A few weeks ago, I started a three-part series on financial literacy and the economy. In part one, we unpacked some seriously concerning statistics on Americans’ understanding of financial topics, and outlined what’s being done by some to fix that.

In part two, we’re going to unpack the current state of the economy, what to expect over the next 6-12 months, and how we need to adapt, based on advice from Dr. David Phelps, a speaker on investing and wealth building.

The economy is currently facing a multitude of challenges, including growing inflation, bank collapses, tightening credit, dwindling consumer confidence, and supply chain disruptions, to name just a few. As individuals and businesses alike grapple with these issues, it is essential to understand the impact of these challenges and adapt accordingly.

How does this all impact us?

The current economic situation has affected individuals and families by reducing their purchasing power, creating job instability, and causing increased financial stress. The strain on household budgets has made it difficult for families to afford basic necessities and plan for the future.

Businesses are also facing significant challenges, including increased operating costs, reduced revenue, and difficulty obtaining credit. These factors have forced many companies to cut back on investments and staff, further contributing to the overall economic slowdown.

The economy is being hammered on all sides—consumer, business, and government, resulting in a proverbial “perfect storm” that is, unfortunately, going to get much worse before it gets better.

Noted financial expert, Dr. David Phelps, who I interviewed in part one of this series, says:

“No one wants a bear market. But it's inevitable. We've kicked the can down the road far too long with monetary shenanigans. We don't know exactly what [Federal Reserve Chairman Jerome] Powell will do, but there's probably a 60% chance or more that he will raise rates by another 25 bps at the next FOMC meeting in May. That's not going to be good for the market. Right now, some people are still standing around saying, 'It's gonna be okay,' but the reality is that all of the data shows that a recession or hard landing is an almost absolute certainty regardless of actions taken by the Fed.”

Phelps, like many financial experts, says while raising interest rates is essential, it’s also going to make things worse on all aspects of the economy.

What should we do right now?

What worked over the last several years simply won’t work in the coming years.

Individuals and families should immediately focus on reducing expenses and debt, building an emergency fund, and creating additional income streams. It is crucial to prioritize financial stability and make informed decisions to adapt to this uncertain economic landscape.

Businesses must adapt by streamlining their operations, seeking alternative financing options, and diversifying their product or service offerings. Emphasis should be placed on innovation, as companies that can adapt to changing circumstances are more likely to succeed in the long run.

Phelps says this will help people to attack the problem on all fronts by addressing the issue of costs and income or revenue, putting them in a much stronger position. He says it’s also important for everyone to improve their own financial literacy, and that business owners should do what they can to provide educational resources for their team:

“If you can help your employees better position themselves financially for what's coming (recession), not only are you helping them and their families, but you are also helping your own business.  Employees who are financially stressed are generally poor workers, may miss work, or leave employment altogether. Collectively, this has a significant positive impact on the community.  The more people who approach financial downturns in this way, the better off the economy as a whole will be,” he explains.

What should we expect over the next 6-12 months?

Phelps says we can expect continued economic volatility, with gradual improvements in some areas. While it is difficult to predict the exact trajectory of the economy, it is essential to remain prepared and adaptable to changing circumstances.

It’s important to note that the consequences of the current economic challenges will be felt for decades to come. As the world adjusts to a new economic reality, it is crucial to recognize the long-term implications of our actions today. It took decades to create our current economic situation, and it likely will take even longer to reverse the damage from the actions that put us here. It’s also worth pointing out that the old models no longer work in this rapidly changing economic landscape.

Perhaps most concerning in all of this is the misinformation touted by policymakers. Both because it was their policies that led to our current problems, and because they are misrepresenting their role in it. So, it’s important to maintain a critical perspective and question the information presented by them. While their insights can be valuable, it is essential to consider multiple perspectives and stay informed through various sources.

Phelps says, “Policymakers, like Powell and [Treasury Secretary Janet] Yellen, often push to give the government more control and allow it to redistribute the wealth of the country into their political agendas while framing their actions as purely altruistic. This is one of the reasons financial literacy is so important. Financially literate people can see through these claims.”

Ultimately, adapting to the shifting economic landscape requires a combination of prudent financial management, flexibility, and creativity. While the road ahead will be filled with challenges, there is also an opportunity for growth and transformation. By keeping our focus on the big picture and prioritizing long-term stability, we can ensure that we emerge from this period of economic uncertainty better prepared to face the challenges of the future.
_______________
Mario Henry (www.housevisors.com), a former National Football League player, is a financial services professional with 18 years of experience in the industry and author of How to Hire Your House, an innovative guide on how to create a tax-free pension and sustain sufficient income through retirement. Mario also is a licensed insurance broker and a national motivational speaker. He was a wide receiver with the NFL’s New England Patriots and a scholarship football player at Rutgers University.