On a news broadcast recently, a man was seen coming out of his bank with a shoebox filled with all of his life’s savings.
The sub-prime mortgage debacle is causing home foreclosures, the stock market is tumbling 5000 points, and banks worldwide are not only lacking enough liquidity to loan each other money but also to supply loans to individuals. It’s no wonder this man decided to withdraw all his money. But is this an appropriate response in dealing with this economic crisis?
With the stock market losing over a trillion dollars and banks unable to lend money to individuals to buy cars or grant tuition loans, it is understandable that almost everyone affected by this crisis is frightened.
Taking all of one’s savings out of banks is not the answer, however. Consider this for a moment. If we all went to our local banks and withdrew our money, the banks would have no alternative but to either shut down completely or ask the Federal Governments for assistance. Yes, additional bailouts.
Consider as well that if you have $250,000 or less in a savings, checking, or CD account, the money is insured by the FDIC. This was part of the Rescue Plan signed into law by the President of the U.S. Furthermore, throughout the world, billions of dollars is currently being infused into banks to increase the liquidity that was frozen by the toxic mortgage accounts as a result of the sub-prime mortgage crisis.
Let’s be honest; we are all worried about our individual financial situations. With over 600,000 jobs lost thus far, most households can no longer stay on budget and it is becoming increasingly difficult to weather this storm.
Just this week, General Motors had to lay off thousands of workers and are conducting talks with Chrysler regarding the possibility of a merger. Unemployment is on the rise, as is the cost of gas and food. Retail sales have fallen and businesses, banks, dealerships, and just about everyone is affected by this economic crisis.
It is completely understandable why some would want to withdraw their life’s savings from banks, but consider the alternative to this drastic act. There is no need for panic at this time. Our money is safe and insured in the bank. As a matter of fact, if you have been a customer of one of the banks that either merged or were purchased by another bank, they are still maintaining the same system as regards your money.
Franklin D. Roosevelt once said, “There is nothing to fear but fear itself.” Everyone affected by this crisis needs to read as much as possible about the Rescue Plan. Stay informed by reading the financial sections of your newspaper wherein you will find specific information as to how the government is handling the situation, and prepare for a long haul.
If you have not set a household budget, now is the time. If you can put away enough money to last the next 18 months, do so. We all have to tighten our belts; devise a plan and stick to it until this entire mess is sorted out.
More importantly, don’t panic. Sit down with your spouse and discuss how the economic situation affects the household finances. Explain it in simple terms (age appropriate) to your children so that they will not become frightened if they hear talk among other adults or among their peers.
It may take a while and it will take sacrifice, but this too shall pass and we will be stronger for it.
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