Questions and Answers: Your Money and Coronavirus
Many families and businesses are feeling the financial strain of the COVID-19 outbreak. In recent days, the stock market has seen its worst day since 1987, Colorado has seen an unprecedented surge in jobless claims, and businesses large and small have been forced to make cuts. Chris Hughen is Associate Professor at the Reiman School of Finance at Daniels College of Business, and he shared his expertise in an email conversation with the DU Newsroom.
What kind of financial contingency plans should families make?
Families should use this as an opportunity to develop a long-term financial plan. The most important element of this plan is to eventually save at least six months of living expenses in cash. Put that money in a separate bank account and solemnly promise not to touch it when times are good.
How should individuals and families who may not have enough money to meet all of their financial obligations prioritize paying their bills in the coming months?
People need to prioritize their bills to ensure they can provide for their families’ essential needs — food, medical care and childcare. You also need to prioritize expenses necessary to keep or get a job. In this environment, hopefully, lenders will be more sympathetic to late payment on a mortgage or car loan. It is important to communicate with your lender if you are late in paying; Inform them of your plan to resume payments when possible.
What should individuals do with their investments during this pandemic?
The stock market is a great long-term investment. Since 1900, stocks have returned 9.6% per year. Investors in a diversified stock portfolio have rarely lost money if they’ve held their investment for at least 20 years. The lesson is to ignore short-term volatility and stay invested for decades, not days.
What’s your advice when it comes to 401(k) plans?
Focus on a long-term financial plan that includes a monthly contribution to your investment portfolio. It’s important to make saving a regular habit and increase your contributions over time. Pay yourself first by increasing your monthly investment contribution with each increase. Developing a long-term financial plan is the easy part. Sticking to the plan in good times and bad is the big challenge.
The Federal Reserve cut interest rates to almost 0%. What does this mean for the average person?
The Federal Reserve set the target interest rate for short-term interbank lending at nearly 0%. However, actual interest rates for consumers will vary depending on the risk and duration of the loan. Many homeowners can refinance and save on their mortgage payments. However, mortgage rates may not fall as much as government bond rates.
What does the public need to know about the IRS’ deferral of tax returns and payments?
Individuals can delay tax payments that were due from April 15 through July 15. At a time when many businesses have had to close their doors, liquidity (the availability of cash to pay for day-to-day expenses) is a critical issue for our economy. . This extension of the deadline gives many individuals the flexibility they need and costs the government next to nothing in times of low interest rates. This is a valuable policy change that will be made [prevent] To prevent bankruptcies and foreclosures and to enable our economy to recover quickly after the end of the crisis.
There is talk of the government sending checks to the American people to help with the financial burdens of COVID-19. Does that make a difference?
Unfortunately, many state instruments for combating an economic crisis only take effect after a long delay. Direct cash payments are an immediate boost to our economy. Unlike tax cuts, direct payments support people who have lost their jobs. Sending checks is one of the best ways to avoid a prolonged economic downturn.