Financial Lessons Learned from Hurricane Katrina

The financial world is in chaos. World leaders are scrambling to save economies that up to now, seemed to need little more than interest rate regulation. Government bailouts, take over of major financial institutions and decimation of retirement accounts have set our society in turmoil from the highest in government to individual citizens. We are in the midst of a kind of economic hurricane Katrina and we need to know how to best weather the storm.

As Katrina approached the gulf coast, people in New Orleans were encouraged to evacuate but many ignored the warnings and stayed behind. They later found themselves stranded on their rooftops having lost everything. If, like them, you do nothing, in this financial storm, you may find yourself stranded or worse. The warning signs are all around us. It is not time to hunker down and hope that the storm blows over. It is time to take action.

Reconsider what you have, what can be saved and what you might have to count as a loss.

In personal finance terms, it comes down to revaluating your wants and your needs. Luxuries that become a habit have a way of looking like necessities when they are not. We all should examine the ways we spend money and reconsider our habits. How much of our spending is on luxury and how much is on necessity?

If we do not tighten our belts voluntarily, they will be tightened for us. In the throws of Katrina, stranded people were hungry and parched and help did not come for a long time—too late for some.

For some of us tightening the belt a notch may mean public transportation rather than driving to work. It may mean packing a lunch rather than eating out. We might dry-clean less often. We might eat at home more, turn the lights off when we leave a room or wear a sweater rather than turning up the thermostat this winter.

Do we really need to spend four or five dollars on a cup of coffee? Sorry Starbucks, I own a travel mug and can brew a decent cup at home. If I am going to go out for a cup, it will be the basic model, not the frothed-up, price-inflated version. How about cutting your prices for your loyal customers who have spent so freely?

Do not wait for the government to save you. They are not prepared for it. Our government and FEMA were taken completely by surprise by Katrina and the process was mismanaged and mistakes made from the very beginning.

Remember the economic stimulus check you received at the beginning of the summer. It was like throwing a pizza at 30 or 40 really hungry people. The big story at the time was how very few people were actually spending it in the way the government hoped. Now we are bailing out banks to tune of billions of dollars because of their bad, even predatory lending decisions.

Looters are on the loose. As citizens of New Orleans were forced to turn their backs on their homes and businesses to save their lives, looters were right behind them picking up was they left behind.

Beware of unscrupulous offers of credit, pay-day loans, easy financing and guaranteed satisfaction. Think twice before moving your investments on the advice of someone who needs to make a living off of your decisions. Read the fine print of offers on insurance that will make your payments for you if you are unable to do so. Anyone who offers an easy solution in a time like this is selling snake oil.

Just after the storm, creditors were very patient and cooperative with credit card holders and were very understanding about late payments and lost cards. How long do you suppose creditors left accounts open for displaced Katrina victims who were no longer employed and could not pay their bills? It wasn’t long before accounts were being closed for various reasons, all of them legitimate.

Learn to live without your credit cards. Using credit now just means you will have to pay more later. Interest rates often double or even triple the cost of your purchases if you are carrying balances from month to month and making minimum payments. In a tight economy, why would you pay more for something just to have the simple convenience of using a credit card?

Most everyone has debt obligations and when it comes to prioritizing which creditor gets paid and which does not, credit cards fall to the very bottom of the list because the debt is unsecured. At the top of the list are your mortgage, legal obligations like child support and your taxes. Think of long-term consequences rather than short-term inconveniences.

There is going to be a very fowl mess to clean up. More than three years later, there are still homes in New Orleans that have not been cleaned out, gutted or torn-down and the job of cleaning up that mess gets more and more difficult as time goes by.

Financial storms can cast very long shadows. Lost opportunities, damaged credit reports and investment losses may require years of recovery and rebuilding. The thing to remember is that you can rebuild and though things may never be as they were or as you planned them, you can and will survive and even find happiness. In the midst of the storm the best we can do is to try and limit the damage.

Profiteering will be rife. In the recovery process after Katrina, gross profiteering was not only everywhere, it was obvious. Even today, building supplies are at a premium price even at the national chain stores. Contractors in New Orleans can charge two and three times their normal rates. Long waits in line and even longer waiting lists for contractors betray how willing some are to pay the price of recovery.

As we emerge from this crisis, and we will come out of this, there will be some who promise quicker and easier recovery. Call them economic ambulance chasers. They will promise investments with large and quick gains. They will offer to repair credit reports, provide quick easy access to bankruptcy and offer easy credit terms. If it sounds too good to be true, it is.

Remember the fundamental rules. Promises of high returns naturally carry corresponding risk. The more an investment opportunity promises a return, the more likely it is that you can also lose your shirt. There are no secrets to credit repair. You can do it all yourself and the information you need is free and readily available. And anytime there is a legal way out, like bankruptcy, debt negotiation or tax settlement, there are consequences that are unavoidable. You should find out what they are before you sign on the dotted line.

There will be help. Volunteers and charities poured into New Orleans after Katrina as if a levy of a different kind had been breached.

It is difficult to say what kinds of real help will be available after this economic storm. They are limited only by our ingenuity and our capacity for kindness. Ultimately, however, each of us is responsible for our own financial well-being. Be careful; it is a gale out there.

Joseph Onesta is a Speaker, Trainer and Consultant with Integrity HPI. His practice focuses improved work environments that develop an "employer of choice" reputation for his clients while facilitating the work-life balance of their employees. As former Director of Education and Training for Consumer Credit Counseling Service of Los Angeles, he offers seminars and workshops in Personal Finance Employee Education.