Types of Financial Crisis and How to Prepare for it

Crises certainly affect global and national sectors of the economy. Therefore, it is always worth knowing what the imminent financial crisis indicates and how you can prepare for it to survive this time.

The financial crisis is a time when the financial market is unstable and grappling with rapid changes. Banks, financial institutions, and other state entities become insolvent (go bankrupt) or are unable to pay their debts on time. The production of goods and services drops significantly or an already existing slowdown is exacerbated.

The effects of the financial crisis felt most strongly by citizens of states include a decrease in the number of available job offers and employment in many companies. For example, work in Szczecin is available to a much smaller number of people than a year or even several months earlier. Real estate and rental prices are rising significantly, interest rates are rising, inflation is rising, the value of the national currency is falling, banks are unable to support entrepreneurs and many companies are going bankrupt.

Types of Financial Crisis in the Market:

There are several types of financial crises. Each of them concerns a slightly different aspect of the functioning of the financial market. They all influence each other and drive further changes in the economic sector.
A currency crisis is a sharp and significant drop in the rate of a given currency and foreign exchange reserves. It is associated with an official reduction in the price of a currency denominated in another currency or gold. Financial market investors are losing confidence in a devalued currency and are selling it massively and suddenly.

A banking crisis occurs when banks are unable to grant loans and pay off their debts. This type of crisis is associated with a situation where the citizens of a given country massively withdraw their funds from banks, and no longer trust these institutions. It is difficult to predict the occurrence of this type of crisis because the activities of banks are partially covered by banking secrecy and the public most often learns about the failure of these institutions very late.

A banking crisis may be stopped by the intervention of state authorities and the provision of significant financial aid to banks. A currency crisis is very dangerous for banks and may coexist with a banking crisis. It is then a twin crisis.

Experts invariably point to the important role of the so-called financial pillow. These are savings that we put aside for the proverbial rainy day. It is impossible to determine the ideal amount that should be our financial cushion because how much money each person spends to survive for a certain period of time is a very individual matter.

During the financial crisis, it becomes even more important to periodically analyze the household budget and consciously manage it. You can’t prepare for a crisis without knowing how much money we need to pay the bills, how much money we spend on food, etc.

The most reliable human capital is his knowledge and skills. People who are versatile and quickly acquire new knowledge will cope with the financial crisis. Did you lose your job because a company operating in one of the industries went bankrupt due to the financial crisis? It’s okay, as you’ll easily find a job in another sector that is doing well at the time. Therefore, focus on your development, read, learn, and do not close yourself to skills and knowledge attributed to only one profession.