Many Americans are concerned about their financial future and present due to rising prices, high gasoline prices, rent, outstanding debts, inflation, and the possibility of a recession. It’s imperative that Americans get their finances in order, as there are fears of a recession in the near future.
NPR reached out for financial experts to help them navigate these turbulent times. Here are the insights they shared from their respective fields.
In addition to her role as assistant marketing professor at Penn’s Wharton School aEUR”, one of the top business programs in the world, Wendy De La Rosa also works to improve the financial lives of people with low-to moderate incomes. The Common Cents Lab, which combines economics and behavioral science to improve financial well-being, was co-founded by De La Rosa.
De La Rosa says that people can’t budget or save if there isn’t enough money. This becomes more difficult as everyday items become more expensive. She recommends that people take steps to increase their income, including asking for a raise.
De La Rosa stated, “With living costs rising, I believe it’s an appropriate discussion to have.”
De La Rosa stated that the best way to get a significant income boost is to land a job with the competition.
She said, “In this tight labor market where employers are literally falling over themselves trying to find talent,” she suggested. Now is the right time to improve your resume and to go out there to see what you can do. At the very minimum, request a raise at work.
Next, you need to address credit card debt.
According to NerdWallet, the interest rate on credit cards rises with federal rates. It has hovered around 15 percent in recent years. However, rates can go up to 25% to 30%.
De La Rosa stated that a person’s rate is most often established when they are younger and have less credit. This results in a higher rate. Even though credit scores can improve over time through punctual payments, most credit cards companies won’t alter their interest rates aEUR” unless they are asked.
De La Rosa stated tip No. 1. “Speak up, grab the phone and call your credit card company to ask them to lower your interest rates. … Many years ago, I conducted a pilot in which I brought people to the lab and asked them to call your credit card company. About 40% of the participants were able to get a promotional 0% rate [an annual percentage rate] or a decrease in their credit card interest rates.
De La Rosa stated that many people are unaware that credit card companies charge interest on late payments every day, not just monthly. It is important to return that balance to zero as soon as possible.
Don’t wait to make one big payment if you have a lot of credit card debt. To avoid overpaying, make your payments weekly or as often as you can.
De La Rosa doesn’t advise people to spend every penny they have on their debts. For emergencies, people should have cash reserves.
She said that if you are near the median income threshold (where the average family earns $60,000 per year), you might consider emergency savings for two to three months. But it all depends on your income level and how much money you have.
Jessica Lautz, vice president of demographics & behavioral insights at National Association of Realtors is America’s largest trade organization made up of experts in residential & commercial real estate markets. Lautz stated that things have finally settled down after two years of chaos in the real estate markets.
NAR reports that the median sale price for the country is now at $400,000, an increase of 14.8% from last year. These prices can be explained by the law of supply-demand: There are far more potential home buyers than there are homes for sale.
Mortgage rates are on the rise after the Federal Reserve raised interest rates to a record 40-year high. A 30-year mortgage averaged 5.89% last Thursday according to Bankrate.com. Lautz stated that this could offer homebuyers an opportunity to get home after home as the market is shrinking.
“They are facing less competition than they faced in the past year. … There were five to six offers on average for each home. Lautz stated that although the median number of offers for each home has dropped slightly, it doesn’t mean there isn’t competition. We know that buyers who are active in the market today must have a higher household income than other buyers in the past, as interest rates have risen, but home prices have not fallen.
Lautz stated that getting into your first home can be more difficult than moving later in your life due to the down payment requirement. This is why it is important to find a real estate agent and mortgage broker who are familiar with your area. These professionals can help you establish a budget and clear up any misconceptions about homebuying.
Lautz stated that some of the old-fashioned rules like 20% down is not necessary to get homeownership. It all depends on which loan product you choose. For the past several years, the typical first-time homeowner has only put 6 to 7 percent down.
This is still a significant amount of money. A home will be the largest purchase most people make in their lives. First-time buyers are often challenged to find the thousands of dollars needed to pay the down payment and the closing costs. Today’s rental market can be expensive.
Lautz stated that many units for rent are selling at 30% higher prices than they were last year in certain areas. If you are in this situation, and have the funds to pay a downpayment and cover closing costs, buying a home might be a better financial decision, especially if your plans to live there.
Lautz stated that many young buyers are looking for homes and saving money by living with their families for a while to make a deposit or rent a room in the new house to help pay for costs. Some buyers even go in on properties with their friends to split the mortgage and other bills.
Perhaps it is time to compromise for those who have tried so hard to find a home but failed or were rejected repeatedly. Lautz suggested that you look in a new area or sacrifice some of your needs to secure a home.
After the market has returned to normalcy in a few years and buyers have equity from their mortgage payments, they will be able to go back to the hunt for their dream house, moving up the ladder of property owners.
“When you purchase a home, you pay towards your mortgage. But, at the exact same moment, your home should be increasing in value. Lautz stated that if you decide to put your home up for sale, it will likely be at a higher price than you paid for it. “So, you can pay off your mortgage and get money back to make your next down payment for your move-up buyer in your second or third property.
The Education Data Initiative reports that 43 million borrowers had the option of having their federal student loans payments paused since the COVID-19 pandemic started over two years ago. The pause will expire Aug. 31, but it is possible to extend it theoretically again.
Biden may consider allowing student loans up to $10,000 per borrower. Barry Coleman, vice-president of counseling and education at The National Foundation for Credit Counseling, stated that people should “Hope for good, but prepare for the worst.”
“Until it’s announced, we won’t know if that actually happens. … This would result in $321 billion in federal student loan forgiveness. That’s significant. Coleman stated that it would completely erase federal student loan balances for about 11 to 12 million borrowers. Coleman stated, “It would be life-changing for many consumers if they didn’t have to worry so much about debt.”
Coleman suggests that borrowers do not keep their fingers crossed and use the last few months to make principal payments if they are able.
He recommends that borrowers who are unable to pay the principal of their loan in the interest-free grace period make a plan. Borrowers have not had to include student loans in their budget since March 13. Inflation is driving up the cost of everyday goods at aEUR” plus rent, credit card and other AA payments. Therefore, budgeting should be a priority.
Coleman stated, “If and when these payments are resumed, understand where your current position is and where you will be after Aug 31 and plan accordingly.”
The Department of Education offers a loan simulator that allows people to plan. They can request an income-driven repayment plan to reduce the financial burden of their loans.
In the event of a request for forgiveness, it is important that borrowers verify that all contact information is correct. To discuss any changes to your debts, the Department of Education must be able reach you.
He also pointed out that there are other routes to debt forgiveness. The Department of Education states that the Public Service Loan Forgiveness Program can forgive any remaining balance for qualified applicants after approximately 10 years of payments. This applies to government employees at all levels, including federal, state and local officials, as well as service in the U.S. Military as well as non-profit work.
Federal student loan forgiveness is available to full-time teachers who have completed five years of teaching at a low income school. Federal loans could be forgiven for any U.S. military personnel who receives a 100% disability rating by the Department of Veterans Affairs or is deemed permanently and totally disabled.
Coleman stated that anyone who is having difficulty getting their financial affairs in order should contact the NFCC. Most of the NFCC’s services can be availed free of charge because they are a non-profit organization. They help individuals develop a plan that will help them reach their financial goals.
Coleman stated that a counselor session would help a borrower to see where they are and receive expert advice. We will provide this service, regardless of whether someone is able to afford it.
De La Rosa stated that financial problems can be difficult for many people. It’s not an easy task. People often put budgeting and other financial issues at the bottom of their priority list, while also drowning in debt and struggling to control spending.
Although these tasks are relatively simple, they require some time.
De La Rosa recommends that individuals have a “financial wellness day.” You can either dedicate a whole day or just a portion of your time to addressing your finances.
“We all have subscriptions we need to cancel. All of us know we should sign up for our company’s401(k). … We just lack the time. De La Rosa stated that we don’t prioritize ourselves as we’re too busy prioritizing everyone else, and that we are too tired at the end. You must love yourself enough to prioritize your needs right now. These are the things you have been putting off, whether it’s asking for a raise or searching for another job.
It’s crucial to be open for couples and families. It won’t make money monsters disappear if you pretend they don’t exist. De La Rosa stated that financial issues are one of many leading causes of divorce. It’s why it’s so important for partners and families to be on the same page about money matters.
De La Rosa stated that when people feel financially insecure, half of their brain thinks about financial problems and the other half is unable focus on other types of problems.
It can be mentally exhausting. It is important to find balance.
De La Rosa stated that money can aEUR’ to some degree aEUR’ buy happiness. If you feel like you are constantly working, it’s okay to take a break and spend some money to make yourself feel better.
“We know that people feel more joy and happiness when they buy experiences than they do from material goods. De La Rosa stated that if you are forced to make a choice, choose the experience.
You can go to the movies with your friends or family. You can also do something creative if you don’t have the funds. You can also enjoy snacks and free movie screenings at parks. Your imagination is the only limit to what you can do with limited funds.
“You can make almost any situation into a meaningful experience. That’s what I hope people do in this time. It’s so stressful to constantly think about your financial situation.
