According to a CNN/Opinion Research Corp. poll, nearly 60 percent of Americans believe a depression is "somewhat likely" (38 percent) or "very likely" (21 percent). However, the CNNMoney.com article that reported on the findings noted that economists "generally don't believe another depression is likely."
Matt's View
If "irrational exuberance" helped drive the market up, "loss aversion" may help explain why people are feeling so down. Behavioral finance researchers note that most people much prefer to avoid losses than to acquire gains, which means bad news has a greater negative impact on us than good news has a positive impact. Sounds like a case for not checking our retirement accounts so often (assuming we've been wise with our asset allocation!).
Taking our focus off of our own situation is another good idea for dealing with tough times. Wall Street Journal reporter Karen Blumenthal brought that point home in an article in today's paper about why we are not likely to experience a depression. At the end of a piece that explained what's different about our economy compared with the economy of 1929, she acknowledged feeling some personal angst over recent losses in her own investment portfolio. What's helping her cope is the volunteer work she has done for over a decade, tutoring children whose families can't afford school supplies or a visit to the dentist. "For the price of 45 minutes a week," she wrote, "I return to my desk feeling as wealthy as one person needs to be."
Eight in ten Americans feel stressed about money, according to a survey by the American Psychological Association. Nearly 60 percent of respondents say they are concerned about job stability, while 50 percent say they are increasingly concerned about their ability to provide for their family's basic needs. How are people responding to the stress brought on by the economy? Common answers included overeating and consuming fatty foods.
Matt's View
Feeling out of control creates stress, and the markets have left a lot of people feeling way out of control. Fortunately, there are some financial matters we can control. First, if you are eligible to participate in a 401(k) or other retirement program and your employer matches a portion of your contributions, don't miss out. That match is a guaranteed return on investment. Are you contributing enough to get the full match? Second, participate in flexible spending, and if applicable, dependent care accounts. Very few eligible employees participate in such accounts, missing out on opportunities to save a lot of money on taxes. Look into them now that corporate benefits open enrollment season is upon us. Third, if your employer offers tuition reimbursement, go to school. There's no such thing as guaranteed employment, but by keeping our skills current we can do a lot to shore up our employability. So, ditch the donuts and take your employer up on these good-for-your-money programs.
While we can't control what's happening in the stock market we can control what's happening in our homes, and now is an especially good time to look for ways to spend smarter. U.S. News & World Report offers a great collection of ideas
for saving on the cost of food, clothing, healthcare, and more.
Matt's View
Such ideas are best implemented with the help of a budget, which seems to be the new hot idea in the personal finance press. I've noticed more and more articles daring to utter the B word, although they're usually presented with an apologetic explanation that "desperate times call for desperate measures." As regular readers know, I'm a strong proponent of using a budget--not just in tough times, but in all times. A budget
gives you the information you need to proactively manage money well.
In the last issue of Matt About Money, I mentioned that the federal government is now insuring money saved in money market mutual funds. The move was made in response to a rare dip below a dollar for the value of shares in the Reserve Primary Fund. Two points of clarification are warranted. First, as reported by ABC News, the insurance only pertains to money market mutual funds that pay to participate in the program, only covers money in such funds as of September 19th (not newly invested money), and initially runs only until December 19th (although the Treasury secretary will have the option to renew the program for up to an additional nine months).
Matt's View
With Fidelity and Vanguard joining the Fed's program, the Wall Street Journal reported that "all the major fund families will participate."
The FDIC insurance limits were also temporarily increased
(until the end of 2009) since the last issue of this eNewsletter. The insurance now covers up to $250,000 per depositor per insured bank. In the case of a joint account, each co-owner now has $250,000 of coverage.
