Greece has stolen the headlines this week, understandably, but the truth is that another more interesting story is unfolding in China, with perhaps even a greater potential to topple world-wide markets.
What is Happening in Greece?
Greece cannot pay its debt. It needs a massive bail-out plan from the European Union (EU). However, the EU is playing hardball and will not approve a bail-out without imposing very austere reforms on the Greek financial system, which the voters overwhelmingly rejected. So, currently Greece stands on the brink of an ouster from the EU, which some say would not be such a bad thing. In the meantime, Greek citizens are very limited in what they can withdraw each day from their bank accounts and all online transactions that require non-Greece based servers are frozen, such as PayPal, Apple, and Western Union. At the time of this writing, the life support system had not yet been unplugged. EU and Greek officials are working feverishly to iron out a last-gasp agreement. No matter the outcome, the Greeks and perhaps other Europeans will have some difficult days ahead.
And in China?
Further to the east, the somewhat overshadowed story is the tumbling Chinese market. It is beginning to look like the American stock market crash of 1929, with the Shanghai Composite and Shenzhen Composite falling 29%–a 3.2 trillion loss in the last three weeks alone. The government is utilizing the media and all other communication outlets to caution the people against panicking and creating greater chaos. In the meantime, short-selling has been banned, no new listings will be allowed on the stock exchange and the People’s Bank of China is offering loans to investors to encourage the purchase of shares in a failing market—somewhat of a risky strategy to say the least. China has a lot more going for it than Greece, and it may very well pull out of this disaster, but should the market completely collapse the repercussions will be felt all over the world, especially in America where China is the second largest trading partner. According to economists at the Royal Bank of Scotland, US banks are highly exposed to China. The negative impact on the global market from China will definitely hit your portfolio.
What Should You Do About Your Finances?
- Reduce your debt. Pay off your credit cards. This is especially important as it is has been reported that interest rates will be raised, leaving you with higher borrowing costs. If you have multiple debt accounts, approach a marketplace lending company for a consolidation loan. This will leave you with one loan, and one monthly payment easily made through your bank account.
- Hold physical cash. The millennial generation may have been on to something. Studies reveal that the overwhelming majority of millennials do not maintain a savings account with banks. Where do they keep the cash? The head of one of Britain’s foremost bond funds suggests you keep cash under your mattress! And, this is in fact one of the places that millennials say they keep their cash. The main point is to diversify into cash-based assets such as gold, silver and secure savings accounts.
- Review your budget, or develop one if you have not already done so. Reexamine your short-term and long-term financial needs and goals, decide how you will meet them and stick to the plan.
- Invest in yourself. Pursue wage increases and bonuses, apply for an education loan from a peer-to-peer lender, examine your talents and see where there may be an opportunity for entrepreneurship.
- Do not panic. Keep your eye on your long-term financial goals, stay informed via reliable sources of what is occurring in the markets, and consult with professionals before making any drastic changes in your investments or savings strategies.