Whether the U.S. economy is headed for a recession is anyone’s guess, but a new survey by Bankrate suggests many consumers won’t be ready if it happens.
In a new study, the organization found that 4 in 10 of 2000 people surveyed would be under-prepared if growth turns negative in the next six to 12 months. The data included 16% who say they’re not ready at all.
The survey comes amid uncertainty as the U.S. and China square off in a trade war that’s entering its second year. Meanwhile, the 2008 financial crisis is still fresh in the minds of many Americans who lost jobs and burned through savings. Although the unemployment rate is now at a record 50 year low of 3.5%, economists are warning of slowing growth into 2020.
The news isn’t all bleak, as some are taking modest steps to shore up their finances in case of a downturn. Bankrate found that nearly half (44%) of U.S. consumers are choosing to spend less money, while 33% are saving more for emergencies and 31% are paying down credit card debt.
Meanwhile, a slim 15% are saving for retirement, and 10% are looking for a better or more stable job, the firm found.
“The steps that most people are taking are prudent steps in any environment. They’re saving more and they’re paying down credit card debt. If your household budget is tight or your income is stagnant, the only way to increase savings and pay down more credit card debt is spend less money,” said Bankrate’s chief financial analyst Greg McBride.
Some of the data’s findings reveal a generational split. Many millennials graduated college in the last recession to slim employment opportunities. According to Bankrate, that cohort is more likely than any other age group to be taking steps to secure their finances (at 74%), compared to 70% of Generation X, and 67% of baby boomers.
Still, nearly a third of Americans (31%) aren’t doing anything at all to prepare themselves for a recession, Bankrate found.
“At first blush you’d think that they must be the folks that are really buttoned up and fully prepared. And the fact is they admit to being even less prepared than the people that are taking steps to shore up their finances,” McBride said — adding that “what we’re seeing is a sort of put your head in the sand mentality.”
Some 35% of the lowest earners — classified as those making under $30,000 a year — are taking no preventative measures in case of a recession, compared to 28% of those earning the most at over $80,000 a year.
The tendency to pay down credit card debt and save for retirement and emergencies rises with income level. When it comes to cutting back on spending, middle-income households earning $30,000 to $79,000 are more likely to do it compared to higher and lower-income households, the data found.
“A third of Americans saying that they’re actively saving more for emergencies is a step in the right direction, regardless of what the economic path is ahead. If people have more savings and less debt, they’re on more solid financial footing,” says McBride.
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