How To Cope with the Financial Crisis

When I learned early in the week about the turmoil in Wall Street and that the collapse of Lehman Brothers would probably impact on a number of local banks (around seven, as it turns out, plus AIG subsidiary Philamlife) my first impulse was to make panic withdrawals. But then I quickly realized I had nothing to withdraw. And this caused me to panic even more.

Which brings me to my point. I’m in the position of the many millions of Filipinos whose reaction to the worldwide financial paroxysm would be “Huh? What crisis?”. The Philippines is a nation in perpetual crisis. How can things possibly get worse than they already are ?

We won’t feel the effects of the impending worldwide financial meltdown immediately, except for those directly connected to the affected financial institutions or who regulary trade in the stock market or hold substantial portfolios. The rest of us, at least for the short term, can shrug our shoulders and return to the daily grind of eking out a living.

It’ll catch up with all of us eventually, in terms of lack of investments, a stagnant economy, inflation, unemployemnt and the myriad of evils unleased by the collapse of what were perceived to be U.S. financial powerhouses.

But I share the optimism expressed by my former economics professor, former NEDA chief Winnie Monsod, who believes we can weather this latest storm and have gone through much worse. She cites the oil panic of 1974 and the political troubles of 1983, when Ninoy was assasinated and inflation hit 50%. We are an inherently resilient people, according to Prof. Monsod.

Nevertheless, this upbeat outlook should be tempered by the knowledge that said previous events happened in simpler, some would say more innocent, times. Almost all financial institutions worldwide are now intertwined. And this interconnection occurs through complex and almost incomprehensible, and sometimes shady, instruments and arrangements which could bring down markets through the domino effect of a few main players going under, as what happened with Lehman. Already rumors are rife that Morgan Stanley will be the next to fall.

What to do ? Here are a few tips, given in the spirit of the old adage that those who can, do, while those who can’t, give out free advice.

1. Spread the risk – For those lucky enough to have cash on hand to worry about, place them in different bank accounts. It’s tedious, I know, but it’s the only sure way you won’t get get wiped out in the remote (for now) event that any of the major banks bite the dust. The PDIC will insure each account only up to 250k.

2. Cut back on expenses, budget, live simply – Make a budget and stick to it. Cut back on or remove altogether all unnecessary or luxury items on your shopping list. Scale down on your “lifestyle” spending. You’ve heard this a million times before. Now’s the time to actually practice it.

3.Avoid unnecessary debt – Some would say there’s no such thing as unnecessary debt in the Philippines. What I mean is simply be prudent in the use of your borrowing facilities, specially credit cards. Never use them for frivolities. As much as possible, always pay your accounts in full as they fall due. Falling behind on your payments can crush you financially, as many Pinoys have learned the hard way.

4. Keep saving – I know it’s hard during these lean times, but no matter how difficult the going gets, you still have to set something aside to meet unexpected, unforeseen but unavoidable expenses. You need an emergency fund of some sort to get you through a sudden rough patch.

5. Pray – A little faith goes a long way.

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