Responding Well to a Rowdy Economy

As we approach the end of the dry, hot summer of 2012, it seems like every news outlet daily features a story on the drought. The latest image to stick in my mind involves a Midwest farmer holding an anemic ear of corn that is half the size it should be. Experts revise their estimates of crop yield downward in an inverse correlation with the increasing number of days without rain. One news story last week caught my attention. For the corn harvest, they said, a 50 percent drop in yield will likely precipitate a 1 percent rise in food prices. With the current projections for the corn crop, we will likely see a greater than 1 percent increase at the grocery store in the coming months.

I suppose economists have talked among themselves about interrelated matters for decades. My growing awareness of the complexity of the economy may be because I am paying attention these days in ways I have not before. I suspect, however, that the proliferation of information sources is also a factor. What may reside as a vague awareness for a while comes into focus with additional information. What may have been intuitive before, at least to a degree, finds expression with vocabulary and grammar provided by the economists through the media or Internet.

Such was the case with a report from the Federal Reserve. I knew personal finances had tightened, but I now have statistics to back it up.

Every three years the Fed conducts the Survey of Consumer Finances. The 2010 study, in a report released June 2012, showed that between 2007 and 2010 the median household income dropped 7.7 percent (all calculations included adjustment for inflation). The report indicated the typical household in my age group lost 3.8 percent in income. For my children’s age group, the decline in income was 10.5 percent. The decline in net worth was even more dramatic. Mostly because of the plunge in investments such as retirement accounts (which have partially recovered) and housing values (which have yet to recover), the median net worth of the typical American family decreased 38.8 percent between 2007 and 2010. For my age group, the typical decline in net worth was 32.6 percent. For households in the 35 to 44 age group, net worth decreased a whopping 54.4 percent. Clearly, younger adults suffered more economic pain in the Great Recession (or the Lesser Depression, as some call it).

Financial Decisions

I’ve been pondering one sentence in the report of the 2010 Survey of Consumer Finances: “Families’ finances are affected by both their own decisions and the state of the broader economy.”

There are economic forces over which I have no control, but which affect my financial wellbeing. Twenty years ago some economists predicted that in 2012 we’d be in financial distress because the Baby Boomers would have passed the years of their highest spending rates. Who knew that the post-war birthrate would affect the economy so strongly in 2012? Furthermore, as much as I would like to, I don’t influence when rains will drive the drought away. No one invited me into the conference rooms to participate in the decision-making that precipitated the banking catastrophe. And I have little confidence that a letter or phone call does much to poke a hole in the ongoing impasse that dams up economic legislation. All those things are beyond me. But I do make financial decisions every day, and I need to make the most of the control I do have.

The March 2012 issue of Reader’s Digest featured an interview with Reid Hoffman, a cofounder of the business networking site LinkedIn. The interviewer asked Hoffman about things employees can do to be prepared in uncertain times. Hoffman encouraged workers to “develop more transferable skills.” When you look at the skills required for pastoral ministry, many do not transfer well to other jobs—biblical exegesis, for example. The recent financial challenges faced by families transferred to financial struggles for congregations. As the ripple moves on, the compensation of some pastors has been reduced, and they now must work beyond the congregation out of financial necessity. If this is a trend that stays with us for a while, and I suspect it will, then we’ll have more bivocational pastors who need transferable skills to be competitive in a tight job market. Some pastors can take charge of their financial future by learning new skills.

Making changes to household spending patterns can contribute to financial stability in changing times and this sometimes means a diminished use of debt. The 2010 report from the Federal Reserve indicated households with any form of debt decreased by 2.1 percentage points. The number of households carrying a credit card balance decreased by 6.7 percentage points between 2007 and 2010. That’s good news. In the last few months I’ve talked with pastors for whom debt has become a weight that limits nimble reaction to unanticipated financial conditions. Lightening the debt load will make the ship more buoyant in choppy economic times.

As a child, I wanted the summer to last longer than the school calendar would allow. In 2012, however, I’m more than ready for some relief—let’s skip August and go directly to rain and cooler temperatures! The economic impact of the drought, however, will linger for months and will require careful monitoring for financial wellbeing.

Originally published by Pensions & Benefits USA.