparents had described in black and white pictures?
Generations before us have taught us how to survive an economic collapse. We can follow their lead. Here are a few factors to consider when you find yourself on the edge of a national or global financial crisis.
Impact on Currency
Market wise, economic depressions impact currency. During the great depression, the United States was on a gold standard. This means that gold was still a standard of money. Each dollar represented gold.
Richard Nixon changed this in the 1970s with the hope of reducing inflation by separation of the gold standard of money.
Today, gold and silver are still worthy of investment.
Gold and Silver
Both gold and silver have been the ultimate haven historically during an economic depression. Gold retains its value, growing over time. If you look at the length of economic crashes over the past hundred years, you will see that as the market has receded, gold has increased in value at the same time.
Look at what happened in June 2016 as an example. In the wake of Brexit, investors panicked. Great Britain voted to leave the European Union, and the evening of that vote, gold prices rose from $1,254.96 at 4 pm to $1,347.12 at midnight.
At the same time, the stock market in the United States fell. The Dow Jones Average went down, and gold prices went up.
But we can’t all get our hands on gold. We do have another option in our digital world.
While cryptocurrency has not been tested historically as much as gold, it holds the same characteristics in that it is a haven. Investors flock toward these types of safe-haven assets because they are resilient to the ups and downs of international money markets.
Cryptocurrency has two challenges.
Few people understand it. Not many people understand how cryptocurrency in general works. They think of cryptocurrency as a digital payment.
Even fewer understand the benefits and risks of cryptocurrencies.
2. Change is Hard
Influencing change can be like turning a barge. The moves are small and slow.
Even if you understand what cryptocurrency is, you do not necessarily buy in completely from these start. After all, you’ve used cash for your entire life and the lives of your previous generations. If it was good enough for your grandfather, who survived the Great Depression, it’s good enough for you, right?
Economic Depression Is a Catalyst
For something to change, you need a catalyst, a reason for it to change. Women, by in large, did not work outside the home in the United States until the 1940s when their boyfriends and husbands went to war. World War II was a catalyst for change in the female workforce that pervades today.
An economic depression, as awful as it may be, could easily be the catalyst that sparks change in people’s perception of digital currencies. When you need something, you begin to change the way you see it.
When the stock market crashes and the country experiences an economic depression, the value of a traditional currency drops. This is where cryptocurrency has the opportunity for success. Those investing in cryptocurrency, be it before or during the depression, will have a new form of currency and a new hope so to speak.
Thus the only way for cryptocurrency to flourish is for other forms of currency to die, and economic depression would cause this to happen.
What Does This Mean For Me?
We cannot control the stock market or the economy by ourselves. But we can react to it to protect our families. We can look to the people who have lived before us to see how they survived economic depressions.
Survivors of the Great Depression are quickly dying off. These are the 80 and 90-year olds with stories of their mothers feeding them lard sandwiches. We can still learn how to survive a depression from their stories.
Here are a few basic things we can do to survive an economic depression:
1. Cut Your Spending
The average American household spends approximately $5,100 a month. Cutting out unnecessary expenses for some time will protect your household from financial disaster.
Plus, if you ever get to the point that you need to live on a shoestring budget, you’ll be ready to do so.
Test the waters first. See if you can go an entire month without spending money, with paying bills as the exception to your new spending rule.
Financial experts say that spending is more a problem of the mind than the wallet. You need a new mindset on what you need to live versus live well. Look for cheap or free ways to entertain yourself and your family, and seek to spend less money.
If you’re one of the millions of baby boomers in the United States, you can look to the possibility of borrowing from your retirement account. the CARES Act allows us to now take from our retirement accounts penalty-free for a while.
If you’ve already cut your spending and put yourself on a budget, then you can borrow a minimal amount from your retirement to get you by should you lose your job or find yourself in a financial crisis.
2. Delay Retirement
Unless you’ve already put in your retirement papers, you still have the option of working longer. If you’re in good health and enjoy your work, then delay your retirement for now.
Pair delayed retirement with lower spending. You’ll be earning money while you spend less, and you’ll set yourself up for a healthy financial situation when you do retire.
If you have an essential job, stay at it. Nearly 15 percent of the U.S. population did not have a job in April 2020 because their work wasn’t essential. If your work is essential, work a few more years.
3. Change Your Environment
If you have a mobile job that goes wherever you go, consider moving to a cheaper state. For example, if you’re living in Minnesota, you’re paying an income tax of up to 9.85 percent, depending on your income bracket. If you cross the border to South Dakota, you’ll pay nothing since the state has no personal income tax.
You can save thousands of dollars just by changing where you live. If your job goes with you, consider a new environment. Whether you move to San Francisco, Fort Worth, NYC, or anywhere else in the United States, consider speaking with a TurboTax Live tax expert online to see how your financial status might be impacted.
Act, Don’t Despair
Action is your best recourse to fear as you sit on the edge of an economic depression. Cryptocurrency is quickly proving its value like gold did in the early twentieth century.
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