Money Management

It’s a possibility, believe it or not. 

Will a recession hit in 2023? Many financial experts seem to think so.

In fact, for much of the second half of 2022, there were countless news reports featuring quotes from prominent economists and financial bigwigs warning Americans to boost their savings account balances and gear up for an extended period of economic decline.

Interestingly enough, though, the media hasn’t been as quick to share positive economic news. For example, the national unemployment rate is at practically its lowest level in 20 years. But has that fact been all over the news? Not so much. Instead, alarmist headlines like “Economic Doomsday Looms” seem to have taken over.

And that’s problematic for a few reasons. First, scary recession headlines can cause people a lot of needless fear and worry. But more so than that, if the media keeps playing up recession warnings, it could be enough to actually fuel an economic downturn.

A self-fulfilling prophecy nobody wants

Current economic conditions point to a pretty strong economy, not a weak one. Not only is unemployment low, but consumer spending levels held steady during the latter part of 2022, particularly during the holiday season.

You’d think that would be enough to give consumers a fair amount of reassurance. But it’s hard to have confidence in the economy when you keep reading about the potential for a painful recession within the next 12 to 24 months.

Meanwhile, all of those recession warnings might lead consumers to change their behavior. For some, that might mean boosting their savings and paying off high-interest credit card debt, both of which are great things to do.

But what might also happen is that consumers start curbing their spending substantially in the coming months because they’re scared that a recession is right around the corner. And a sudden, notable decline in consumer spending is the very thing that’s likely to land us in a recession in the first place.

See the problem?

It’s a good thing for financial experts to caution Americans about a potential economic decline. But if the media focuses solely on the bad and not at all on the good, we could end up experiencing an economic downturn that might otherwise be avoidable.

Don’t assume a recession is a given

Based on some of the warnings you’ll see out there, you might think a 2023 or 2024 recession is a given. That’s not necessarily the case.

Also, even if the economy slows down a bit in the next 12 to 24 months, that doesn’t mean we’ll enter recession territory. As such, it’s best to take those recession warnings with a grain of salt and a pinch of optimism.

Shoring up savings and shedding debt are great things to do no matter what. But consumers should realize that a recession isn’t a foregone conclusion. And consumers also shouldn’t alter their habits to an extreme degree. If they buy into the fear and go that route, it could fuel a recession that unleashes a world of misery for a lot of people.

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Don’t start banking on that money. 

When lawmakers approved the American Rescue Plan in March of 2021, it gave a lot of people a reason to celebrate. Not only did that massive stimulus package allow for a round of $1,400 stimulus checks, but it also gave the Child Tax Credit a major boost.

All told, the federal stimulus aid consumers received in 2021 helped many shore up their savings and cope with inflation as it started to soar. But there wasn’t any federal stimulus aid to be had in 2022. Rather, the most consumers were privy to was limited state stimulus aid, which left many Americans out in the cold.

Of course, it’s easy to see why lawmakers didn’t approve any federal stimulus aid in 2022 — economic conditions didn’t warrant it. Even though inflation hurt a lot of people last year, consumer spending held steady and the unemployment rate stayed nice and low.

Now there is talk about a potential recession in 2023. In fact, some financial experts are downright convinced that economic conditions will deteriorate within the next 12 months to some degree.

But even if that happens, there’s a good chance consumers still won’t see more stimulus checks hit their bank accounts. Here’s why.

Job growth soared in 2022

Historically, lawmakers have approved stimulus aid during periods of economic distress and high levels of unemployment. But we’re unlikely to reach a joblessness crisis anytime soon.

The reason? The U.S. economy added a whopping 4.5 million jobs in 2022. That’s the second-highest total on record aside from the job growth experienced in 2021, when the economy was in catch-up mode on the heels of the pandemic.

Meanwhile, as of the end of 2022, the national unemployment rate sat at 3.5%. That’s the lowest number on record in about 20 years.

All told, things are looking pretty solid from an unemployment standpoint right now. And so even if a recession does hit in 2023, unless that downturn is catastrophic, it probably won’t drive unemployment up enough to warrant a round of federal stimulus aid. It may not even warrant a boost in unemployment benefits — something workers were entitled to in 2020 when the jobless rate started to soar.

One silver lining

It may be disappointing to hear that a federal stimulus check is unlikely in 2023. But on a positive note, inflation seems to be steadily cooling after peaking last summer. And if that pattern continues, consumers might get some relief from higher living costs.

That’s not the same thing as getting a direct payday from the government. But ultimately, both achieve the same purpose of making it easier for consumers to cover their bills.

Furthermore, recent holiday spending data shows that consumers did not cut back during the 2022 season as many economists thought they might. In fact, consumers actually wound up spending more. That’s a sign that we may not be on the verge of a recession as some economists think we are. And that’s always a good thing to hear.

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The start of a new year is a good time to consider life insurance coverage needs. 

Buying life insurance is a crucial part of financial planning. Without coverage, an untimely death could leave surviving loved ones struggling to pay basic bills or stay in a family home.

Some people assume buying life insurance coverage is a one-and-done prospect. But that’s not necessarily the case. In fact, it’s a good idea to periodically review whether there’s a sufficient amount of insurance in place. And the start of a new year is a good time to do that.

So, as the beginning of 2023 approaches, consider these issues to decide whether the purchase of more life insurance coverage is in order.

Have life circumstances changed?

The biggest thing to consider when deciding whether to buy life insurance coverage is whether circumstances have changed and more money would be needed to provide for loved ones in the case of an untimely death.

There are many different ways that life changes could necessitate more life insurance coverage. For example, it may be necessary to buy more protection if:

A new family member has entered your family. For example, the birth or adoption of a new child or grandchild could mean more money is needed. Additional funds may be necessary to pay for their education or to make sure they can receive crucial financial support into adulthood.Loved ones have developed new health issues. If a policyholder is now serving as a caregiver for aging parents, or a loved one has become disabled and would need ongoing care, buying more coverage could be important to pay for that in case the policyholder passes and can’t continue to provide funds or support.New property (or debt) has been acquired. The purchase of a new home, for example, could mean more life insurance is needed to pay off the mortgage if the policyholder dies but surviving family members want to keep the house.Income has gone up. Peoples’ lifestyles tend to change as their income increases. If a policyholder gets a big salary bump and makes new commitments, or family members get used to a new standard of living, it makes sense to get additional coverage to replace that higher income in case of a death.

There may be other changes that warrant the purchase of more coverage as well. The key thing is for each policyholder to assess their own circumstances to see if new needs have arisen.

Is buying more coverage a possibility?

It’s also important to find out if buying new coverage could even be possible. In most cases, it is feasible to increase a death benefit amount or even buy an extra policy. But this isn’t always the case. If pre-existing conditions have developed or the policyholder has gotten much older or less healthy, then buying more protection may not even be an option.

It can still be worth reaching out to an insurer to find out whether adding on more life insurance is an option. But, it’s important to be aware this may be an obstacle in some circumstances — which is why it’s best to consider future needs when buying insurance in the first place.

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Shopping around for life insurance is a little different than getting other kinds of coverage. 

Buying life insurance is essential for anyone who has people depending on them. And most term life policies are pretty affordable, especially given the peace of mind they buy.

Insurance policies have varying prices from different carriers, though. So, since the price of coverage can change from one carrier to another, consumers may wonder whether it’s possible to shop around for coverage like for car insurance.

The answer is a little more complicated than it may seem, though.

Shopping around for coverage before buying a policy is smart

When initially buying life insurance for the first time, it’s a good idea to compare prices and policy terms from multiple different insurance carriers.

By providing some basic health information and personal details, it’s possible to get quotes from different companies to see which one offers the most affordable rate for the coverage desired. This is especially essential for individuals who may smoke or who have medical conditions, as different insurers impose differing rate increases for people who present a higher level of risk.

After obtaining different quotes, it’s then important to move forward with applying for coverage from only one carrier as typically a lot of detailed health information is collected and a medical exam may even be required.

Shopping around regularly to change carriers may not be a good option

When it comes to car insurance, most drivers should shop around for coverage around once every year or so. Shopping around is helpful in these circumstances because there may be different insurers offering a better rate, or because new coverage options may have become available.

Life insurance works a little differently, though, because policyholders can’t just switch policies without consequences. If a covered person were to change to a different carrier, they would have to go through the entire medical exam and risk assessment process again. And since they’d be older — and perhaps less healthy — the new policy might cost more or they might not be approved for a new policy at all.

There’s also a two-year contestability period after buying life insurance in order to protect the insurer from fraudulent claims. The insurer can review the initial application if a claim is made for a death benefit within that period of time, and if any information provided in the original documents was misleading, the insurer could deny the claim.

After switching policies, this contestability period would begin again and thus there could be an increased chance of a death benefit not being paid out after a coverage switch.

Because of the big potential downsides of switching to a different life insurance carrier, it’s usually best for most people to stick with their original policy once they get covered. This is why it can be so important to make sure to find the right insurance coverage in the first place.

Consumers should be aware they’re making a long-term commitment when they pick an insurer, and should make sure they do their research, compare quotes, and are going to be happy with the insurer for the entire term of coverage.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
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Image source: Getty Images
What happenedJPMorgan CEO Jamie Dimon said the interest rate needed to slow inflation to where it needs to be “may very well be 6%” in an interview with FOX Business’ Maria Bartiromo Tuesday. The current Federal Reserve interest rate, also known as the federal funds rate, is 4.25% to 4.5% as of Dec. 14, 2022. That’s a 15-year high.In January 2022, Dimon was one of the first people on Wall Street to predict that the Fed could hike interest rates six or seven times. He was proven correct, as the Fed raised interest rates seven times for a total increase of 4.25% in 2022 in an effort to reduce rampant inflation. He now believes that Fed officials should raise rates to 5%, and then wait three to six months to see the impact.So whatThe federal funds rate has a significant influence on the economy and, in turn, on consumers and businesses across the country.Higher interest rates make it more expensive to borrow money. That’s a concern for people who are planning to get a mortgage, auto loan, or any other type of financing in the near future. It’s also bad news for consumers with credit card debt, because most credit cards have variable APRs tied to the federal funds rate. This means as the federal funds rate rises, so does the amount of credit card interest consumers pay. While interest rates have already risen quite a bit, a jump to 6% would be even harder on borrowers.Interest rate hikes discourage consumer spending, and that could spur a recession. Although spending has remained strong so far, Dimon believes that it could be due to stimulus money being “so large and still largely unspent.”Now whatBecause interest rates are rising and could continue to rise, be very careful about taking on new debt. If you can, avoid borrowing money entirely. If you do need a loan for a big purchase, such as a home or car, make sure to compare rates and consider putting more money down, if possible.Another smart financial step to take right now is to pay off credit card debt. Since most credit cards have variable APRs, any card balances will cost you more money as interest rates increase. A good way to mitigate this is opening a balance transfer credit card. This type of card has a 0% intro APR on balance transfers, so you can use it to refinance debt and pay it down interest-free.Hopefully, interest rates don’t get too much higher this year. But if you avoid taking on debt and you keep your credit cards paid off, you’ll at least be able to limit how much rate hikes affect your own personal finance.Alert: highest cash back card we’ve seen now has 0% intro APR until 2024If you’re using the wrong credit or debit card, it could be costing you serious money. Our expert loves this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee. In fact, this card is so good that our expert even uses it personally. Click here to read our full review for free and apply in just 2 minutes. Read our free reviewWe’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy. 

What happened

JPMorgan CEO Jamie Dimon said the interest rate needed to slow inflation to where it needs to be “may very well be 6%” in an interview with FOX Business’ Maria Bartiromo Tuesday. The current Federal Reserve interest rate, also known as the federal funds rate, is 4.25% to 4.5% as of Dec. 14, 2022. That’s a 15-year high.

In January 2022, Dimon was one of the first people on Wall Street to predict that the Fed could hike interest rates six or seven times. He was proven correct, as the Fed raised interest rates seven times for a total increase of 4.25% in 2022 in an effort to reduce rampant inflation. He now believes that Fed officials should raise rates to 5%, and then wait three to six months to see the impact.

So what

The federal funds rate has a significant influence on the economy and, in turn, on consumers and businesses across the country.

Higher interest rates make it more expensive to borrow money. That’s a concern for people who are planning to get a mortgage, auto loan, or any other type of financing in the near future. It’s also bad news for consumers with credit card debt, because most credit cards have variable APRs tied to the federal funds rate. This means as the federal funds rate rises, so does the amount of credit card interest consumers pay. While interest rates have already risen quite a bit, a jump to 6% would be even harder on borrowers.

Interest rate hikes discourage consumer spending, and that could spur a recession. Although spending has remained strong so far, Dimon believes that it could be due to stimulus money being “so large and still largely unspent.”

Now what

Because interest rates are rising and could continue to rise, be very careful about taking on new debt. If you can, avoid borrowing money entirely. If you do need a loan for a big purchase, such as a home or car, make sure to compare rates and consider putting more money down, if possible.

Another smart financial step to take right now is to pay off credit card debt. Since most credit cards have variable APRs, any card balances will cost you more money as interest rates increase. A good way to mitigate this is opening a balance transfer credit card. This type of card has a 0% intro APR on balance transfers, so you can use it to refinance debt and pay it down interest-free.

Hopefully, interest rates don’t get too much higher this year. But if you avoid taking on debt and you keep your credit cards paid off, you’ll at least be able to limit how much rate hikes affect your own personal finance.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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It’s likely not the little purchases that cost you in the end. 

The “latte factor” is a well-known concept in personal finance. Essentially, the argument is that you end up wasting so much money on little things — like a daily coffee drink — that you cost yourself the ability to become wealthy.

Unfortunately, many people have bought into this pervasive myth and believe that stripping everything fun out of their budget is the right way to grow their savings account or accomplish other financial goals. In reality, it’s not. It’s difficult to sustain over time, and there are better options out there.

In fact, one YouTube and TikTok personality — and finance guru — explained the types of mistakes that really end up costing you opportunities. And, none of those mistakes have to do with buying yourself a coffee if you enjoy it.

Could this be the real problem in your financial life?

Humphrey Yang recently called out the myth of the latte factor on Twitter, pointing out many other common decisions people make that have a bigger effect on their long-term financial success than buying a coffee ever could. Yang used his own experience to describe some of these other bigger mistakes, including:

Paying a lot for expensive luxury travel: “While you’re young and able to handle it, stay in reasonable accommodations,” he advised. “That hotel that costs $500/night in Germany isn’t worth it. You’ll be surrounded by older people you don’t want to hang out with anyway. I know because I did this. I ended up going to a hostel for fun.”Purchasing a brand new vehicle: Yang pointed out that new cars lose a significant portion of their value as soon as you drive them away, and suggested buying a three- to four-year-old vehicle instead. Investing in things you don’t understand: He advised staying away from hot tips provided by friends, and following the simple rule: “If you don’t understand it: don’t invest.”Gambling: He described this as “throwing money away” unless you’re using gambling for entertainment and have a set budget for it. Buying expensive furniture: Like cars, furniture depreciates quickly so Yang suggests purchasing middle-grade furniture that’s likely to last a while but not cost a fortune. Renting an apartment that’s too expensive: He warns that this effort to “keep up with the Joneses” could be a big mistake as you get stuck with housing costs eating up a high percentage of your income. Purchasing designer items: As Yang points out, being rich is better than looking rich, which is all that designer items are intended to allow you to do. Spending a fortune on expensive restaurants: Although he said doing this once in a while could be fine, you shouldn’t do it too often since food and alcohol have such big markups and you have nothing to show for the money after you’ve eaten your food.

Yang explained that these mistakes can come at a much bigger price that has a far greater effect than buying coffee. “One $3,000 mistake is worth two years of $4 daily coffees,” he said. “And they say coffee is making you poor. Yeah right.”

Is Yang right?

Yang’s advice here is spot-on. Rather than nickel-and-diming yourself to death, focus on getting the big stuff right — like living in an affordable house and driving a cheap car. That way, you can enjoy your money, won’t have to constantly deprive yourself, and can put your hard-earned cash to good use and accomplish your financial goals, like saving for retirement.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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