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The word recession has been thrown around a lot for the past year or so, adding to an existing atmosphere of financial uncertainty for businesses and individuals. In my line of work, I hear about interest rates, inflation, economic policy and yes, the recession, more than I would like. Given that it’s an election year, the budget and taxes will be raised frequently as well.
In my personal life though, I am inundated with content about the cost-of-living crisis. In the UK, food banks now outnumber McDonalds’ stores by almost 2 to 1 as the number of people struggling to afford food sky rockets. In NZ, the demand for food bank services rose by 30% in the second quarter of 2022 alone.
So, what is the difference between an economic recession, and a cost-of-living crisis, and what do they mean for women?
A recession has a very technical definition, being two consecutive financial quarters where GDP has been negative.
Essentially, for a full 6 months the economy has gotten smaller (contracted) rather than grown.
The factors that can lead to a recession include an asset bubble bursting, (housing market – tick) monetary policy of rising interest rates (reserve bank - tick), decreased confidence from consumers (general anxiety and mistrust – tick) and an external shock such as natural disaster or geo-political event (Covid 19; war in Ukraine; severe weather events – tick, tick, tick!).
The most tangible effect we experience as a result of a recession is often increased unemployment, as businesses try to cut costs. The other effect is what we experience as the Reserve Bank and Government try to address the recession through fiscal and monetary policies.
A cost-of-living crisis is less dependent on the productivity of a nation and is primarily caused by the increasing expenses of essential goods like housing, food, and utilities, which outpace the rate of wage growth. This is largely caused by inflation, which sits at around 6-7% currently, (it normally sits between 1-3%). Frustratingly, the tool used to address inflation is an increase in interest rates, with the result that currently both food and housing are becoming unaffordable for large portions of the country.
We already know that women were disproportionately affected by the pandemic, with women making up 90% of the 11,000 who lost their jobs in mid-2020.
With businesses looking to cut costs, the gender pay gap can also be exacerbated as pay rises are not proactively offered and therefore women are more likely to experience wage stagnation.
The final impact on women is their mental health – a recent study done by Westpac showed that 53% of women were afraid their household wouldn’t be able to cope with the rapidly rising inflation, compared with only 39% of men. Given that women are often the ones to manage household budgets, (as well as take on the mental load of meal planning, kids’ activities and family obligations) there is increased pressure on them to find ways to cut costs and be more economical, often leading to increased anxiety.
Whether we are in a crisis or not, my role as a Financial Adviser is never to tell people what to spend or not spend their money on. I am here to support individuals to understand finances and make their own informed decisions confidently. With that in mind…
My first piece of advice if you are feeling anxious, is to look at how much of that is being exacerbated by the media discussing recessions. I was reluctant even to write this blog about the recession because of the existing amount of media noise being generated. Remember; economies are cyclical, and recessions happen routinely, you only need to focus on your own family finances, not that of the whole country. If you run a business that is a different story, and I recommend making sure your accountant, business coach and financial adviser are all giving you adequate support to understand how the recession may affect your business specifically.
Secondly, if you’re concerned about whether your expenses are climbing above your income and where exactly that money is going, I suggest using an app to track your spending. Some of the banks have excellent features on their internet banking apps, and if your bank doesn’t offer that then Booster have one called ‘My Budget Pal’ which is free and you can download even if you aren’t a Booster client. This step is only helpful if, like me, it gives you a sense of control over your finances to be able to filter and track what your money is spent on.
Don’t forget at this time of year to get your tax refund as well, particularly if you have Income Protection Insurance, donate to charities or pay school fees! A little money back from the Government can make a difference.
Thirdly, if you are already in debt and struggling, or you think you may need to go into debt to make necessary payments please consider what options may be available to you.
Many people are unaware that they can borrow against their house to add a bit on to the mortgage (called a Top up) rather than blow out the credit card or get a personal loan. We can apply for a top up for as little as $10,000 which can then provide a buffer for the car breaking down or having to take a week off work (potentially unpaid) with the flu.
The other way we can help clients with multiple debts and a mortgage is to check whether you can consolidate those debts into your mortgage allowing you to repay it at lower rates and often over a longer term (which has pros and cons).
There are also community resources that may be able to help with small loans if you meet the criteria. Good Shepherd is one of the providers of small loans to low-income individuals and families.
The last thing you can do is consider looking for a higher paying job (or one with benefits) given that we have a continued low unemployment rate of only 3.4%. This means employers are struggling to find staff and that means employees have more power to negotiate or hunt around. If you have skills or talent that are not appreciated (or worse are given lip service but not fair renumeration) consider looking around for other jobs. If you love your job and would rather stay, consider whether you have had a pay increase in the last 12 months and how you could approach that conversation with your boss.
There’s no denying that we are living through challenging times and money worries are playing on most people’s minds. Remember – you’re not alone. If you need some financial advice or support, reach out and we can look at ways to help you, and when we’re through this rough patch we can help you set you up to weather the next recession more comfortably.
Elizabeth.
Elizabeth is the author of the monthly blog What Would She Do? A column for women, by women.
Disclaimer: Elizabeth Tsikanovski (FSP693611) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Elizabeth’s disclosure statement on our website.