The Great Recession was a major economic downturn that affected the global financial markets from December 2007. From that month, until the end of the recession in June 2009, the GDP declined by 4.3 percent, while unemployment rose to 10 percent — this took a long-term toll on the economy. Some areas of the United States are still feeling the repercussions from the crisis and may never see an economic recovery.

The Great Recession Then and Now

The downward spiral to the Great Recession began in December 2007, after two consecutive quarters of declining economic growth. At this point, the U.S. unemployment rate was already 5 percent. By July of the following year, several lenders specializing in subprime mortgages and other high-risk loans collapsed. This eventually resulted in a U.S. Treasury takeover of Freddie Mac and the Federal National Mortgage Association. Shortly thereafter, the brokerage firm Lehman Brothers declared bankruptcy—the largest case of its kind in U.S. history, with $619 billion in debts.

The decline continued, despite government bailouts, stimulus packages, and reduced short-term interest rates. By March 2009, the Dow had fallen to a low of over 50 percent more than its high of October 2007. Yet in June 2009, the National Bureau of Economic Research announced that the U.S. had made it through the Great Recession. However, the economic effects of this financial crisis are still being felt both abroad and at home.

From Great Recession to Great Reshuffling

In October 2018, the Economic Innovation Group conducted a study titled Charting a Decade of Change Across American Communities. Drawing information from the U.S. Census Bureau and the

Distressed Communities Index (DCI), the study combined seven factors to measure community economic well-being. These factors are:

• Poverty rate
• Housing vacancy rate
• Media income ratio
• Adults without high school diplomas
• Adults not working
• Change in employment
• Change in establishment

The report examined over 25,800 zip codes, which amounts to around 99 percent of the U.S. population. Researchers compared the areas across the above seven factors between two periods:
2007 to 2011, and 2012 to 2016. The study showed that one of the most significant reasons for the continued economic distress in certain areas was a lack of educational attainment.

Financial Distress Continues

The study revealed some startling facts about the lingering effects of the Great Recession, one of the main ones being that “86.5 million Americans live in a prosperous zip code and 50 million Americans live in a distressed one.” What’s more, the gaps between the prosperous areas and distressed areas are substantial.

Areas in the rural south show the highest levels of economic distress. These areas also show an over-representation of minority groups.

According to the study, the Great Recession’s effect on employment reached the prosperous areas of the U.S. two years later than the rest of the country, which means that distressed areas suffered a longer period of high unemployment.

The number of people living in poverty in the U.S. is increasing and is predicted to increase further. Some states, such as Florida, South Carolina, Michigan, Nevada, and Indiana, have experienced much larger increases in the rate of poverty than other states. Many Americans in the most distressed areas are trapped in a cycle of debt, preventing any personal economic growth.

The Catch-22 of the Cycle of Debt

For many young people who once aspired to better their lives, the cycle of debt now seems insurmountable. In an attempt to better themselves and bridge the gap between distressed and prosperous communities, many young residents went to college. However, this has only worsened their predicament because they ended up crippled by student debt.

This grim situation has a great impact on the residents of communities which are already suffering fiscal hardship, including:

• High delinquency rates
• Reluctance to seek higher education
• Low levels of employment
• Low job growth
• Few business opportunities

The Impact of Debt on Financial Wellbeing

Debt can have either a positive or a negative impact on financial wellbeing. Which way the pendulum swings will depend on the type of debt and the amount, as well as a person’s social and economic background.

However, over the past several decades, the debt burden of emerging adults has increased, particularly for those who have followed a path of further education and have incurred heavy student loan debt. This impacts financial wellbeing in several ways:

• Lower net worth: In many cases, a college degree opens the door to higher-paying employment. However, due to student loans, many graduates are struggling to build wealth because of the burden of their debt.
• Less home equity: Student loan debts prevent graduates from saving for or purchasing a home. More than 41 percent of student loan borrowers have delayed buying a home, while around 27 percent of them still live with their parents.
• Stifling spending: Because they are struggling to make ends meet, many graduates with student loan debt choose to spend less. This is highlighted by the fact that almost 50 percent of student loan borrowers have delayed buying a car because of their high monthly student loan repayments.
• Lower credit score: Student loans are treated the same as any other kind of installment loan in the eyes of credit bureaus. This means that if a student loan borrower fails to make payments on time, they risk negatively affecting their FICO credit score. This makes it more difficult for them to borrow money to buy a car or home in the future.
• Affecting job opportunities: Most companies perform a background check on prospective employees. If a student loan borrower has made late repayments which have impacted their credit score, this will show up on their background check. Prospective employers may view this in a negative light — many areas inflicted and still recovering from financial distress will face a high unemployment rate, especially within a competitive job market.
• It never goes away: Unlike many other debts, student loan debt sticks around until it has been paid off. For example, a student who cannot afford to make monthly car payments can return the car. This isn’t the case with debt for education. There is nothing to return because the money has already been spent.

The Emotional Impact of Student Debt

An often-overlooked impact of debt on financial wellbeing is the emotional/mental factor. It is a fact that continued worry about debt increases stress, and increased stress can lead to mental health problems, such as:

• Anxiety
• Fear and panic
• Depression
• Anger

On the positive side, the easiest way for people to get over these symptoms is to get out of debt. Although this is easier said than done, there are ways to overcome debt struggles and company owners and employers can offer safe solutions to increase financial wellness.

How TrueConnect Can Help

TrueConnect avoids the bureaucratic nightmare of employee loans and benefits services by offering a safe and effective way to provide your employees with a short-term loan. There are no hidden fees, penalties, or misleading terms. A TrueConnect employee loan is straightforward and simple. What’s more, it doesn’t cost the employer a penny.

That’s because at TrueConnect we understand how important it is for your employees’ monetary wellbeing and economic development for them to have access to safe and affordable loans. It also means that you can protect them from predatory lenders, which will keep them out of a cycle of debt and assist in their financial growth.

But at TrueConnect, we don’t just provide a temporary fix. We also offer all borrowers six free financial counseling sessions. These provide them with skills and tools to better manage their money, start saving, and reduce the chances of them getting further into debt.

Contact TrueConnect today to find out more about how you can help your employees avoid the cycle of debt and improve their financial wellbeing.