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Smart Money: Recession, recession, recession

There isn’t much you can do about the economy — keep focused on your personal financial goals
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Brad Brain: "Historically, recessions have lasted three to nine months. The last one we had was in 2008, and it was a nasty one, earning the moniker, The Great Recession."

brad-brain​Lately, I have had so many people ask me if we are heading into a recession. Recession, recession, recession. That seems to be the big question that is weighing heavily on the minds of some.

I was speaking with one person, who seemed to be thinking that this could perhaps be financial Armageddon, and I asked, “Do you even know what a recession is?”

She says, “No. That’s why I am asking you.”

Fair point.

A recession is simply when the economy slows down for at least six months. That’s it.

Here’s an analogy. You are driving 50 km/h and you come across a school zone. So you slow down to 30 km/h. Then the school zone ends, and you resume driving 50 km/h.

Think of the car you are driving as the economy. You are humming along, then you slow down, then you resume your speed. Not really that super-scary, is it?

In a recession, the economy is still growing, just not as quickly. Recessions happen all the time, and they are not the end of the world. They are a normal and natural phase of the economic cycle. In fact, you might experience a dozen or more in your lifetime.

Now, don’t get me wrong. I am not saying that they are fun, and I am not saying that some individuals won’t lose their jobs, or that some businesses won’t go bankrupt in a recession. Most definitely, some people will lose their jobs, and some business will go bankrupt. Because bad things happen.

It's just bad things don’t happen only in recessions. Do you know anyone who lost their job in 2015? Technically, we were not in a recession in 2015. That didn’t make the people who were out of work feel any better, did it?

So, let's agree that economic casualties are bad irrespective of where we are in the economic cycle, and just focus on the concept of a recession for now.

Historically, recessions have lasted three to nine months. The last one we had was in 2008, and it was a nasty one, earning the moniker, The Great Recession. But even that one, as bad as it was, only lasted seven months.

So, if recessions happen all the time, and they are relatively short lived, what is all the fuss about? Well, to be blunt, the 24/7 business media machine needs to talk about something, don’t they?

Anybody remember all the hullabaloo about the Greek sovereign debt crisis? No? Well, that’s not surprising. Because, in the long run, it wasn’t that big of a deal. But, for six months in 2009, Greek debt was the big story that everyone was talking about. Until the next crisis of the day came along.

An economic slowdown is a little more complicated than just the fear of what might happen though.

For one thing, right now we are dealing with the worst inflation in 40 years. And we have that inflation because the economy is booming. A slower economy is likely to provide inflation relief, and I think a lot of people would not be unhappy with that.

But the other thing is that measuring the economy is not instantaneous. It takes times time to collect and analyze the economic data of a nation. I would not be surprised if we are in a recession already. And since recessions might be as short as three months, a recession could already be over before the official numbers come out.

So, what are you going to do about all this? Well, unless you run a central bank or a multi-national corporation, there isn’t much you can do about the economy.

But what you can do is to keep focused on your personal financial goals. Tune out all the white noise, and do what you need to do. Make smart decisions that are consistent with your own financial objectives.

If you are uncertain whether a slower economy will affect your future employment, then feel free to act accordingly. But isn't that just good planning, recession or not?


Brad Brain, CFP, R.F.P., CIM, TEP is a Certified Financial Planner in Fort St John, BC. This material is prepared for general circulation and may not reflect your individual financial circumstances. Brad can be reached at www.bradbrainfinancial.com.

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