The nation’s 19 biggest banks recently underwent “stress tests” ordered by the government to see how they would hold up if the economy deteriorated further.
Consumers should put themselves through a similar stress test to determine if their personal finances could withstand a job loss, a serious illness or any other unexpected event that would challenge their finances.
Such a test will tell you “am I recession-proofing myself from myself?” said Todd Mark, vice president of education at Consumer Credit Counseling Service of Greater Dallas, which developed a consumer financial stress test for The Dallas Morning News.
“What is my ability to cope with change if an external factor impacts me, if I lose a job, if my property value drops? How long would I financially be able to survive?”
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The severe recession has so traumatized consumers that many may not want to put their finances under a microscope. But ignorance isn’t bliss in the still-uncertain economy. In fact, it can set you up for a big fall.
“Most people approach their personal finances with their eyes shut and their fingers crossed,” said Lynn Lawrance, a certified financial planner at Financial Network Investment Corp. in Dallas. “They believe only optimistic scenarios will prevail, things will somehow work out and that reality won’t knock at their door.”
Even though the results of your financial stress test may not be what you had hoped, it’s crucial that you know where you stand so you can begin to fortify your finances.
Consumers who score low on the stress test should not be discouraged.
“A low score on the test doesn’t mean that they’re destined for failure,” Mark said. “It just means that their capacity to handle adversity is diminished. Their focus needs to be bolstering their financial strength so they can weather a storm.”