Things are going pretty well. Unemployment hit a six-year low, at 5.1%. The Fed continues to keep interest rates low. Gas prices have remained steady. And while wages haven’t risen much, the prospect of getting a job is easier with more jobs being added to the market.
Time to start doing some dumb stuff with our money, right?
According to last month’s Business Insider article by Morgan Stanley, that’s just what Americans are doing. With consumer confidence finally back after the Recession, people are once again starting to show signs of irresponsible spending.
Said Mike Wilson, chief investment officer of Morgan Stanley wealth management:
Consumers are feeling pretty good, and they are starting to spend money again, and they’re starting to do dumb things. They’re starting to borrow money, they’re starting to maybe buy that house they shouldn’t or that car they shouldn’t.”
Wilson warns that we are entering the final part of the recovery. It could last 2, 3, even 5 years… but the point is that we’re starting to show the signs of excess that brought us to the last Recession.
As UST reported back in November 2011, government isn’t always the best at preparing for economic downturns either:
State unemployment funds have been historically under-funded… For example, from 1938 to 1973 unemployment reserves lingered around 5% of wages, never dropping below 2%. That average fell to 1% in 1974 and hasn’t reached 2% ever since, meaning state UI funds have had the slimmest of financial buffers, let alone a buffer that could withstand a prolonged surge in unemployment like the one caused by the recent recession.”
The potential volatility of employer-funded state unemployment taxes (individuals don’t have to pay state unemployment taxes) is something that UST continues to keep a watchful eye on. Underfunding their unemployment reserves means many states aren’t prepared for the next downturn.
With 501(c)(3) nonprofit employers allowed a special federal exemption from paying into the state unemployment tax pool — instead reimbursing the state only when they have an unemployment claim — now might be the time for many nonprofits to consider this option, before the next downturn.
Donna Groh, Executive Director of UST explains, “When unemployment rates are low across the U.S., it’s easy to forget how quickly things can change. Preparing for unemployment claims is something every nonprofit should do. That’s why we started UST over 30 years ago – to help nonprofits build reserves based on their individual claim projections and exercise their federal right to opt out of unemployment taxes.”
While some employers with high claims are protected by the state’s unemployment insurance, others are overpaying into it. Nonprofits with 10 or more employees can find out if they are overpaying by requesting a free Unemployment Savings Evaluation here.