During a recession changes to monetary policy, marketplaces and the financial landscape occur, and these changes can create financial advantages for a number of individuals and households who have adjusted their lives, financial habits and decision making accordingly. For example, during a recession bond prices rise and sometimes fear of economic strength can cause gold prices to rise.
Economics also indicates recessions can mean benefits for savvy consumers, and in some cases make people wealthier than before a recession. More specifically, mortgage and other borrowing rates can decline, tax incentives such as credits and deductions can rise and market value of investments can offer reasonable long-term investments.
To illustrate further, during the 2008-2009 recession average 30 year mortgage rates dropped below 5 percent and tax credits up to $8000.00 were legislated for new home buyers. Additionally, stock indexes had declined by more than 50 percent during the recessions worst months and the making work pay tax credit helped Americans keep more of their earned income. Five benefits of an economic recession are described below.
1. Financial opportunities
It is a well known fact, investments still exist in a recession and often at a better price. Provided the investor has a longer-term time horizon for his or her investments and enough money to invest, good investment decisions can pay of many times over. In some cases these investments may make up for losses incurred during the recession, and in other cases it may only spell gains. These investments may also include any number of things such as collectibles, items for resale, financial instruments, or real estate.
2. Higher retained income
In a recession a monetary policy and legislative changes can lead to significant tax incentives. Examples of tax incentives that took place in the recession 2007-2009 recession included adjustments to tax brackets, new or increased tax credits, higher exemption amounts, tax rebates and more. The tax relief from the recession meant massive costs for the government, but potentially higher retained income for consumers. As spending habits may also change, this too can lead to more household income.
3. Reinvention and financial innovation
Another top 5 benefit of an economic recession is financial reinvention and innovation. There's a truth to the saying 'necessity is the mother of invention' and this is evident during recessions. Individuals and families may find new ways of managing their money and lives that would not have be thought of or implemented before hand. This is a benefit of a recession that affects people's lives for the better making a financial precipice a positive catalyst and not an ominous downfall. For example a family may eat healthier and grow their own food in turn giving them more exercise; or they may start a business that actually grows to be profitable and makes them happier.
4. Interest rate adjustments
Lower interest rates are commonly associated with recessions unless a strong inflationary environment co-exists alongside the recession. This is referred to as stagflation, in which case interest rates can rise. When interest rates are both low and high, it either encourages business investment and consumer spending or consumer savings. For example, during a not-stagflation recession the Federal Funds Rate may decline through monetary policy that in turn makes it cheaper to borrow money during a recession. If the loans are longer term and fixed rate, the benefits can last long after the recession has ended. Mortgages are an example of a longer-term loan with potentially lower interest rates.
5. Cheaper products and services
A commonly known top 5 benefit of an economic recession is declining retail sales which spurs businesses to be more competitive. As businesses compete for sales, prices get reduced and incentives to buy products increase. For example, new car dealerships may offer 0 percent down, or interest free financing on sales of new vehicles. The actual selling prices of vehicles may decline as well. Similar scenarios can occur across many retail sectors such as furniture and clothing stores and provided expenditures are imperative or unavoidable, the lower costs can be beneficial.
Those who can benefit from an economic recession are individuals and families able to take advantage of the above top 5 benefits of an economic recession. They may take advantage of large investment opportunities and be financially protected by decisions made during a previous recession.
It is a well known fact, investments still exist in a recession and often at a better price. Provided the investor has a longer-term time horizon for his or her investments and enough money to invest, good investment decisions can pay of many times over. In some cases these investments may make up for losses incurred during the recession, and in other cases it may only spell gains. These investments may also include any number of things such as collectibles, items for resale, financial instruments, or real estate.
2. Higher retained income
In a recession a monetary policy and legislative changes can lead to significant tax incentives. Examples of tax incentives that took place in the recession 2007-2009 recession included adjustments to tax brackets, new or increased tax credits, higher exemption amounts, tax rebates and more. The tax relief from the recession meant massive costs for the government, but potentially higher retained income for consumers. As spending habits may also change, this too can lead to more household income.
3. Reinvention and financial innovation
Another top 5 benefit of an economic recession is financial reinvention and innovation. There's a truth to the saying 'necessity is the mother of invention' and this is evident during recessions. Individuals and families may find new ways of managing their money and lives that would not have be thought of or implemented before hand. This is a benefit of a recession that affects people's lives for the better making a financial precipice a positive catalyst and not an ominous downfall. For example a family may eat healthier and grow their own food in turn giving them more exercise; or they may start a business that actually grows to be profitable and makes them happier.
4. Interest rate adjustments
Lower interest rates are commonly associated with recessions unless a strong inflationary environment co-exists alongside the recession. This is referred to as stagflation, in which case interest rates can rise. When interest rates are both low and high, it either encourages business investment and consumer spending or consumer savings. For example, during a not-stagflation recession the Federal Funds Rate may decline through monetary policy that in turn makes it cheaper to borrow money during a recession. If the loans are longer term and fixed rate, the benefits can last long after the recession has ended. Mortgages are an example of a longer-term loan with potentially lower interest rates.
5. Cheaper products and services
A commonly known top 5 benefit of an economic recession is declining retail sales which spurs businesses to be more competitive. As businesses compete for sales, prices get reduced and incentives to buy products increase. For example, new car dealerships may offer 0 percent down, or interest free financing on sales of new vehicles. The actual selling prices of vehicles may decline as well. Similar scenarios can occur across many retail sectors such as furniture and clothing stores and provided expenditures are imperative or unavoidable, the lower costs can be beneficial.
Those who can benefit from an economic recession are individuals and families able to take advantage of the above top 5 benefits of an economic recession. They may take advantage of large investment opportunities and be financially protected by decisions made during a previous recession.
In other cases, those who foresee a recession and make the appropriate adjustments to their finances may benefit from it. In more cases, some may have had nothing to lose going into a recession, and when the recession started they too may have benefited in one or more of the above ways. Still others may simply have made the right financial decisions during the economic recession and still be able to benefit from it.
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