America has always had a culture accustomed to large personal spending and based consumer behavior around the “bigger is better” mentality. As a result, we have a long history of buying on credit, accumulating personal debt that tends to make up a large percentage of gross domestic product. While debt spending is known as a good simulator of economic growth, danger arises when it goes beyond manageable levels. Throughout history, many of the worst economic collapses were partially fueled by retractions occurring during times where personal debt levels were quite large, resulting in many defaulting on their loans and going into bankruptcy, furthering the economic turmoil.
Society is often blind to these long-term issues that tend to surface as real problems years into the future, and this results in the economy often being in dire straits when economic contractions occur. Now that COVID-19 is posing a great challenge to the world both medically and financially, an event like this could occur very soon. The country has racked up large amounts of personal debt, especially in the form of inflating mortgage and student loan debt, and the slowdown occurring globally threatens to create a new economic meltdown.
This issue is not flashy, hotly discussed, or even cared about by many. But that is not how we should judge the problems that we face, or how we deem their importance. Rising personal debt is a concern that can prove disastrous in the future, and it is an issue that anyone reading this can directly impact.
The economic recovery period after COVID-19 will likely be long and uncertain and many people already have personal debts. What are some ways that these people could improve their situation and protect themselves from going bankrupt?
Very good question, the obvious answer would be to pay down debt and budget expenses moving forward while living at your means, but that advice is pretty surface level, and is more of a long-term answer that doesn’t quite address short-term implications.
The stimulus package is not the all-encompassing fiscal tool that it was advertised as, but there are many resources there that can be taken advantage of beyond the stimulus checks itself, whether that’s various funds for certain situations, or tax breaks with some personal requirements.
What I’ve been seeing a lot of lately is advice to liquidate assets to keep up with fees that will keep occurring through this time, and that goes for both people and businesses.
For now, focus on paying off debt with the highest interest, as it will be what really hurts people when the recession starts pressuring cash flows.
Lastly, opt to find supplemental incomes wherever you can, especially online. There are a lot of websites that provide compensation for various tasks, and while the pay is minimal, it can really add up overtime. Besides all of that, staying as frugal as possible with spending will increase your longevity, but the specifics really vary per person.
What led you to choose this topic, and why do you think debt is such an important conversation to be had today?
My main goal when finding a topic was to find something that was somewhat overlooked in current political discourse, yet really important. The national government debt has always been a hot topic for argument, but the way personal debt impacted the economy is never really as relevant in political dialogue. It makes sense in my eyes, as it seems very mundane and uninteresting to many. But what made me focus on the issue was going back to major economic disasters in the past, and seeing that many of them share the trait of getting progressively worse due to a prior history of consumers massively buying on margin. Economic retractions are usually worse when they occur in periods of high consumer debt, and this felt even more appropriate now that there will be certain economic turmoil this year.
How do you think the government should respond economically to covid19 financially? Do you think stimulus checks were a good idea for personal debt?
There are definitely more qualified people to listen to about this, but here are my thoughts:
A stimulus bill like the one signed is definitely necessary to lessen economic retractions while we close the economy, and I don’t see many credible experts questioning the existence of a bill like this. However, there were many decisions about the bill itself shaped by the legislative process that should be analyzed.
Studies and past evidence indicate that stimulus checks have little impact on economic growth, but as far as the issue of personal debt goes are much needed, so they would directly help the issues outlined in my project. I appreciate all of the funding provided to emergency needs and increases to unemployment insurance, and I am really pleased with the ban on stock buybacks, as I see that as one of the major issues with the 2009 stimulus bill.
However there are some aspects of it that should be addressed for further stimulus being discussed. The small business fund was quite underfunded, and there seems to be a trend of this stimulus prioritizing corporations over small independent businesses. There’s some thought to the argument that this is for the better, but I’m quite skeptical. I’m not entirely sure of the data supporting the amount of $1,200, but we’ll be able to compare this to countries who paid more soon.
All in all, I’m probably more satisfied than not with the bill. While it definitely came too late, it provides quick access to cash, solid benefits for taxpayers, and funding for vulnerable industries. However, a bill like this might not be enough, as it is mainly focused on short relief cash flow, so I would definitely recommend keeping up to date with Congress’s debates on providing more of a long-term stimulus.
How do you think the government can prepare for these long term situations? How good do you think the government’s response to COVID-19 was?
If the government is really focused on tackling how personal debt affects the economy on an aggregate scale, a good way to start would be to look into the validity of more debt subsidization programs, lower loan interest rates, or possibly even tracing the causes of increasing debt for mortgages/student loans. Of course, the best way to cope with this would be empowering people to manage their debt, whether that be through financial literacy programs, tax breaks, or welfare. It’s a highly encompassing issue, and there are many ways to approach it.
As for the government’s response to COVID-19, I’m going to set aside their health response (only because my project is centered around economics, I definitely recommend analyzing that as well) and look at the economic impact of their policy. I mentioned in a previous comment that while stimulus checks do not have much growth potential, they are quite beneficial for decreasing personal debt. The question is whether or not $1,200 will be enough for the average person that is not affected by the other sources of stimulus funding. And I believe that answer is most likely no, given how little that is compared to similar countries, the average expenses incurred for people, and the projected length of this economic turmoil. It seems that many inside and outside of the government recognize this, and are looking to future stimulus measures that address the issues that this one did not. My main point is it was a step in the right direction, but going further would prevent more economic retraction from occurring.