COVID-19 breeding financial anxiety

Let me share an observation of an American economist Robert J. Shiller, serving as a Sterling Professor of Economics at Yale University, posted on the World Economic Forum website. He dishes out the idea that COVID-19 has brought about two pandemics, not just one.  The first, he calls, is the COVID-19 health pandemic. The second described by him is the anxiety over the economic consequences of the first pandemic.

This means that there is a pandemic within pandemic, which are interconnected. However, the dreadful nature of the pandemic taking toll on human life is not talked much as a fearful phenomenon. Instead, its impact on the economy is most talked constantly and stories of fear are dominating the media headlines with analysts and experts busy in brain storming sessions on pre-covid and post covid economic scenario. Notably, the ‘health pandemic’ disrupted global as well as regional economic supply chains and subsequently left millions jobless and with substantial loss of income.

In other words, the Covid-induced economic losses are so huge loss of precious lives the infection has consumed is mourned in terms of numbers, be it number of infected persons per day or people succumbing to this deadly virus. Generally speaking, people are engaged more in finding ways and means to overcome the monetary loss by the pandemic-induced economic lockdown than to think of insulating themselves against the infection. In succinct, securing a strong financial position has become precursor to fight Covid infection.

However, amid this adversity, there are many opportunities visible which can be seized to insulate against any such hardship in post-Covid situation. Basically, the setback which the Covid crisis rolled out has different financial lessons to different segments of people. For example, those who have just started their jobs, the Covid-induced financial uncertainty has taught that inculcating a saving habit right from early days is key to a financially secure future. Those who lost job and didn’t focus on saving at all during their hey days, had nothing in terms of savings or investments to fall back on.

These economic losses have been breeding fear among the people. Precisely, more that the COVID-19 itself, it’s the loss of financial resources, be it job losses or drop in incomes, which has been the source of fear among the people. Most of them are left clueless what action to take.

Even as the Covid crisis has pushed the world into recession and in some countries it’s economic depression, let’s pick some lesson from the factors which have been leading people to financial anxiety. The crisis has made the real world a perfect classroom for learning some most important financial lessons. Though adults have been suffering from financial anxiety, it’s perfect time to keep our children abreast with the money management skills for all times to come in a post-Covid world.

By now, people must have realized how financial crises let the things go haywire with no predictability or stability. So it’s most important to have a financial cushion reserved for unforeseen situations like the present crisis. Building an emergency fund should be now priority to save yourself from the impact of losing a job or drop in income. Here you can tailor the cloth according to your size.

We have seen access to loans, particularly personal loans, very much hassle free. This lured many people to bank upon loans which otherwise they could have avoided. The Covid crisis has left many borrowers penniless. We have witnessed trend in borrowers that they have committed up to 50% or more of their monthly income to repay EMIs (equated monthly installments). Now facing salary cut or even loss of jobs, these borrowers have no means now to repay the loans. So here is a lesson not to rush unnecessarily for loans when you can do without bank finance. Precisely, just because you are eligible to take a loan, does not mean you should consider more than necessary. If you need financial assistance, borrow minimal amount. Don’t go beyond 30% of your net monthly income.

Since Covid is primarily an extreme health emergency, it escalates a need to look for appropriate health insurance products. Don’t hesitate to cover yourself and family with an insurance cover. Without adequate health insurance, you can only see all your savings eaten up by hospital bills as cost of treatment, especially in private hospitals is always huge. Make sure the coverage is enough to pay the highest of bills.

As the Covid crisis has derailed domestic budgets to a large extent, households have been forced to cut spending. Cut in spending means people have to change their life style. So learn to control your spending for securing future.

As mentioned above to create an emergency fund for future, it also makes a sense to make some investment in a diversified way. Veteran investors have always suggested one thing – portfolio diversification. During financial crises, when one industry is impacted, others usually go up.

For example, the pandemic grounded all forms of transport, and the demand for oil has fallen considerably. Oil prices even were recorded negative for the first time in history. Contrary to this, the gold market surged. Investors have always taken to the shelter of gold when other markets did not guarantee returns. So, it makes sense to diversify you investment portfolio into various areas.

Meanwhile, this is also a good time to impart money lessons to your children. Majority of  us were either never really taught how to manage money, or maybe we simply avoided thinking about it because the situation was so dire. But we may have skipped money management aspects, today the dire need is to incorporate some simple money management skills among our kids and let them have a greater awareness of money to keep them fiscally fit for future in the post-Covid situation.

Since the habit of saving forms the backbone of the wealth creation, then why not expose our children to financial products where they can save and lay the foundation of wealth creation for themselves. The first step to start saving for your new born should be to open a savings bank account or a recurring account, to park savings and cash gifts. Relatives and friends invariably bring gifts for the new born, including cash etc. It is best to make use of these gifts. The gift cash should be immediately parked in the account.

Parents have to keep in mind that their kids and expenses grow together. Admission to a crèche or a nursery class could cost them a good sum. Once their kid is ready to go to school, they will need a lumpsum for school admission fees. To meet this kind of expenditure, parents should put some money in a fixed deposit scheme and plan its maturity around the year when their kid is ready to have admission in the school.

When your kid is mature enough, link his pocket money to a savings bank account. Expose your child to debit card and make him understand about the working of a debit card. And don’t forget to explain him the concept of credit card. Parents should be cautious while exposing the kid to credit card. Since banking transactions are now purely technology driven, it is good to expose your kid to the latest technology and payment modes, such as mobile banking. And don’t forget to monitor the spending habits of your child. A predetermined spending limit would ensure that the child does not go overboard.

Precisely, teach your children the value of money. It is up to you to see your kids reach adulthood prepared to face life’s fiscal challenges. So the theory is – earlier is better. In the short term, they may develop strong saving habits, learn how to make smart purchases, and begin to understand the true meaning of investment. In the long term, they can be helped to avoid accumulating debt. And by teaching the value of saving for the future, you as a parent can help them plan for financial security.

An ideal time to begin teaching your children about the basics of money is when they first begin to notice it. Where does money come from? This is a question which probes every kids mind. Parents should not hesitate to explain to their kids that money is earned by working, and that they can only spend what they earn.  In nutshell, parents should not forget to keep their kids fiscally fit.