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How long do recessions last?

When drastic drops in the stock market, increases in unemployment, and rises in interest rates occur, the chance of a recession becomes a realistic possibility. Since the end of World War II, the United States has weathered 13 recessions, as determined by the National Bureau of Economic Research (NBER). This means we’ve had one occur roughly every six to seven years. Woah.

While most economists agree we may be in for another one in our post-pandemic world, parents and kids can do quite a few things to prepare and sail through it smoothly. So, if you're wondering, “How long do recessions last?” we’ve got the answer. Plus, how to plan for a recession and our top tips to prepare.

What is a recession?

On our way to answering “how long do recessions last?” defining what a recession is can help you grasp the entire concept in full.

Several definitions exist for a recession, but the general idea is that a recession is a widespread economic downturn that lasts for several months, consecutive quarters, or longer. Recessions are often characterized or accompanied by:

  • A bear market (decline in stock prices) 🐻 

  • Increase in interest rates by the Fed (Federal Reserve) 📈

  • Lower demand for real estate and a sluggish housing market 🏘️

  • Reduction in gross domestic product (GDP) 📉

  • Higher unemployment rate 📊

  • Significant decline in industrial production (like manufacturing and utilities) 🏭

Did you know? High inflation and recessions tend to run together, but they are two different events entirely.

What’s the difference between a recession and a depression?

While similar, recessions and depressions are different in terms of severity. Both have slowed economic growth and other issues, as listed above. A recession may lead to a weaker labor market, more widespread unemployment, and the extreme bottom of the business cycle that leads to a significant pause or slowdown in economic activity. 

Depressions essentially just last longer than a recession. The Great Depression was the longest economic downturn in U.S. history and lasted from 1929 to 1941. The Great Recession, however, lasted just two years, from 2007 to 2009.

How long do recessions normally last?

A smiling mom holds her baby on her lap while she looks through bills and receipts

So how long do recessions last? It depends. While the COVID recession officially lasted only a few months, others can persist for up to 18 months. By definition, the NBER states a significant economic downturn has to last more than a few months to be called a recession. The average recession has lasted 10 months since WWII.

Due to the complex nature of the U.S. and global economy, potential interest rate hikes, and global disruptions — such as war, disasters, or changing economic policies — predicting the length of the next recession is almost impossible.

As of October 2022, the National Bureau of Economic Research hasn’t officially declared a recession, although economists have warned of one.

But that doesn’t mean you should panic. Realize that recessions are an inevitability and find ways to stay prepared.  Create an ideal strategy for you and your family that’s achievable.

How to prepare for a recession 📉

Bulls and bears with green and red arrows represents the stock market's ups and downs during inflation

Because the last financial crisis occurred more than a decade ago, many younger adults may not have experienced one. Nevertheless, preparing for one — no matter how long a recession lasts — can help you move one step forward to solutions and even help you remain on task with your personal finance goals.

Pay down high-interest debt.

With high unemployment and possible layoffs or downsizing on the horizon, a recession is not the time when you want to worry about high-interest debt. If you have any outstanding short-term loans or credit card debt that aren’t necessities like a mortgage or a car loan, pay them off with any extra savings — money you can save from tighter budgeting or added income you can bring in.

Add to your emergency fund.

If you haven’t prepared an emergency fund in the past, now is the time to start. Typically, you want to have between three and six months of expenses in a savings account. This way, you’ll be prepared for an unexpected event — like a layoff or medical emergency. In a recession, you may want to carry that amount out to 12 months, if possible.

To determine how much you should save, add together the following monthly expenses:

  • Rent or mortgage payments

  • Utilities

  • Car payments or public transportation costs

  • Food

  • Health care

  • Personal expenses

  • Childcare expenses

  • Debt

Combine the costs for your family, multiply by 12 — and that’s how much you should set aside.

Find a second income stream.

Because the answer to the question “how long do recessions last?” isn’t always straightforward, a part-time job or moonlighting gig is a novel way to supplement your income. The gig economy has created a number of opportunities, such as Uber and Lyft, TaskRabbit, and Instacart. Seasonal jobs such as retail sales, customer service, or delivery driving can help supplement your income, even if you only have a few hours to spare a week.

However, you can also get creative. Low-cost startup businesses like a snow-shoveling service, freelancing services, or pet-sitting business are all viable ways the entire family could help add to your part-time income.

Greenlight tip: Are you a teen looking for a side hustle? We’ve got 20 ways to get you started.

Create a budget.

Whether or not you have a budget now, a recession necessitates one. That is to say, make sure you have a plan for your money and live within your means.

Buy everything with liquid funds, which means you should only pay what you can afford with a debit card or cash. Refrain from making purchases with a credit card unless you’re able to pay off your purchases in full within the billing cycle, so you don’t accrue interest. As a bonus, with some credit cards, you can earn reward points to use toward your bill or other purchases.

Moreover, you should determine how much you should spend on nonessential items. Start by trimming anything unwanted in your budget, like a membership or subscription you don’t use often. Then, take a look to see if you can reduce expenses in entertainment, dining out, or other items you want but don’t need. A family meeting or a talk with your kids about money may also be necessary, as you can teach them valuable life lessons while also explaining why you are cutting back on expenses.

Top tips to stay financially afloat during a recession.

Green bar and line graph with sun and moon on each side, representing volatility in the stock market

Preparation for a recession is half the battle, especially if you want to come out on top in a year or so. Once you’ve prepared for the impending recession, add a few of these ideas and tips to your to-do list.

Diversify your investments.

During a bull market, retail investors, institutional investors, and Wall Street pile into the stock market for impressive returns. However, recessions see dramatic downturns in individual stocks and exchange-traded funds, or ETFs, as financial institutions switch their balance sheets to safer investments. As a result, stocks become much more volatile, and recouping losses can take years.

To avoid substantial losses, diversify your investments. A standard savings account or certificate of deposit may suffice for many families. However, you can also buy U.S. bonds and treasury notes, which provide decent returns at zero risk to you.

Don’t be afraid of investing.

Millionaires are made during bear markets, according to historical data. So don’t be afraid of investing in stocks if the price seems like a deal.

Value and growth stocks can fall quite a bit during a recession, and this scenario may allow you to scoop them up at a steep discount. Avoid the fear of investments, find a great entry point, and you might come out of a recession with even more money just a few years from now. Consider dollar-cost averaging, a process of investing smaller amounts of funds over a longer amount of time, to avoid issues with trying to ‘time the market.’

Enlist the help of a financial advisor.

If investments are a bit over your head, you can always consult a financial advisor. These licensed individuals understand recessions and provide useful information on where to put your money. Most charge a fee based on your return or a low fee upfront, so you don’t have to worry about breaking the bank for some added assistance.

Make the most of a recession with help from Greenlight.

Mom sits with her two children and uses the Greenlight debit card and app to teach her kids about investing

While a recession can bring uncertainty and changes in spending, you and your family can get ahead of it and lighten the impact. As the popular saying goes, "Those that fail to learn from history are doomed to repeat it." So rather than let the stress get to you, use past recessions as a learning opportunity for the future.

With Greenlight, your entire family can stock up on financial literacy and discover money tips that can help cover all your bases.

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