The entire world is affected, significantly, by the current pandemic caused by the COVID-19 virus. The tourist industry is temporarily suspended. World economies have declined. Small businesses are pushed into bankruptcy. Local enterprises are forced to reduce operations. The average American’s finances are suffering and will surely suffer more in the future as recession sets in.
Here are a few ways an average American’s finances are affected by COVID-19:
Unexpected job loss
This is where the economy is hit the most. Based on recent analysis, over 40% of low earning Americans lost their jobs due to COVID-19. Many industries are hard hit by the pandemic and the entire economy is paying the price. The current unemployment rate in the US has hit a record high since the Great depression.
Job loss has forced Americans to tap into their emergency savings to make day-to-day ends meet. This is a difficult, albeit essential, decision to make. The best thing to adjust to any sudden unemployment is to create a manageable budget. Cut down on unimportant expenses and focus only on what is essential. A budget calculator may be handy in times like this, to ensure that the life of emergency funds would be maximized.
No more health insurance
Since a huge percentage of the average Americans lost their jobs, they have inevitably lost their employer-sponsored health insurance. Even worse, the budget from savings cannot accommodate the continuous payment of health insurance. In many cases when people lose jobs, health care becomes the least priority.
Although there are proposals from Democrats that people who have lost their jobs due to the pandemic could get insurance subsidies, approval for this could take time. Furthermore, not everyone could be eligible to get access to these government-subsidized healthcare plans.
Healthcare, in many parts of the world, is expensive. Even before the pandemic, medical debt creates a huge burden for many Americans. Some, especially those on long-term and prolonged treatments, are even pushed to declare bankruptcy.
What makes the situation worse is that the prolonged lack of health insurance (three months or so) could lead to government penalties. What is even worse is doctors in the US have the right to refuse to treat a patient without insurance, without any legal penalties. The good thing is many doctors see their ethical responsibilities first, especially in emergencies.
Permanent closure of countless small businesses
As many people stay home more because of the pandemic, they realize how much less they truly need in everyday life. The purchasing behaviors of consumers are significantly affected by the pandemic. Many people prefer cooking at home than buying take-outs. Many people prefer buying online than physically going to a store. Others reduce their expenses on luxury goods. Others prefer to stay home and avoid the crowds out of fear of contracting COVID-19. The virus pushed people into their homes, making businesses all over the US to suffer.
As sad and disappointing as it sounds, both small businesses and large enterprises are affected by the pandemic. Many small businesses in the US have closed permanently because of their difficulty to even out revenue with costs. To add to this, many large enterprises are forced to reduce production, close down operations, and layoff people.
Cutting back on retirement savings
When the budget is tight, the first one to let go is retirement savings. This is a common financial trend in many Americans during this pandemic. Either they change their retirement plans or forego it completely. Many financial experts recommended that maintaining a savings fund first enough to cover more than three months’ worth of expenses is important. Once this emergency savings fund is settled and secured, then retirement funds may be considered.
In a public health crisis such as this, having emergency funds and savings can give anyone some peace of mind. Maybe consider some investments as well. This way it is easy to liquidate cash in case of emergencies. Saving up for retirement is always recommendable. However, the current pandemic has proved how crucial maintaining an emergency fund is as well.
Loans on forbearance, deferment, and refinancing
It is important to remember that, in many cases, putting a loan for deferment, forbearance, or refinancing could lead to higher fees and closing costs. Over time, a person with a loan could pay much higher than originally intended. Lengthening the loan term could generate higher interest rates. These actions could also lead to a minor decline in an individual’s credit score. Thankfully, if loans are paid on time in the future, the minor drop in credit score can easily be recovered. Unless refinancing is for the reduction of interest rates, it is not always the best decision to forbear, defer, or refinance loans.
On the other hand, desperate times call for desperate measures. People with loans have options of paying less or deferring loan payments for up to six months. Another good thing is that the government has frozen eviction and foreclosures until the third quarter of 2020. According to the Cares Act (eviction and foreclosure moratorium), late fees are waived and eviction is temporarily suspended. This gives a window of opportunity for homeowners to save up.