What Do People Do in a Recession? Survey Finds Out

Here's the first step Americans will take when a recession hits.

It’s been almost nine years since the end of the Great Recession, which lasted from December 2007 to June 2009. It was the longest economic downturn since World War II. And during the recession, unemployment doubled, home prices decreased an average of 30 percent and the S&P 500 index fell 57 percent.

Although it’s impossible to accurately predict when the next recession will hit, some experts believe it will happen once the current economic expansion period ends, which is expected to be around 2020. With a recession looming in the near — or far — future, GOBankingRates conducted a survey to find out what Americans plan to do during the next economic downturn.

Keep reading to find out which steps Americans would take to survive the next recession.

Most Americans Will Cut Down on Spending If a Recession Hits

In a recent survey, GOBankingRates asked more than 5,000 Americans: “Of the following, what’s the first thing you’d do financially if the next recession were to hit in the near future?” Respondents could choose from the following answer choices:

– Cut down on expenditures/spending
– Pay down debt
– Increase amount put toward savings
– Diversify income
– Make plans to downsize (ex: sell car, home)
– Get out of the stock market

recession survey

Approximately 40 percent of Americans surveyed said the first thing they would do financially is cut down on spending. The next most popular answer — pay down debt — received 20 percent of responses.

Just over 11 percent said they would increase the amount they put toward savings, while the other choices received less than 10 percent of responses each: 9 percent said they would diversify income, 9 percent said they would make plans to downsize by selling a car, home or another asset, and about 8 percent said they would get out of the stock market.

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Seniors Are the Most Likely to Get Out of the Stock Market

All age groups said they would cut down on spending if a recession hits, but the popularity of each response did vary by age:

Q: Of the following, what’s the first thing you’d do financially if the next recession were to hit in the near future?
AgesCut down on expenditures/spendingDiversify incomeGet out of stock marketIncrease amount put toward savingsMake plans to downsize (ex: sell car, home)Pay down debt
18-2435.29%11.29%7.76%16.71%8.71%20.24%
25-3435.49%11.34%8.54%13.99%8.25%22.39%
35-4440.19%8.21%6.95%12.80%7.37%24.48%
45-5440.94%7.89%8.88%9.62%9.86%22.81%
55-6446.42%10.88%7.99%7.44%9.50%17.77%
65+49.46%8.81%11.69%7.19%7.91%14.93%

Gen Xers (ages 35 to 54) are the most likely to pay down debt. Older Gen Xers (ages 45 to 54) are the most likely to downsize.

Millennials (ages 18 to 34) said they would increase the amount they put toward savings and diversify income more than other age groups, while seniors (ages 65 and older) are the most likely to get out of the stock market and cut down on spending.

Women Are More Likely to Cut Down on Spending

Although both men and woman said they would cut down on spending more frequently than any of the other options, a higher percentage of women chose this answer than men.

Q: Of the following, what’s the first thing you’d do financially if the next recession were to hit in the near future?
GenderCut down on expenditures/spendingDiversify incomeGet out of stock marketIncrease amount put toward savingsMake plans to downsize (ex: sell car, home)Pay down debt
Female44.63%7.01%6.28%12.05%9.11%20.93%
Male38.73%11.83%10.62%10.21%8.23%20.38%

Nearly 45 percent of women said they would cut down on spending compared to 39 percent of men. Women are also more likely to increase the amount put toward savings, make plans to downsize and pay down debt. Meanwhile, men are more likely to diversify income and get out of the stock market.

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Consumer Spending Trends During Past Recessions

Historically, Americans have decreased consumer spending during recessions.

During the Great Recession, consumer spending experienced the most severe decline since World War II, the Bureau of Labor Statistics reports. The recession affected the purchase of durable goods across the board, with Americans buying fewer cars, furniture and appliances during the recession than they did during the prior boom period, the BLS found.

personal consumption recession

Previous recessions, such as the 2001 recession following the tech boom, did not have a significant effect on non-durable spending, i.e. spending on items such as food and clothing. But, spending on durables did decline. And the Great Recession did see a decline in all consumption components, including non-durable spending, according to a 2012 study by The Russell Sage Foundation and The Stanford Center on Poverty and Inequality.

Would Americans’ Lack of Spending Make the Next Recession Worse?

Although a decrease in consumer spending did not cause the Great Recession, it did prolong it, the Stanford study found. So the fact that most Americans say they will cut down on spending during the next recession is worrisome, as this could exacerbate the economic downturn.

“Cutting back on spending is a natural response to a recession,” said John Engle, founder and president of Almington Capital, a merchant banking and venture capital firm. “When you have less to spend, it’s prudent to tighten your belt a bit. But the consequence of too much belt-tightening by too many people and firms can lead to a longer period of contraction.”

“Lower consumer spending is a part of this, since spending is what ultimately drives business revenues, which allows them to profit and employ people,” he continued. “So less spending can mean businesses feel the squeeze.”

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Would Should You Do During a Recession?

An earlier GOBankingRates survey found that most Americans are not prepared for the next economic downturn. A future recession is inevitable, though, so it’s important to have a game plan to deal with it.

“Once in a recession, Americans can do a few things to improve their situation,” said Engle. “During the last recession, house prices fell through the floor. While that can be a problem for people with large mortgages, it can also provide an opportunity to refinance. Homeowners should also get their house value reappraised at a lower price. That can significantly cut down property taxes.”

Here are five other money moves you should consider:

1. Reduce Your Debt

Recessions often cause the price of consumer goods, such as gas, to drop. Take advantage of the money you save by using it to pay off any credit card bills or outstanding debt, the Wall Street Journal advises.

2. Stick to a Budget

If you’re not already budgeting, make sure you create and stick to a spending plan to ensure you can get through a recession without accumulating debt. Take note of your spending habits during a recession, and think about ways to save, such as eating out less. There are plenty of budgeting websites and apps that can help make this easier.

3. Protect Your Assets Against Inflation

To guard against inflation, consider putting a portion of your investments in Treasury Inflation-Protected Securities. According to Treasury Direct, “the principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater.”

Another way to protect your assets against inflation is to invest in commodities. When the recession ends, the value of commodities such as oil and copper will increase.

However, this is a volatile sector, so keep your investments in these industries to no more than 5 to 10 percent of your overall portfolio, The Wall Street Journal advises.

4. Approach the Stock Market Wisely

The best way to invest during a recession is through your retirement account, The Wall Street Journal reports.

Outside of your 401k or IRA, make sure your portfolio is diversified among stocks, bonds and cash. Stock prices will be low during a recession, so take advantage to rebalance your portfolio if it’s too heavy on bonds.

5. Don’t Rely Solely on Your Home and Stocks as Assets

The value of homes and stocks rise and fall with the economy, so it’s important to preserve what you have in other, more secure investments.

Consider investing in low-fee index funds, which are safer than stocks. And, have six months’ worth of earnings saved in a safe place, such as TIPS, certificate of deposits or bonds, The Wall Street Journal reports.

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Methodology: These findings are the result of a Google Consumer Survey that collected answers from 5,019 respondents from Jan. 8, 2018, to Jan. 10, 2018. The survey posed the query, “Of the following, what’s the first thing you’d do financially if the next recession were to hit in the near future?” Respondents could choose: (1) cut down on expenditures/spending, (2) pay down debt, (3) increase amount put toward savings, (4) diversify income, (5) make plans to downsize (ex: sell car, home), (6) get out of the stock market, (7) nothing, (8) other. Analyses are based on all responses, excluding “other/nothing” answers.