Economic crisis is defined as situation in which the economy of a country experiences a sudden downturn brought on by a financial crisis. An economy facing an economic crisis will most likely
experience a falling GDP, a drying up of liquidity and rising/falling prices due to inflation/deflation (businessdictionary.com).
These are the key statistics that indicate the direction of an economy. Examples are Gross Domestic Products (GDP), employment levels, stock market prices, money supply changes, interest rate, production rate etc. For clarity purpose, let us discuss briefly few of these indicators.
DOMESTIC PRODUCTS (GDP)
This is the monetary value of all the finished goods and services produced within a country in a specific time period. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well.
This is defined most basically as the percentage of the total labor force that is unemployed but actively seeking employment and willing to work.
Let us consider the examples that we are very familiar with. Recently some banks sacked their workers as follows:
Ø Skye Bank PLC sacked 175 employees
Ø Ecobank sacked more than 1040 workers
Ø Diamond bank fired 200 of its workers.
Ø Kaduna State government withdrew the salaries of 13,366 workers from its payroll.
Again according to Sahara Reporters of March. 2016 “President Muhammadu Buhari announced that 27 states
in Nigeria are having difficulties paying their workers’ salaries due to the country’s economic woes”.
Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.
Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rate growth in Nigeria is depicted in the table below thus:
WAYS TO SURVIVE ECONOMIC CRISES
Having explored some of the economic indices and how they affect us as Nigerians, let us discuss on some ways we can deal with economic crises. Economic crisis is an external factor which we don’t have control over. We can only react to it by adjusting ourselves or by adopting some measures that will enable us to survive it. We, or people we
know, have been affected by job losses, price increases and uncertainty about the future that the economic crisis has provoked. So we need to be proactive and take steps to help ourselves get through this difficult period. Listed below are some of the tips that may help us in this regard.
KEEP A TRACK ON YOUR SPENDING
Know what you are spending your money on. Be aware that some of the little things, added up and compounded, can take a big bite out of your finances. Also, make a note of where you do your spending and what you use to pay. Paying with ATM card is not advisable because it induces impulsive buying. It is even most advisable not to carry your ATM card about during economic recession.
IDENTIFY YOUR SPENDING PROBLEM AREAS
Do you have weaknesses for buying more when something is on discount? Do you just buy because the items are cheap? Do you have a weakness for certain products? Figure out what you are spending the most on, and why. And then consciously make an effort to improve.
PRIORITIZE YOUR SPENDING
Check your basic needs and decide what is really important to you. Since you have tracked your spending and found your weak spots, you can now create a spending plan/budget that will addresses these issues and ensure that you cover the important things first. Perhaps you are eating out more than you appreciate or spending too much on beverages. If you are just getting started on developing budgeting discipline, you can join some online forums where such issues are discussed. There we have some active communities discussing various budgeting issues. Talking
with others who are doing the same can help make it easier.
TRY TO SAVE A LITTLE
During an economic recession, you may not be able to save as much as you would like to. However, you should try as much as you can to set aside little amount as savings. Work towards building up your emergency fund. Make the savings inaccessible to you. Life Assurance Savings Plan or Fixed Deposit can come in handy. Also, retirement savings is equally advised.
DIVERSIFY YOUR INCOME
Economic crises period is a good time to attempt to diversify your income streams. You can also sell off some of
your unused stuffs and make some money. You can start making money from a hobby. You can even look for ways to make money online. Just be careful of scams and be realistic. It is not a get-rich-quick syndrome online stuff but a genuine online business. It may not yield immediate results but starting now could provide a source of income that can serve as a safety net down the road.
AVOID SERVING AS A GUARANTOR TO FRIENDS OR RELATIVES
Guaranteeing somebody on taking a loan can be very risky during economic depression times. It is so because if the individual taking the loan doesn’t make the scheduled payments, you could be asked to make them. During an economic downturn, the person may be at greater risk of losing his or her job and the means to pay down the loan. With all that in mind, there are times when you may find it necessary to help a family member or close friends regardless of what’s happening in the economy. In such cases, it pays to have some money set aside as a cushion. (How to help family and friends is outside the scope of this work)
DON’T TAKE YOUR JOB FOR GRANTED
During an economic slowdown, it’s important to understand that companies, even the big ones, may be under financial pressure. And once that happens, some organizations will try to reduce expenses any way they can. In dire situations, that may mean cutting down jobs as a means of saving money. Job cuts are targeted by many companies that are struggling because the cost of keeping an employee on board can be huge. In addition to salary, the employer contributes to healthcare costs and also makes retirement contributions for the employees.
Because the employment situation during a recession, employees are advised to try to do all they can to make sure their employer has a favorable opinion of them. This may mean coming to work early, staying late and of course doing top-notch work at all times. While there is no guarantee this will save your job, it could make you important enough to your company to ensure you’re kept on the payroll.
AND USE YOUR COMMON SENSE
Much heartbreak during economic crises stems from ignorance of common sense. During economic depression any fraudsters arise promising overabundant returns on little investments. Many people due to ignorance and greed fall for them. These people make fortune out of the gullible poor masses. Again, some people in a bid to diversify their sources of income invest in stock markets without proper analysis and they lose their money.
Personal finance, at its heart, boils down to common sense. You have to eliminate your high-cost debt and get on a budget. You must save for retirement. And you need to make sure that you live in a home you can afford and enjoy. In short: Be prudent, save money, invest wisely. Getting back to these very basics will help all of us survive this economic crises period.
Written by OHANABALU CASMIRE
Ohanabalu Casmire is an Accountant
A Guest Writer
08032914362The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Financial Watch. Every investment and trading move involves risk. You should conduct your own research when making a decision.