Recession is a scary word, both for Governments and for citizens of troubled economies. The term recession conjures up images of traders screaming down telephones and tossing briefcases out of skyscrapers, while markets crash and homes are repossessed left, right and centre.
By Stephen Davies
In reality, recession doesn’t always mean bankers tearing out their hair or instant joblessness for thousands of people. Instead, the technical definition of recession is two consecutive quarters of dropping GDP (Gross Domestic Product). This signifies that a country’s economy is contracting and, at this stage, the label “recession” is applied to the economic situation.
This is precisely the current picture in South Africa. In Q4 2016, GDP contracted by 0.3%. In Spring 2017, Q1 2017’s figures were announced – a fall in GDP of 0.7%. While some progress shows as we enter Q4 of 2017, the road out of recession is not clear yet for the country. The two consecutive quarters between 2016 and 2017 showed the start of a technical recession for South Africa. But this doesn’t mean there is cause for panic just yet.
The current recession comes hot on the heels of a number of bad news stories regarding South Africa’s economy and politics. From corruption allegations at the top of Government, to the country’s credit rating downgrade to junk status, there has been plenty of financial strife in the country over the past year, yet disaster has not yet struck.
Households are likely to be feeling the pressure of these problems in terms of rising living costs, but any major problems are unlikely to hit instantaneously. If the recession continues, gradual worsening unemployment, import costs and living costs will hit households, but sudden cataclysms are extremely unlikely.
This makes it entirely possible to plan for a recession and recession-proof your finances in case of a prolonged economic downturn. That is, if South Africans can overcome the low levels of both financial literacy and saving in the country. These are issues which have been on the lips of individuals and organisations for years. From public figures like Ingrid Goodspeed of the National Treasury, to finance companies like Wonga.co.za. financial education has long been a hot topic which the Government has failed to tackle, making it harder for South Africans to change their “spend now, save later” mentality.
To help boost knowledge and recession-proof finances, we’ve compiled three crucial tips all households should consider…
- Save
Don’t buy, buy, buy – or worse, borrow. With living costs likely to rise alongside job instability, the larger the emergency fund you can save, the more prepared you’ll be to weather a recession. - Downsize
It’s always tempting to have the best of everything you can afford, but living at least a little below your means will make your finances more sustainable in tough economic times. Choose affordability over desirability when it comes to things like your home and your car. - Upskill
Saving is crucial during a recession, but if you do make one investment, make sure it’s in yourself. Diminishing job opportunities can make competition for roles ferocious, so invest in classes and courses that make you stand out from the crowd.
Have you taken steps to protect yourself financially during the recession? Do you think the downturn will be longer term? Have your say below.
