Lessons Learned from COVID-19 can help Americans Recession-Proof their Finances: AICPA Survey

June 16, 2020

  • CPAs provide tips to help Americans fortify their finances and improve their overall financial well-being.
  • For members of the media, the AICPA has experts available to assist with stories.

NEW YORK (June 16, 2020) –Establishing an emergency fund is the most important step Americans can take to prepare for a potential sharp economic downturn with over half (57 percent) of CPA financial planners identifying it as the top priority, and 84 percent including it in their top three. This according to the AICPAs Personal Financial Planning (PFP) Trends Survey, conducted May 5th through May 26th, 2020.

In the last two decades, Americans have experienced the Dot-Com bubble and the subprime mortgage crisis which led to the Great Recession. Now, they are enduring the economic shock brought on by the COVID-19 pandemic, which interrupted a period of record low unemployment and a booming stock market.

“CPA financial planners work with their clients to develop plans that fit their personal situation and manage them through good and bad economies,” said Dave Stolz, CPA/PFS, Chair of the AICPA Personal Financial Specialist Credential Committee. “As many Americans experience layoffs and economic uncertainty due to the COVID-19 pandemic, it’s an unfortunate reminder of the importance of planning for a downturn even when the economy is doing well.”

Establishing an emergency fund was overwhelmingly the most frequently cited step to prepare for a potential sharp economic downturn, included in 84 percent of CPA financial planners’ top three. Paying off high interest debt (53 percent), reflecting on lifestyle and priorities (49 percent), and reviewing your investment portfolio for risk tolerance (47 percent) were the next highest priorities. Establishing a ‘crisis’ budget of essential bills (30 percent) rounds out the top five.

Top 5 Steps to Help Recession-Proof Finances

Step to take

% of CPAs who recommend in Top 3

1.     Establish an emergency fund/cash cushion of 3 or more months of expenses

84%

2.     Pay off high interest debt

53%

3.     Reflect on lifestyle and priorities

49%

4.     Review investment portfolio, including retirement accounts, to ensure they match current risk tolerance

47%

5.     Establish a ‘crisis’ budget of essential bills

30%

Members of the AICPAs National CPA Financial Literacy Commission have put together these 5 actionable tips to help Americans strengthen their financial situation:

Establishing and building an emergency fund.

"You will be surprised at how fast small investments can add up when consistently made over the long term. Allocating just a few dollars a day toward building up your emergency fund will add to significant amounts in just a few months. A great first step is to simply set a goal amount. Know what you are working towards and check in regularly. Remember, climbing Mount Everest is done one step at a time, not all at once, and saving for a large financial milestone like an emergency fund is no different.”

-David Almonte, member of the AICPA Financial Literacy Commission

How to pay down high-interest debt.

“Look at where your money is going each month, and reign in non-essentials. Find places you can easily pare back now, like recurring charges for subscriptions and memberships you rarely use and watch for costs that may have grown when you weren’t keeping close tabs. Set reasonable spending targets that leave a margin to pay down debt. If you have balances on credit cards, paying them down should be high on your list – you don’t want to be paying for last year’s purchases, along with interest charges, if this year’s income is interrupted.”

-Neal Stern, CPA, member of the AICPA Financial Literacy Commission

Lifestyle and spending priority considerations.

“When making a purchase, always consider your income and use credit sparingly so you’re staying within your means. While having credit can make high cost items easier to obtain, you may have costly interest charges and end up paying significantly more than the actual cost of the item. Don’t try to ‘keep up with the Joneses.’ Buying items just to show status may leave you with little funds for emergencies or anything else. Before you make a purchase, do your homework and consider if there is a lower cost alternative that might be more suited to your needs.”

-Tami Bolder, CPA, member of the AICPA Financial Literacy Commission

How to recession proof your investments.

“When it comes to investments, it’s essential for individuals of all ages to maintain a focus on their long-term goals and stay the course. A portfolio that reflects your current risk tolerance and time horizon is the best way to handle a market decline. To help manage exposure to market fluctuations, take time to revisit your asset allocation to make sure it is still in line with your financial goals.”

– Robert Westley, CPA/PFS, member of the AICPA Financial Literacy Commission

Creating a ‘crisis’ budget while in a financial distress

“Lay out your current income sources and see how those compare to current living expenses. Put together a crisis budget that only includes money you absolutely have to spend for the next 3 months – this is the amount you need to cover with any severance, unemployment, emergency fund and any other income you can bring in. When trimming back expenses, really focus on the ‘needs’ in your life prior to resorting to debt which may only provide a short-term solution to a much bigger and long-lasting problem.”

-Michael Landsberg, CPA/PFS, member of the AICPA Financial Literacy Commission

Methodology

The 2020 PFP Trend Survey on COVID-19-related financial planning issues was administered May 5-26, 2020 to members of the AICPA’s PFP Section and holders of the PFS credential. Input about the top steps recommend to help prepare finances for a potential sharp economic downturn was provided by 622 CPAs. The overall survey has a 95% confidence level and a 3.3% margin of error. Results for each question are for all respondents who answered that question.