“Our bedroom wall tore away!” described Richard Goodis, a victim of California’s Northridge earthquake. “It felt like a jackhammer was going at it. I was looking at the ceiling one moment, then I was looking at the sky. I thought we were dead.” Most of us have not lived through an earthquake, but we empathize with the horror and utter vulnerability that seismic shifts bring. The earthquake Richard experienced was one of history’s most publicized natural disasters. TV screens across the world showed flattened apartment complexes, collapsed freeways, grotesquely twisted parking structures, and crumbling buildings.
Those of us who do not live in an area prone to earthquakes might think “why don’t they do something to mitigate their risk? Why don’t they ‘shore up’ their buildings and infrastructure? Isn’t there something they can do?”
I’m glad you asked! There are huge parallels between seismic shifts and economic ones and the California earthquakes can help shed light on the potential economic upheaval we might one day face. Here are a few of the parallels:
EARTHQUAKES | ECONOMIC SHIFTS |
Communities have a choice to “retrofit” buildings to protect from collapse…or not | Families have a choice to “retrofit” their budgets and assets to protect from stress…or not. |
Earthquake damage not only affects individual businesses and homes, but closes streets, creates tax burden, leaves utility service disrupted, etc. | Economic change and upheaval not only affect individual families, but puts strain on whole economy, national debt, tax structures, etc. |
Getting ready for something that might or might not happen is hard to swallow. Deciding to do nothing is the easier path. | Getting ready for something that might or might not happen is hard to swallow. Deciding to do nothing is the easier path. |
There are indicators – seismic activity, shifts in tectonic plates, etc. | There are indicators – huge stimulus bill creating more national spending and debt, political shift that seems to be increasing public spending, increased tax liability for high wage earners, slowing economy if/when higher regulations come into play, job closures, etc. |
When a quake comes, those businesses that aren’t directly impacted are able to expand their customer base and their influence. The businesses that stay open provide much needed goods and services to those who are impacted. | The expression “cash is king” is most true when you are in a personal time of transition OR a societal one. Reducing debt, lowering payments, and having an emergency fund all contribute to your preparation. When change comes, there is often opportunity that can only be taken advantage of when you have liquidity (access to money.) |
A report entitled “Economic Benefits of Earthquake-Resistant Buildings” by Evan Reis and Ali Sahabi (2019) points out the inevitability of more earthquakes. The Northridge earthquakes mentioned above are only about one-fourth as devastating as the “big one” to come. “California has more than a 99% chance of having a magnitude 6.7 or larger earthquake within the next 30 years.” One with magnitude greater than 7.5 is 46% likely. Knowing the risk, however, hasn’t necessarily resulted in action or change.
It doesn’t have to be that way. Let me focus attention on the economic side of this parallel. Could your personal ‘economy’ survive long if you lost your job today? Do you have an adequate emergency fund and a good grasp on your total financial picture? Are your investment accounts working for you in a way that prepares you for the future? Do you have an estate plan? Even if the ‘earthquake’ doesn’t hit your home, you can still be impacted by quakes in your community. When several people lose their jobs or lose their financial margin, this creates stress in the broader economy that affects everyone in some way.
We are not ‘sounding the alarm’ for a major apocalypse or desiring to create a fear-based reaction to your finances. We are, however, suggesting that you “retrofit” your personal economy to “shore up” your personal situation. If the quake never comes, you are no worse off! If tremors or full-blown quakes come, you will be very thankful that you were proactively preparing. One of the best ways to begin preparing for change or tumult in your finances is to have a conversation with a trusted adviser. We regularly see situations and scenarios that most people do not normally see and can make either general or specific recommendations to you. Newsletters and other communication like this are general in nature and help with broad preparation. When we actually meet with folks who are prepared to have a conversation, we can make more specific observations and recommendations – after carefully listening to you and your needs.
The cost to sit down with us is a little bit of time in advance preparation, so that the conversation is more productive. Contact us today!