Why Economic Uncertainty Is Harder on Low Earners — and What You Can Control
Economic uncertainty can have a negative financial impact no matter how much money you make, but it’s especially tough on low wage earners.
To weather the rocky times, you need to take actionable steps so you’ll be prepared for worst-case scenarios.
Here’s a look at why economic uncertainty is harder on low earners and what you can control to remain financially stable.
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Impact on Low Earners
One of the main reasons economic uncertainty hits low earners harder than others is that they have much less margin for error. Low-income households spend a “significantly higher” fraction of their budgets on necessities such as food, gasoline and heating, according to a report from the UC Davis Office of Research.
When economic or geopolitical uncertainty pushes prices higher — as has happened recently — low earners feel most of the pain. They also have less savings to fall back on should they lose a job or experience a cut in income.
What Can You Control?
Planning ahead is “even more important for the socioeconomically disadvantaged than it is for high net worth individuals and families,” said Chad Cummings, attorney and certified public accountant (CPA) at Cummings & Cummings Law, who previously worked in finance and tax.
As part of his work, Cummings provides pro bono legal and financial services to qualified clients. Here are some of his tips about what low earners can control during times of economic uncertainty.
Review Your Credit Report and Dispute Any Errors
The best time to do this is right now.
“Damaged credit costs you more on car insurance, security deposits and borrowing,” Cummings told MoneyLion. “You cannot fix it under pressure after a layoff or when you're at the car dealership or bank.”
Research Government Benefits
Similarly, Cummings recommended doing this well before you actually need the benefits.
“Every program, whether state or federal, has a processing window,” he said. “Given federal workforce reductions, those windows are longer than ever and it only gets worse during a downturn when applications surge.”
Find a Legal Aid Office
“You should know your local legal aid office by name before you need it,” Cummings said. “Most law schools offer clinics for lower-income earners. Knowing where you stand in any dispute … gives you knowledge and knowledge creates negotiating leverage, which produces better outcomes.”
Learn About Hardship Programs
Another good step is to call contacts such as your landlord, auto lender and utility provider to find out whether they offer economic hardship programs. If so, Cummings recommended getting the terms in writing and sticking to the approved plan.
Open a Separate Account at a Different Bank
This should serve as a rainy day fund rather than a spending account, so don’t apply for a debit card when you open it.
“Put something in it every pay cycle — even a small amount,” Cumming said.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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