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Higher Unemployment
One of deflations most severe impacts is higher unemployment.
As prices fall, businesses earn less revenue, leading to cost-cutting measures like layoffs or hiring freezes.
Melanie Musson, finance expert withClearsurance, agreed that unemployment is a huge side effect.
In the current environment, there are jobs available.
Whether an unemployed person wants to take the jobs available is their choice.
In deflation, there wont be options.
Reduction in Economic Activity
Overall, experts note deflation often leads to reductions in economic activity.
This cycle is particularly damaging to economies heavily reliant on consumer spending.
Assets Lose Value
With deflation, your assets will lose value, Musson said.
But you wont be able to sell your house unless youre ready to absorb that loss.
Diversify Investments
Diversifying investments helps protect your assets during deflationary periods.
Justin Godur, finance advisor and founder ofCapital Max, equally advised the importance of maintaining a diversified portfolio.
To combat these effects, its crucial to take proactive steps, Godur said.
First, maintaining a diversified investment portfolio can help mitigate risks associated with deflation.
Godur agreed, citing it as a vital strategy.
Shirshikov said prioritizing debt repayment reduces financial strain.
For instance, focusing on high-interest debt first can provideimmediate financial reliefand reduce the overall burden, Shirshikov said.
This strategy helps preserve cash and ensures that resources are available for critical needs, Shirshikov said.
Strengthen Skills and Education
Investing inskills and educationcan enhance job security and employability.
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