Whether you are the CEO of a Fortune 500 company or of your household finances, the constant uncertainty of these times can be paralyzing. From on-again off-again tariffs, to government firings and rehirings, to talk of both inflation and a potential recession, how can Americans move forward with confidence?
It turns out that we don’t need to be able to predict the future to be prepared for it.
Think about the weather: Between 2018 and 2023, three out of four people in the U.S. experienced an extreme weather event like a hurricane, a fire, or a flood. While the exact timing and force of these events may be impossible to forecast, the majority of us will experience them at some point, so we should prepare.
The same is true for our finances. While different economic scenarios bring their own unique challenges, the potential financial impacts are more predictable: paycheck disruptions, housing insecurity, unforeseen expenses. Any of these can be financially devastating. And so we also must be ready.
We can learn a lot from emergency management professionals who rely on a framework to ensure people are prepared for every stage of a disaster. It looks like this:
- Mitigation, or lessening risk before disaster hits. One of the most effective ways to reduce the ultimate impact of an emergency, mitigation might include planning to keep a business open if supply lines are cut or power is out for a prolonged period, or creating a household financial plan that preemptively increases savings and reduces spending.
- Preparation to soften the ultimate impact, also before a disaster occurs. This could mean ensuring your business or household has key documents printed and readily available; understands its health, property, or homeowners’ insurance policies; or has emergency resources available.
- Response to meet immediate basic needs after a crisis occurs. This could include assistance to help businesses and households rapidly access resources when banks and ATMs aren’t accessible or payment networks are disrupted.
- Recovery to adjust to the “new normal.” This doesn’t imply a wholesale return to the past, but instead adapting; for some it may mean rebuilding a business or home, and for others moving, as examples.
It turns out, this framework makes sense in all kinds of situations. In the face of the extreme uncertainty like we’re facing now, one of the best things to do to regain some control is to focus on the front end of mitigating the risks and preparing for the worst.
Take Sherman, a middle school teacher who has been building a small emergency fund with help from SaverLife, a nonprofit that leverages technology to help people save and improve their financial health. When a severe accident totaled his car, Sherman had the savings he needed to buy a replacement. He wasn’t happy about having to drain all of his savings, but doing so enabled him to continue to get to work and to make his student loan payments on time. Now he’s working a second job at UPS so he can rebuild his savings.
Yet, preparing for a crisis is hard when simply paying for daily essentials can break the bank. Consider this: between 1990 and 2019, the median family’s income grew 140%, but the cost of prescription drugs grew about 175%, childcare more than 200%, and higher education almost 400%. Housing costs are also a major strain: half of renters spend more than a third of their income on rent and utilities.
With statistics like these, it’s not surprising that more than half of Americans spend more than they earn and 44% don’t have enough saved to cover three months of living expenses.
Mitigation is particularly important for households with less of a financial cushion, and fintech firms are making it easier for people to reduce risk and build resilience. For instance, employers are increasingly turning to companies like Sunny Day Fund to help their workers build emergency savings. And a growing number of financial apps can help users find and cancel unwanted subscriptions in order to reduce expenses.
Some of the most exciting innovations are happening thanks to GenAI. One of the newest, Hiro, promises to be your AI personal CFO. One of the questions it can help answer: Do I have a large enough emergency fund given these turbulent markets and is it earning the best rate?
Private-sector solutions are more critical than ever and it’s time to get creative. What role can you play in building financial resilience for your customers, employees, and their communities?
Ultimately, it doesn’t matter if the next crisis is a hurricane or a recession. What matters is that we start preparing now so when the next storm hits – literal or metaphorical – we’ll be ready to weather it together.