Corporate Taxes Poised to Rise After 136-Country Deal

 
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Nearly 140 countries agreed Friday to the most sweeping overhaul of global tax rules in a century, a move that aims to curtail tax avoidance by multinational corporations and raise additional tax revenue of as much as $150 billion annually.

But the accord, which is a decade in the making, now must be implemented by the signatories, a path that is likely to be far from smooth, including in a closely divided U.S. Congress.

The reform sets out a global minimum corporate tax of 15%, targeted at preventing companies from exploiting low-tax jurisdictions.

Treasury Secretary Janet Yellen said the floor set by the global minimum tax was a victory for the U.S. and its ability to raise money from companies. She urged Congress to move swiftly to enact the international tax proposals it has been debating, which would help pay for extending the expanded child tax credit and climate-change initiatives, among other policies.

“International tax policy making is a complex issue, but the arcane language of today’s agreement belies how simple and sweeping the stakes are: when this deal is enacted, Americans will find the global economy a much easier place to land a job, earn a living, or scale a business,” Ms. Yellen said.

The agreement among 136 countries also seeks to address the challenges posed by companies, particularly technology giants, that register the intellectual property that drives their profits anywhere in the world. As a result, many of those countries established operations in low-tax countries such as Ireland to reduce their tax bills.

The final deal gained the backing of Ireland, Estonia and Hungary, three members of the European Union that withheld their support for a preliminary agreement in July. But Nigeria, Kenya, Sri Lanka and Pakistan continued to reject the deal.

The new agreement, if implemented, would divide existing tax revenues in a way that favors countries where customers are based. The biggest countries, as well as the low-tax jurisdictions, must implement the agreement in order for it to meaningfully reduce tax avoidance.

Overall, the OECD estimates the new rules could give governments around the world additional revenue of $150 billion annually.

The final deal is expected to receive the backing of leaders from the Group of 20 leading economies when they meet in Rome at the end of this month. Thereafter, the signatories will have to change their national laws and amend international treaties to put the overhaul into practice.

The signatories set 2023 as a target for implementation, which tax experts said was an ambitious goal. And while the agreement would likely survive the failure of a small economy to pass new laws, it would be greatly weakened if a large economy—such as the U.S.—were to fail.

“We are all relying on all the bigger countries being able to move at roughly the same pace together,” said Irish Finance Minister Paschal Donohoe. “Were any big economy not to find itself in a position to implement the agreement,  that would matter for the other countries. But that might not become apparent for a while.”

 

Congress’ work on the deal will be divided into two phases. The first, this year, will be to change the minimum tax on U.S. companies’ foreign income that the U.S. approved in 2017. To comply with the agreement, Democrats intend to raise the rate—the House plan calls for 16.6%—and implement it on a country-by-country basis. Democrats can advance this on their own and they are trying to do so as part of President Biden’s broader policy agenda.

The second phase will be trickier, and the timing is less certain. That is where the U.S. would have to agree to the international deal changing the rules for where income is taxed. Many analysts say that would require a treaty, which would need a two-thirds vote in the Senate and thus some support from Republicans. Ms. Yellen has been more circumspect about the schedule and procedural details of the second phase.

Friction between European countries and the U.S. over the taxation of U.S. tech giants has threatened to trigger a trade war.

In long-running talks about new international tax rules, European officials have argued U.S. tech giants should pay more tax in Europe, and they fought for a system that would reallocate taxing rights on some digital products from countries where the product is produced to where it is consumed.

The U.S., however, resisted. A number of European governments introduced their own taxes on digital services. The U.S. then threatened to respond with new tariffs on imports from Europe.

The compromise was to reallocate taxing rights on all big companies that are above a certain profit threshold.

Under the agreement reached Friday, governments pledged not to introduce any new levies and said they would ultimately withdraw any that are in place. But the timetable for doing that has yet to be settled through bilateral discussions between the U.S. and those countries that have introduced the new levies.

Even though they will likely have to pay more tax after the overhaul, technology companies have long backed efforts to secure an international agreement, which they see as a way to avoid a chaotic network of national levies that threatened to tax the same profit multiple times.

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The Organization for Economic Cooperation and Development, which has been guiding the tax talks, estimates that some $125 billion in existing tax revenues would be divided among countries in a new way.

Those new rules would be applied to companies with global turnover of €20 billion (about $23 billion) or more, and with a profit margin of 10% or more. That group is likely to include around 100 companies. Governments have agreed to reallocate the taxing rights to a quarter of the profits of each of those companies above 10%.

The agreement announced Friday specifies that its revenue and profitability thresholds for reallocating taxing rights could also apply to a part of a larger company if that segment is reported in its financial accounts. Such a provision would apply to Amazon.com Inc.’s cloud division, Amazon Web Services, even though Amazon as a whole isn’t profitable enough to qualify because of its low-margin e-commerce business.

The other part of the agreement sets a minimum tax rate of 15% on the profits made by large companies. Smaller companies, with revenues of less than $750 million, are exempted because they don’t typically have international operations and can’t therefore take advantage of the loopholes that big multinational companies have benefited from.

Low-tax countries such as Ireland will see an overall decline in revenues. Developing countries are least happy with the final deal, having pushed for both a higher minimum tax rate and the reallocation of a greater share of the profits of the largest companies.

 
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The Role of Empathy In Improving Patient Care and Decreasing Medical Liability

Studies reveal that more than half of all practicing physicians demonstrate signs of burnout. Contemporary physicians face tremendous pressures due to a confluence of factors, including balancing heavy patient loads within constrained schedules, the increasing complexity of patient health problems, and increasingly burdensome COVID-related documentation requirements.

These circumstances—and more—challenge physician empathy, and even to some extent dampen it even further. Multiple research studies document a decline in empathy that appears to begin in the third year of medical school and persists during residency.  The pandemic has exacerbated this deterioration. In the past, empathy rebounded after the rigors of training were over, but today, empathy needs to be refreshed to help both patients and providers. Physicians who lose sight of the meaning, purpose, and rewards of their roles in patients’ lives suffer more from burnout than those who remain connected to their purpose.

The role of empathy training

In response to patients’ pleas for more empathic care and national media headlines calling for more compassion in medicine, which have been growing since about 2005, empathy training courses grounded in the neuroscience of emotions and emotional intelligence can be helpful. In fact, recent neuroscience research on the brain’s plasticity in up-regulating and down-regulating empathy provided evidence that empathy could be taught.

The research team in the Empathy and Relational Science program at Massachusetts General conducted a study of the effectiveness of the three, 60-minute empathy training courses in physicians. Researchers found statistically significant improvement in patient perception of physician empathy on a validated and reliable empathy rating scale called the “CARE measure.” Another study by the same team show that empathic physician behaviors resulted in higher ratings of both physician warmth and competence.

One of the most frequently asked questions about empathy training is, “Doesn’t this just add even more time to a busy doctor’s day?” Actually, it does not. Empathic care does not have to take more time. Courses on empathy training help health care professionals detect subtle emotional cues and nuances that indicate patient concerns so they can be addressed right away.

In addition, when physicians convey empathy, they put patients at ease, increasing trust in the provider-patient relationship. This creates a dynamic that ensures that small problems are addressed before they become bigger problems. Multiple studies have demonstrated that better medical outcomes are also correlated with strong empathy and relational skills.

Empathy training offers many benefits 

Courses based on empathy research and principles provide training for each of the following predictors of risk of increasing medical professional liability claims:

  1. Physicians’ uncaring attitudes, attitudes of superiority, or callousness
  2.  Communication failures including not listening, interrupting, or not being clear about availability or backup coverage
  3. Disparagement of previous care
  4. Failure to learn and manage patient expectations

Physicians can learn how to perceive patient emotions, manage difficult interactions, and communicate bad news. Empathy education teaches how to respond with empathy and compassion even in challenging situations, including informed consent conversations and inter-team conflicts.

In addition to greater patient satisfaction, doctors also discover the personal satisfaction that connecting with their patients in a more meaningful way provides.  “After empathy training, I feel that I like my work again, and instead of resenting all the demands, I’m remembering why I chose this profession in the first place,” a physician reported.

Interviews and research around empathy-based practices reveal that greater empathy not only improves patient satisfaction, but also helps to reduce physician burnout and improve physician job satisfaction. By using empathy-based skills, physicians, nurses, and other providers become more attuned to the needs of patients and their families. With this greater perception and shifts in attitudes, communication between providers and patients improves.

More empathic conversations will enable patients to trust their care to physicians who are confident in their skills without demeaning prior care they may have received. Patients will appreciate physicians who explain things clearly, ask about and understand their expectations, and form alignment about what is desired, likely, and possible.

Empathy-based training brings rewards

Through empathy-based training, physicians and other health care providers learn the skills to have honest informed consent discussions without causing undo fear, while also preparing patients for all possible outcomes. Empathic skills make for better physicians, better communications, and better conversations for all outcomes.

With a strong alliance, a reduction in medical professional liability claims is the result of increased trust, better understanding and expectations of all possible outcomes, and knowledge that physicians deeply care about their patients, because, when it comes to health care, empathy matters.

Helen Riess is a psychiatrist and author of The Empathy Effect: Seven Neuroscience-Based Keys for Transforming the Way We Live, Love, Work, and Connect Across Differences. This article originally appeared in Inside Medical Liability.

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Why The Replication Crisis Isn’t Psychology’s Biggest Problem

The last few years have seen a lot of discussion about a ‘replication crisis’ or ‘credibility crisis’ in psychology. Various scientific findings, it seems, don’t appear to be repeatable when other scientists run exactly the same experiments.

Most of the focus in this crisis is on how scientists behave: were the original experiments biased? Was the work sloppy? Was someone gaming the system or even cheating? But perhaps a more pernicious problem is deeply rooted in how people think.

Many people who practise, use and report on the science of psychology assume that thoughts, feelings, behaviours and other psychological outcomes are the result of one or two strong factors or causes. This is called a ‘mechanistic mindset’.

If we treat the brain and body like simple mechanistic systems, targeting one or two variables and leaving the rest unmeasured, then the impact of that fuller web of weak factors masquerades as a failure to replicate.

The absence of replication may, in fact, be the presence of meaningful variation. The structure of that variation can be discovered and modelled only when scientists design experiments to measure and observe it.

As such, psychology’s most cherished experimental method – the lab experiment – may need a major overhaul in order to observe and account for complexity.

Even when scientists carefully design experiments with complexity in mind, their results, when reported in the popular press, are often explained in mechanistic terms. News stories about science are simpler and more digestible when they have a pithy headline such as, “Brain circuit X causes fear” or “Gene Y causes depression”.

Is there a credibility crisis in psychology? Perhaps, but not the one that tongues are wagging about.

Psychological science may need to get its act together, not because its findings are unreliable, but because variation is being dismissed as noise rather than being investigated as something meaningful.

Psychological phenomena arise out of complexity, not from simple, mechanistic cause-and-effect.

 

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Source: Why the replication crisis isn’t psychology’s biggest problem – BBC Science Focus Magazine

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How to Overcome Your Fear of Failure

A client (who I’ll call “Alex”) asked me to help him prepare to interview for a CEO role with a start-up. It was the first time he had interviewed for the C-level, and when we met, he was visibly agitated. I asked what was wrong, and he explained that he felt “paralyzed” by his fear of failing at the high-stakes meeting.

Digging deeper, I discovered that Alex’s concern about the quality of his performance stemmed from a “setback” he had experienced and internalized while working at his previous company. As I listened to him describe the situation, it became clear that the failure was related to his company and outside industry factors, rather than to any misstep on his part. Despite that fact, Alex could not shake the perception that he himself had not succeeded, even though there was nothing he could have logically done to anticipate or change this outcome.

People are quick to blame themselves for failure, and companies hedge against it even if they pay lip service to the noble concept of trial and error. What can you do if you, like Alex, want to face your fear of screwing up and push beyond it to success? Here are four steps you can take:

Redefine failure. Behind many fears is worry about doing something wrong, looking foolish, or not meeting expectations — in other words, fear of failure. By framing a situation you’re dreading differently before you attempt it, you may be able to avoid some stress and anxiety.

Let’s go back to Alex as an example of how to execute this. As he thought about his interview, he realized that his initial bar for failing the task — “not being hired for the position” — was perhaps too high given that he’d never been a CEO and had never previously tried for that top job. Even if his interview went flawlessly, other factors might influence the hiring committee’s decision — such as predetermined preferences on the part of board members.

In coaching Alex through this approach, I encouraged him to redefine how he would view his performance in the interview. Was there a way he might interpret it differently from the get-go and be more open to signs of success, even if they were small? Could he, for example, redefine failure as not being able to answer any of the questions posed or receiving specific negative feedback? Could he redefine success as being able to answer each question to the best of his ability and receiving no criticisms about how he interviewed?

As it turned out, Alex did advance to the second round and was complimented on his preparedness. Ultimately, he did not get the job. But because he had shifted his mindset and redefined what constituted failure and success, he was able to absorb the results of the experience more gracefully and with less angst than he had expected.

Set approach goals (not avoidance goals). Goals can be classified as approach goals or avoidance goals based on whether you are motivated by wanting to achieve a positive outcome or avoid an adverse one. Psychologists have found that creating approach goals, or positively reframing avoidance goals, is beneficial for well-being. When you’re dreading a tough task and expect it to be difficult and unpleasant, you may unconsciously set goals around what you don’t want to happen rather than what you do want.

Though nervous about the process, Alex’s desire to become a CEO was an approach goal because it focused on what he wanted to achieve in his career rather than what he hoped to avoid. Although he didn’t land the first CEO job he tried to get, he did not let that fact deter him from keeping that as his objective and getting back out there.

If Alex had instead become discouraged about the outcome of his first C-level interview and decided to actively avoid the pain of rejection by never vying for the top spot again, he would have shifted from approach to avoidance mode. While developing an avoidance goal is a common response to a perceived failure, it’s important to keep in mind the costs of doing so. Research has shown that employees who take on an avoidance focus become twice as mentally fatigued as their approach-focused colleagues.

Create a “fear list.” Author and investor Tim Ferriss recommends “fear-setting,” creating a checklist of what you are afraid to do and what you fear will happen if you do it. In his Ted Talk on the subject, he shares how doing this enabled him to tackle some of his hardest challenges, resulting in some of his biggest successes.

I asked Alex to make three lists: first, the worst-case scenarios if he bombed the interview; second, things he could do to prevent the failure; and third, in the event the flop occurred, what could he do to repair it. Next, I asked him to write down the benefits of the attempted effort and the cost of inaction. This exercise helped him realize that although he was anxious, walking away from the opportunity would be more harmful to his career in the long run.

Focus on learning. The chips aren’t always going to fall where you want them to — but if you understand that reality going in, you can be prepared to wring the most value out of the experience, no matter the outcome.

To return to Alex, he was able to recognize through the coaching process that being hyper-focused on his previous company’s flop — and overestimating his role in it — caused him to panic about the CEO interview. When he shifted gears to focus not on his potential for failure but on what he would learn from competing at a higher level than he had before, he stopped sweating that first attempt and was able to see it as a steppingstone on a longer journey to the CEO seat.

With that mindset, he quickly pivoted away from his disappointment at not getting the offer to quickly planning for the next opportunity to interview for a similar role at another company.

Remember: it’s when you feel comfortable that you should be fearful, because it’s a sign that you’re not stepping far enough out of your comfort zone to take steps that will help you rise and thrive. By rethinking your fears using the four steps above, you can come to see apprehension as a teacher and guide to help you achieve your most important goals.

By: Susan Peppercorn / Harvard Business Review

Susan Peppercorn is an executive career transition coach and speaker. She is the author of Ditch Your Inner Critic at Work: Evidence-Based Strategies to Thrive in Your Career. Numerous publications including the New York Times, Wall Street Journal, Fast Company, the Boston Globe, and SELF Magazine have tapped her for career advice. You can download her free Career Fit Self-Assessment and 25 Steps to a Successful Career Transition.

Source: Pocket

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References:

17 Traits That Make a Successful Person Stand out from the Crowd  What Is Creativity?

We All Have It, and Need It 

How to Think Critically: 5 Powerful Techniques 

What Are The Levels Of The Mind And How To Improve Them 

How To Improve Short Term Memory: 7 Simple Ways to Try Now

7 Traits That Make a Successful Person Stand out from the Crowd

  Is There a True Measure of Success? How to Define Your Own

  How Do You Measure Success: 10 New And Better Ways

  50 Habits of Highly Successful People You Should Learn

 8 Daily Habits of the Successful People (Which Are Rare)

Want to Raise Successful Kids? Science Says These 5 Habits Matter Most

I’ve been on a mission, collecting science-based parenting advice both here in my column on Inc.com and in my continuously updated free e-book How to Raise Successful Kids, which you can download here.

Here’s a short but detailed look at five of the most useful studies that I’ve found, and the habits they suggest for successful parents.

1. Be a role model (but not their only role model).

Let’s give the plot twist up front: Kids need great role models, but one of the most important roles you can model is how you deal with failure.

Deal with it honestly, openly, and transparently. Let them see that you do sometimes try and come up short. Because, of course, they will fail at things themselves, and you want to teach them two things:

  • Don’t be afraid or ashamed of failure, especially if they’ve given it their all.
  • Rebound from it the right way.

A few years ago, researchers at the Massachusetts Institute of Technology ran experiments with children as young as 15 months old. The more their parents let them see that they struggled and failed at times, the more resilient the kids became.

“There’s some pressure on parents to make everything look easy,” one of the study’s leads said. “[T]his does at least suggest that it may not be a bad thing to show your children that you are working hard to achieve your goals.”

Beyond that? Make sure they have great role models, both in their lives and in literature.

2. Teach them to love the outdoors.

This advice seems especially timely as we emerge from the pandemic. But kids need to be outside.

Studies show that kids who spent a lot less time outdoors during the early days of the coronavirus crisis experienced a strikingly negative effect on their emotional well-being.

This almost seems like common sense, but we see it come up again and again in both children and adults.

These kinds of habits — and a lifelong appreciation for nature (or not) — can start young, and cost almost nothing.

Against this — and I’m no Luddite, and I know we live in a digital world, but — researchers have found that happiness and well-being among U.S. middle schoolers has declined steadily since 2012.

Hmmm, what happened in 2012? That’s when American kids largely started to get their own smartphones, combined with unlimited data plans.

3. Teach them to prioritize kindness.

A couple of years ago, psychologist and business school professor Adam Grant and his wife, Allison Sweet Grant, wrote a book about kids and kindness. In an article they wrote for The Atlantic around the same time, they made an interesting point:

  • More than 90 percent of U.S. parents say that “one of their top priorities is that their children be caring.”
  • But if you ask children what their parents’ top priorities are for them,  “81 percent say their parents value achievement and happiness over caring.”

There’s a disconnect. And it might stem from people not realizing one of the most fascinating paradoxes, which is that people who demonstrate kindness and caring for others are often more likely to achieve what they want as a result.

As the Grants put it:

Boys who are rated as helpful by their kindergarten teacher earn more money 30 years later. Middle-school students who help, cooperate, and share with their peers also excel–compared with unhelpful classmates, they get better grades and standardized-test scores.

The eighth graders with the greatest academic achievement, moreover, are not the ones who got the best marks five years earlier; they’re the ones who were rated most helpful by their third-grade classmates and teachers.

And middle schoolers who believe their parents value being helpful, respectful, and kind over excelling academically, attending a good college, and having a successful career perform better in school and are less likely to break rules.

We see this in negotiations, too: Develop empathy with the people you’re dealing with, care legitimately about what they want as well as what you want, and you’re more likely to reach a desirable resolution.

4. Praise them the right way.

There are at least three facets of praising kids well that I’ve found in my surveys of the research.

The first is to praise kids for their effort, not their gifts. I’ve gotten a bit of pushback on this idea recently, which I’ll address in a future column. But in short:

  • Good: I’m very proud of you. I saw how hard you studied for that test.
  • Not-so-good: I knew you’d do well on that test. You’re so smart and naturally good at math.

The second is to praise them authentically. Kids aren’t stupid (mostly). They know if you’re blowing smoke when you praise them for things that don’t really merit praise. But they also need reinforcement to know that you’re proud and think they’re doing the right things.

In one study of 300 kids, researchers found that:

When parents perceived that they over- or underpraised their children for schoolwork, children performed worse in school and experienced depression to a greater extent, as compared with children whose parents thought their praise accurately reflected reality.

Finally, however: Be generous with your praise in terms of quantity.

A three-year study out of Brigham Young University found that there’s no magic amount of praise, but it’s helpful to do so as often as possible. One trick might be to break down tasks and praise for each one specifically, as opposed to holding your positive reinforcement until the end of a task.

5. Be there for them, and then some.

This last bit of advice is perhaps the hardest because it flies in the face of one of the parenting clichés we all want to avoid: namely, becoming a helicopter parent.

That said, I’m going to combine studies here, and at least give you food for thought — if not a complete guide.

The bottom line up front is to be there, be vocal, and be involved, while still letting your kids do for themselves as much as they can.

  • Study No. 1: Researchers found that girls whose mothers “nagged the heck out of them” were less likely to become pregnant as teenagers, more likely to go to college, and less likely to have long periods of unemployment or get stuck in dead-end jobs.
  • Study No. 2: A series of studies, actually, found that parents who were quick to run to their children’s side when they faced big challenges or had setbacks — at almost any age — wound up raising kids who were more successful and had better relationships with their parents as they got older.

In short, you’re your child’s parent, and they need you to act like that: guiding them, pushing them, and showing that you’ll always be there for them. Do that much, and you’re doing quite a lot.

By: Bill Murphy Jr., http://www.billmurphyjr.com@BillMurphyJr

Source: Want to Raise Successful Kids? Science Says These 5 Habits Matter Most | Inc.com

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Critics:

Parenting or child rearing promotes and supports the physical, emotional, social, and intellectual development of a child from infancy to adulthood. Parenting refers to the intricacies of raising a child and not exclusively for a biological relationship. The most common caretaker in parenting is the father or mother, or both, the biological parents of the child in question. However, a surrogate may be an older sibling, a step-parent, a grandparent, a legal guardian, aunt, uncle, other family members, or a family friend.

Governments and society may also have a role in child-rearing. In many cases, orphaned or abandoned children receive parental care from non-parent or non-blood relations. Others may be adopted, raised in foster care, or placed in an orphanage. Parenting skills vary, and a parent or surrogate with good parenting skills may be referred to as a good parent. Parenting styles vary by historical period, race/ethnicity, social class, preference, and a few other social features.

Additionally, research supports that parental history, both in terms of attachments of varying quality and parental psychopathology, particularly in the wake of adverse experiences, can strongly influence parental sensitivity and child outcomes.

Parenting does not usually end when a child turns 18. Support may be needed in a child’s life well beyond the adolescent years and continues into middle and later adulthood. Parenting can be a lifelong process.

Parents may provide financial support to their adult children, which can also include providing an inheritance after death. The life perspective and wisdom given by a parent can benefit their adult children in their own lives. Becoming a grandparent is another milestone and has many similarities with parenting.

See also

5 Things You Shouldn’t Do During a Recession

In a sluggish economy or an outright recession, it is best to watch your spending and not take undue risks that could put your financial goals in jeopardy. What happens to the economy during a recession can negatively impact your personal finances and wealth. However, by being prepared and taking a few simple steps to reduce your risks, you can improve your chances of weathering the financial decline. Below are some of the financial risks everyone should avoid taking during a recession. 

Key Takeaways

  • When the economy is in a recession, financial risks increase, including the risk of default, business failure, and bankruptcy.
  • Avoid increasing, and if possible reduce, your exposure to these financial risks.
  • For example, you’ll want to avoid becoming a cosigner on a loan, taking out an adjustable-rate mortgage, and taking on new debt—all of which can increase your financial risk during a recession.
  • If you’re an employee, you’ll want to do everything you can to safeguard your job, such as performing top-notch work and improving your productivity.
  • If you’re a business owner, you might need to postpone spending on capital improvements and taking on new debt until the recovery has begun.

Becoming a Cosigner

Cosigning a loan can be a very risky thing to do even in flush economic times. If the individual taking the loan does not make the scheduled payments, the cosigner could be responsible to make them instead. During an economic downturn, the risks associated with cosigning a note are even greater, since the person taking out the loan has a higher chance of losing their job—not to mention the cosigner’s own elevated risk of ending up unemployed.

Cosigning potentially leaves you on the hook for the life of a loan. Consider other ways to help the borrower if you can.

That said, you may find it necessary to cosign for a family member or close friend regardless of what is happening in the economy. In such cases, it pays to have some money set aside as a cushion. Or, instead of cosigning, it may even be preferable to assist with a down payment or other types of assistance rather than leaving yourself on the hook for a cosigned loan on an ongoing basis. 

Taking out an Adjustable-Rate Mortgage

When purchasing a home, you may choose to take out an adjustable-rate mortgage (ARM). In some cases, this move makes sense (as long as interest rates are low, the monthly payment will stay low as well). Interest rates usually fall early in a recession, then later rise as the economy recovers. This means that the adjustable rate for a loan taken out during a recession is nearly certain to rise. 

While interest rates usually fall early in a recession, credit requirements are often strict, making it challenging for some borrowers to qualify for the best interest rates and loans.

But consider the worst-case scenario: You lose your job and interest rates rise as the recession starts to abate. Your monthly payments could go up, making it extremely difficult to keep up with the payments. Late payments and non-payment can, in turn, have an adverse impact on your credit rating, making it more difficult to obtain a loan in the future.

Instead, assuming you have decent credit, a recession may be a good time to lock in a lower fixed rate on a mortgage refinance, if you qualify. However, be cautious about taking on new debt until you see signs the economy is recovering.

Taking on New Debt

Taking on new debt—such as a car loan, home loan, or student debt—need not be a problem in good times when you can make enough money to cover monthly payments and still save for retirement. But when the economy takes a turn for the worse, risks increase, including the risk that you will be laid off. If that happens, you may have to take a job—or jobs—that pay less than your previous salary, which could eat into your ability to pay your debt.

In short, if you are considering adding debt to your financial equation, understand that this could complicate your financial situation if you are laid off or have your income cut for some reason. Taking on new debt in a recessionary environment is risky and should be approached with caution. In the worst-case scenario, it could even contribute to bankruptcy. Pay cash if you can, or wait on big new purchases.

Taking Your Job for Granted

During an economic slowdown, it is important to understand that even large corporations can come under financial pressure, leading them to reduce expenses any way they can. That could mean scaling back on operating expenses, cutting dividends, or shedding jobs.

Because jobs become so vulnerable during a recession, employees should do all they can to make sure their employer has a favorable opinion of them. Coming to work early, staying late, and doing top-notch work at all times is no guarantee that your job will be safe, but doing those things does increase your chances of staying on the payroll. From an employer’s perspective, it makes more sense to cut marginal workers rather than reduce hours or wages for their more productive employees. Make sure that you are not a marginal worker.

Taking Risks With Investments

This tip applies to business owners. While you should always be thinking about the future and investing in growing your business, an economic slowdown may not be the best time to make risky bets. Early on in a recession is not the time to stick your neck out. Later, as soon as the economy starts to show signs of sustainable recovery, is the time to start thinking big when prices for capital purchases and labor costs for new hiring are low. 

Especially avoid investment projects that would require you to take on new debt to finance.

For example, taking on a new loan to add physical floor space or to increase inventory may sound appealing—particularly since interest rates are likely to be low during a recession. But if business slows down—another side effect of recessions—you may not have enough leftover at the end of the month to pay interest and principal on time. Wait until interest rates just start to tick upward and leading economic indicators for your market or industry turn up

The Bottom Line

There’s no need to live a monk’s existence during an economic slowdown, but you should pay extra attention to spending and be wary of taking any unnecessary risks. Even in the midst of a significant economic downturn, there are many positive steps you can take to improve your situation and recession-proof your life. These include implementing a realistic budget, establishing an emergency fund, and generating additional sources of income.

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By: Investopedia Staff Reviewed By Somer Anderson

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Bad Credit Getting a Home Equity Loan With Bad Credit Mortgage Adjustable-Rate Mortgage: What Happens When Interest Rates Go Up Home Equity 5 Ways a Home-Equity Line of Credit (HELOC) Can Hurt You Real Estate Investing The Risk of Subprime Mortgages by a New Name Purchasing A Home Financing Basics For First-Time Homebuyers Mortgage How To Find the Best Mortgage Rates

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Understanding Recessions

Effect on the Economy

Effect on Businesses

Investing During a Recession

History of Recessions

Recession Terms A-F

Recession Terms G-Z

The Shapes of Recession Recovery

How To Accept Process & Learn From Failure – Chris Myers

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Take a close enough look at any life of note, and you’ll quickly discover a legacy of failure. However, it’s important to distinguish between failed experiments and failure in the Platonic ideal sense of the word. Experimental failure happens when you try something, and it doesn’t work the way you intended. We’ve all experienced this brand of failure before. Perhaps you once worked up the courage to ask someone out, and you were turned down. Or, maybe you launched a new product on the market only to be met with utter silence. Regardless of the form it takes, this kind of experimental failure hurts, but it still has a silver lining. These experiences enable us to learn from our mistakes, find new solutions, and grow as individuals……

Read more: https://www.forbes.com/sites/chrismyers/2018/09/18/how-to-accept-process-and-learn-from-failure/#39c393479ff6

 

 

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