AMES, Iowa -- With economists now saying the country is either in recession or teetering on the brink of one, the economy is hitting some families as hard as the winter weather of late. And for some families, digging out from underneath all their debt is much worse than digging out from all the snow.
Just as people winterize their homes or cars, Iowa State University's Tahira Hira says families looking to recession-proof their finances can prepare by planning and prioritizing.
A professor of personal finance and consumer economics in the Department of Human Development and Family Studies at ISU, Hira offers these recession-proofing tips:
1. Take time to distinguish between your needs and your wants. "And for the time being, focus on your needs," said Hira, who was recently appointed by President Bush to serve on the President's Advisory Council on Financial Literacy.
2. Prioritize your bills and/or payments due. "Keep your house, car and utility payments a priority, or at least keep them current," she said. "If you have to push the credit card payments back for the time being, or reduce the payment, that's the safer way to go. You don't want to skip on the others because you don't want to be without a house, car, heat or electricity."
3. Develop a plan for your spending. "And I do mean develop," Hira said. "Don't just spend. There's a difference between spending as your needs or wants arise, so plan it out to address your needs."
4. Eliminate or minimize the use of credit cards. "Only charge (through credit cards) items for which there's money assigned in your spending plan," she said. "So if you have a plan, it will guide you to do that."
5. Talk about money situations with both your family members and your lenders. "When developing a spending plan, you will need the cooperation and participation of your family members to follow it," said Hira. "One person cannot do it."
During her research on bankruptcy, Hira learned about the strain that parents experience due to their financial problems and how it has a great impact on their children.
"The children from among our research subjects didn't know what was happening, but they imagined the worst," she said. "They thought parents were divorcing, or something else bad was going to happen."
If young adults are developing the spending plan -- and they don't yet have a spouse or significant other -- Hira urges them to talk to their parents. "When they develop their plan," she said, "their parents should be involved because young adults often come to parents for money-related matters, and they should speak with them as the spending and payment plan is developed."
Hira adds that people who need help in reducing or delaying a payment -- particularly for a home, car or heat/electric bill -- should ask the lender or utility company for assistance.
"Just don't skip the payment and let them come after you," she said. "The right way to do it is to first approach the lender, and then follow-up. Even though it seems like a hard thing at first, I promise that they will work with you. If you simply choose to ignore their messages, then the process starts on their side and it becomes harder to get out of their machinery. Right now, the environment is pretty ripe for lenders to help people work through their problems.
"You also need to remember that when they loaned you money or services, you agreed to pay them back," Hira continued. "So you should have the courtesy to work with them to let them know you can't make the current payment, but you intend to pay them back in the future."
Hira just returned from the first meeting of President's Advisory Council on Financial Literacy at The White House. She is internationally known as a leader in family financial management, consumer credit and consumer bankruptcy -- publishing approximately 100 professional articles and book chapters and some 200 presentations. She was the founding president of the Association for Financial Counseling and Planning Education and both the president and vice president of Finance & Properties for the American Association of Family and Consumer Sciences.
