The coronavirus pandemic has triggered a global recession that some analysts predict could be the worst since World War II or even become the deepest recession on record. In the United States, jobless claims spiked as 22 million people filed for unemployment in four weeks between March and April.


But even prior to the COVID-19 outbreak, 74% of economists in the National Association for Business Economics had predicted a recession would arrive in the U.S. before the end of 2021, according to an August 2019 survey.



While recessions are difficult to forecast, they’re a natural part of the economic cycle. The smartest thing you can do is prepare your finances for when — not if — a recession hits.


Here’s a guide to what you need to know about recessions and how you can navigate your finances during an economic downturn:


What Is a Recession?

According to the National Bureau of Economic Research, a recession marks a period of significant decline in the economy that lasts longer than just a few months. It’s typically reflected in employment, income, sales, industrial production, and gross domestic product, which measures the value of a country’s economic output. Technical terms aside, a recession is a quantifiable economic slump that pretty much everyone feels in one way or another.


“One of the key outcomes from a recession is higher unemployment so everyone is at some higher risk of becoming unemployed,” says Matt Jernigan, executive vice president at Ascend Federal Credit Union in Tullahoma, Tennessee.


The coronavirus pandemic has exacerbated unemployment to levels not seen since the Great Depression, due to stay-at-home orders across dozens of states forcing many nonessential businesses to close. The Congressional Budget Office projects that unemployment will surpass 10% in the second quarter of 2020 — though the actual figure is likely even higher, according to some analysts.


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What happens to your money during a recession?

The COVID-19 outbreak has created a period of extreme volatility in the stock market, which can be especially stressful if that’s where you’ve invested your money. But the impact on your finances will depend on how your portfolio is structured.


“If you invest in the stock market, expect to see a decline in earnings if your portfolio is set up to take on more risk,” Jernigan says. “Blended portfolios — ones that have a balance of less risky investments — can more easily withstand a downturn in the stock market.”


While the idea may seem counterintuitive, recessions can also create new investment opportunities.


“If you are in the market to invest, a declining stock market can also afford the opportunity to purchase shares of stock at a cheaper price,” Jernigan says.


Additionally, the Federal Reserve Board has been known to stimulate the economy by lowering interest rates, which incentivizes people to borrow and spend. In response to the coronavirus pandemic, the Fed cut its target federal funds rate — or the interest rate at which banks lend money to each other — to a range of zero to 0.25% in March, echoing its strategy during the 2008-2009 financial crisis.


You can get a better deal on a mortgage or lower the monthly payments on an existing one by refinancing when interest rates drop.


Read More: What To Consider When Comparing Mortgage Offers

How long do recessions last?

A recession officially begins after the economy hits a peak in activity and ends once the activity has bottomed out, according to the National Bureau of Economic Research. However, it can be difficult to forecast the course and duration of each recession.


“There are no ‘crystal balls’ for how long recessions will last — primarily due to the fact that the root causes of each recession are likely to be different from the past one,” says Toby Smith, senior vice president of lending at SECU, a credit union in Maryland. “Therefore, the severity and recovering time from each will vary drastically.”


Since 1980, there have been five U.S. recessions of differing lengths:


  • January 1980 to July 1980 (six months)
  • July 1981 to November 1982 (16 months)
  • July 1990 to March 1991 (eight months)
  • March 2001 to November 2001 (eight months)
  • December 2007 to June 2009 (18 months)

The ‘Great Lockdown’ compared to previous recessions

Until now, the greatest number of unemployment claims filed in a single week was 695,000 in 1982.


In the span of four weeks from mid-March to mid-April, jobless claims have totaled 22 million. The current circumstances are extraordinary because entire industries have been forced to completely close or change their operations for an indefinite period of time due to statewide stay-at-home orders, impacting millions of workers.


There has also been a decline in job postings for industries that typically aren’t affected by recessions, including education and health care, according to a New York Times report based on ZipRecruiter data — which is a troubling sign. Additionally, certain white-collar companies like law firms and tech startups, which were allowing their employees to work from home, are now resorting to furloughs and layoffs due to significant drops in revenue.


In terms of the government’s response, the U.S. has already started sending $1,200 economic stimulus payments to individuals who earn up to $75,000 per year, with reduced amounts for people who earn up to $99,000. Similarly, during the Great Recession of 2008, eligible individuals received checks for $300-$600. That amounts to approximately $357-$715 in today’s dollars after adjusting for inflation.


Related: 5 Small Ways To Support Your Fellow Americans in Hard Times


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How To Prepare For a Recession

Whether a recession approaches gradually or hits hard quickly, it’s important to be ready for the financial impact.


“The first step on the road to not allowing money ruin your life is to get an emergency fund of cash in the bank,” says Travis Hornsby, a chartered financial analyst and founder of Student Loan Planner, a consultation service for student loan debt.


So, how much of your paycheck should you allocate toward your emergency savings? The exact number is going to vary depending on how much you’re making and what’s left over after covering your living expenses. But saving at least 5% of your income after taxes is a good target, according to Smith.


“Set up an automatic transfer to a savings account each payday of even a small amount of money,” Jernigan says. “Where will that money come from? If you have to, make the minimum payments on other bills (such as credit cards) until you save up at least $1,000 in your savings account. Then, turn your focus to paying off debt.”


Of course, allowing credit card debt to accumulate isn’t usually an advisable strategy. But if your income stream is cut off during a recession, you’re going to need cash on hand to buy necessities and make the minimum payments on your bills. Even credit experts say that the first priority should be building an adequate emergency fund.


Like your contribution rate, the size of your emergency fund will depend on your personal situation. If you have a job that’s less likely to be affected by economic changes, Hornsby recommends setting aside enough money to cover six months’ worth of expenses. If your job is more sensitive to fluctuations in the economy, then it’s safer to save one year’s worth of expenses.


Listen, we know that’s a huge amount of money and there are other financial priorities you have to juggle. It’s OK if you take a while to save up, but knowing that you’re prepared helps provide peace of mind.


Learn: How To Budget During the Coronavirus Pandemic


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How To Survive a Recession

You can’t control market conditions or the timing of a recession. Whether you’ve done your best to save or you haven’t had the resources to create a financial cushion, a recession can catch you off guard. Here are some strategies and tips you can use to navigate the choppy waters.

If you’ve lost your income …

You should try filing for unemployment, even if you’re not completely sure about your eligibility. Though benefits vary by state, the U.S. government’s $2.2 trillion coronavirus relief bill expanded unemployment insurance programs to include gig economy workers and provide an extra $600 per week, among other things.


To determine your eligibility, start by filing a claim with your state unemployment insurance agency — and it’s best not to wait. When a high volume of people file at the same time, as we’ve seen during the pandemic, the number of applications can overwhelm the state office and cause delays.

If you’ve lost job-based health insurance …

You have two main options, according to Sign up for COBRA continuation coverage or purchase a plan via the Health Insurance Marketplace.


In 1985, the U.S. government passed the Consolidated Omnibus Budget Reconciliation Act, which allows people to continue their health insurance benefits for 18 or 36 months after losing a job. But COBRA coverage can be expensive, especially if you’re required to pay the premiums on your own.


Nora Yousif, a certified financial planner and vice president at RBC Wealth Management, recommends exploring cheaper insurance options before accepting COBRA coverage. You can do this by visiting, which helps you compare plans and see if you can lower your healthcare costs by qualifying for a premium tax credit or cost-sharing reductions.


If those terms are unfamiliar, the premium tax credit lowers your monthly premium, and the cost-sharing reductions allow you to save money on out-of-pocket costs when you seek medical services.

If you’re struggling to make the payments on your home …

Yousif suggests requesting a mortgage loan modification — or a change in the terms of your loan — to reduce your monthly payment to an amount that’s affordable. The changes could lower your interest rate, extend the length of your repayment plan, suspend or reduce your principal balance, or a result in a combination of these options.


Another way to reduce your monthly mortgage payment is to refinance. Yousif’s rule of thumb is that it’s likely worth refinancing if the new interest rate is 50 basis points (or half a percent) lower.


She also recommends reaching out to other lenders about your various debts to see if you can get them to waive fees, defer payments, or extend the terms of your loans.


See: Ways To Handle Your Student Loans During Tough Times


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The Bottom Line

Recessions are shaped by circumstances that are almost always out of your control. What you can control is how you brace your finances for rough patches in the economy. By building an emergency fund in advance, taking advantage of relief programs, and being proactive with your payments, you can position yourself to ride out these shaky times.


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