Recovering Financially (and Emotionally) From Long-Term Unemployment

Recovering financially after a period of long-term unemployment isn't easy, but it is fairly straightforward: Pay off debts, rebuild savings, and adjust to a new (typically lower) income.

Recovering emotionally is far more complicated. Truly bouncing back from a job loss means retraining your brain and consciously shifting your perspective. And as the nation struggles to climb out of the worst jobs crisis since the Great Depression - the Labor Department reported Friday that the unemployment rate remains stubbornly high at 9.1% - millions of people are grappling with the issue.

Consider Rachel, who asked we not use her real name. Just two years ago, she was feeling flush. Single and in her mid-30s, she earned $85,000 a year at a major New York City financial institution. She owned a three-bedroom home close to where she grew up, which she bought in 2005 for $400,000. She ignored a broker's efforts to steer her into an interest-only mortgage, put down 40% of the purchase price and took out a 30-year, fixed-rate loan at 5.75%.

"I thought I was doing all the proper things," she says. Rachel built an emergency fund of $18,000, and had saved $60,000 in her company's retirement plan. "That little 401(k) I started when I was 24 or 25 -- that was my pride and joy," she says.

But now it's all gone.

Rachel was laid off from the bank in 2009. It took two years to find another job – in a southern state at less than half her previous pay. She drained her savings and 401(k), borrowed from family and used credit cards to continue paying her mortgage and other expenses. After two years on the market, the house finally sold in the summer for $330,000.

Rachel's story is emblematic of the "national crisis" described by Federal Reserve Chairman Ben Bernanke a speech last week: the most severe long-term unemployment since World War II, plummeting home equity, declining wages. Some 45% of jobless Americans have been out of work for at least than six months. In 2009, average homeowner equity -- the amount an owner would pocket after selling the house and paying off the mortgage -- stood at 39% in 2009, the lowest level in the post-war period, according to an analysis by the Economic Policy Institute. (As recently as the mid-1980s, it averaged 70%.)

Moreover, real median household income was $49,445 in 2010, a 7% decline from 1999, the Census Bureau reported last month. In addition, just half of workers laid off between 2007 and 2009 who had three or more years of prior job tenure have found new jobs -- and among those, 36% have salaries at least 20% lower than their previous pay.

"I think about the money I had a few years ago and it makes me nauseous," Rachel says. "I was looking at a quarter of a million dollars [in net worth]. Fast forward three years later and I have more debt than I do cash. Sometimes it just scares me to death."

From the sale of her home, Rachel paid off the mortgage, a $25,000 home equity loan, and her family members. She stashed the remaining $20,000 in the bank. She called her credit card companies repeatedly, negotiating the lowest possible rates -- 3% to 7% -- on her $24,000 debt. Rachel knows that from an interest rate perspective, it makes more sense to use her savings to slash the debt, but she's too traumatized by her recent experiences to wipe out her emergency fund. "What if something happens? No job to me now is secure," she says. "I'm shaken to the core."

Recovering from devastating financial loss can demand a radical shift in perspective, says Rabbi Benjamin Blech, 78, a tenth-generation Orthodox Jewish Torah scholar and author of Taking Stock: A Spiritual Guide to Rising Above Life's Financial Ups and Downs. He published it in 2003 after turning his $50,000 nest egg into $7 million during the dot-com boom -- and then losing it all. Granted, he still had his house, his job as a professor at Yeshiva University and his pension, but the trusts he planned for his children, grandchildren and the university were wiped out

"We can't confuse our net worth with our self worth, but we often end up doing so because we absorb that from the culture," Blech says. "Even I was doing that for a while, thinking, 'Wow, I'm worth this.' I had to re-identify myself and say, 'I am a husband, a father, a professor -- what is my value to my family, to society?'

"The biggest challenge was not to lose self-confidence and become depressed, because then I wasn't good as anything -- and I had a lot to contribute," he continues. "I had to redefine my worth by a different standard, and to that extent, I thought it was an invaluable experience."

Blech coped with his loss by researching the philosophical and spiritual masters on the topic of money and meaning, as well as contemporary authors, humorists and celebrities, whose ideas he peppers throughout his cathartic tome. He is passionate about positive thinking: "To focus on fear is to allow it into our minds and hearts and potentially into our future," he says. "Say to yourself, 'I am going to get through this.' There are people who have gotten through much worse. There's an old Jewish saying that if 10 people brought bags of their problems and put them in the center of the room, each one would choose to take their own bag back."

Emotional recovery also requires a huge mental effort. "It's increasingly well-known that the brain [registers] not just absolute amounts but losses and gains," says Columbia marketing professor Eric Johnson. On average, losses loom twice as large as gains," leading to an effect known as loss aversion. Even as Rachel makes financial progress -- she recently started making 401(k) contributions again, and she's chipping away at her debt -- her brain is wired to focus on what she's lost.

One study found people can overcome loss aversion by thinking like professional traders. "Basically, traders have up days and down days, and if they thought about each separately, they would miserable, because the down would feel twice as bad as the up days," Johnson says. "So think broadly. See how you are doing for the quarter or the year. Seeing the bigger financial picture turns out to be very powerful."

For instance, in the spring, Rachel can look back at the progress she has made in debt payoff and 401(k) contributions. She's decided to wait until January to check her credit score, hoping for a big impact from her debt pay down. She can also gauge her progress in boosting her income: After she was laid off, she designed and sold inspirational T-shirts at street fairs, and she's looking for opportunities to do the same in her new state.

It might also help Rachel to view money as part of a broader wealth portfolio that includes good health, family and friends, enjoyable co-workers, interesting work, and the like, says Johnson: "Think about all the good things about your situation before you think about the bad things."

Blech also advises that people reconnect with the aspirations underlying their money: "What is it we are really after?" he asks. "We are looking to be happy, and the world has conned us into believing the more money we have, the happier we are. I'm not talking about someone who is impoverished. [But] if your basic needs are taken care of and you let the loss of money destroy you, it wasn't the money that did it to you -- it was your response to the loss of money. The key has to be looking at what you still have. Hope is a wonderful word and it has to get us through."

Despite the losses, Rachel says she's grateful for her job and comfortable life. "I know I'm blessed, and there are people in worse-off situations," she says. In fact, she encounters them daily: She works with underwriters at the bank on mortgage modifications.

"I read hardship letters all day," she says. "We just have so many. We are starting to chip away at it for those you can save. For people with no money coming in, it's a sad scenario. I've been there and can relate to those people."


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Susan Hurley

Rachel bought a house for $400k, putting 40% down (so $160k) and financing the rest (so $240k). She sold it for $330k, so would that not leave her with around $100k after she sold it (for $330k)? How was $100k not enough to pay off her $50k of debt ($25k heloc and $24k credit cards)?? Granted, she had to eat and whatnot (and pay the mortgage), but NY unemployment is around $400 a week. Even after 2 years, with family around, she should not have been THAT far in the hole.

November 14 2011 at 10:45 PM Report abuse rate up rate down Reply
tmachine2

The major problem for the unemployed these days is the lack of jobs. There are 6 unemployed people for every job opening, and employers are only hiring people who've only been out of work less than 6 months or still working. This is morally wrong to discriminate on the basis of length of unemployment because the average job hunting time is 8 months. If you are in your 40s and above and you've been out of work for a long time, employers won't give you the time of day, unless you know someone. Corporations and businesses have to remember they are entities, not people. They got their corporate charters from the people, and they were supposed to be servants to the people, not just their CEO's and shareholders.

October 11 2011 at 10:20 AM Report abuse +3 rate up rate down Reply
Peter Baden

Seriously, time for mental anguish?Try to sleep at night knowing the debt is rising as you sleep!Emotional scars can run deep and are as painful as damaged nerves.I know, personally.I was unemployed-uninsured, when I had a heart attack (at 44 years).After recovery in a hospital for about 3 days-I dumped my retirement to pay medical costs.I have since worked the bill down some, and have had some work activity.Nevertheless--circumstances occur when "life as we know it" will throw you a curve.It can happen to anyone--at any time.In this article "Rachel" had money to fall back on when the times changed--so did I.Next time, will I be able to recover?I really am looking forward to an economy of promised growth.I need desperately to depend on a job that will sustain my "life as I know it!"

October 10 2011 at 8:46 PM Report abuse +3 rate up rate down Reply
Jetncat

Here's a thought? WORK YOU WAY UP and stop looking for top pay with huge benefits, you are probably not worth as much as you think you are. All of that hope and change made jobs scarce and people lazy. You need to be better, faster and brighter than the other guy. And who said competition is dead? Not in the job market it's not

October 10 2011 at 2:01 PM Report abuse -3 rate up rate down Reply
kernershort

Obama's Jobs Bill will not produce more jobs even if it is enacted, which it probably won't be. Lowering the payroll tax temporarily by a couple of percent will do nothing except steal more money out of the Social Security Trust Fund. Brilliant! The simple fact is that when companies need workers they pull them in off the sidewalk, and when they don't need them, they're out the door. Right now we have a lack of demand because of many years living above our means, transferring millions of jobs to China and the bursting of the housing bubble. The government is doing all the wrong things (as usual) and there will be hardship on many people (not the rich) for years to come.

October 10 2011 at 10:56 AM Report abuse +2 rate up rate down Reply
some12bo

This is Great Depression #2. With a deflating money supply, bubble level salaries and prices cannot be sustained. REITs will get hit too! Google for "DEFLATIONARY CRASH" to understand the deflationary forces in the economy. The debt load of the economy is too much. It cannot carry the burden of servicing excessive debt. Nothing has been fixed. Debt was the problem to begin with and we have more of it now.

October 10 2011 at 4:03 AM Report abuse +3 rate up rate down Reply
jhp41

The ones that hold such racist hate at the presiden, do not know their own banking history. From Reagan to the Bush's this was the plan. The crash started in 2007. The GOP has blocked over 200 bills to help bring jobs to America. Is Hate is better than Reason and Common Sense?

October 10 2011 at 12:37 AM Report abuse -1 rate up rate down Reply
3 replies to jhp41's comment
Gina

The gov bailed out the banks.. why not bail out all of us who lost our jobs and our mortgages are underwater? Why force everyone out of their homes just for the banks to sell them to someone else for a fraction of what we were trying to pay for them? They won't even let the owner of the home buy back their own home at that new lower price! It's a big SCAM! Why can't our gov force the banks to re write our mortgages to what our homes are worth today. Many people would be able to stay in their homes! Here in the Detroit area, the homes are being STRIPPED BARE. So if you have to leave your home and find a cheaper home, GOOD LUCK! People are taking EVERYTHING from entire kitchens, bathrooms and furnaces. Many have stripped the home right down to the last light bulb. Nobody wants to be a grinch but I can see taking every last thing instead of letting the bank get anything. Why should they be allowed to sell our home that we've cleaned and updated over the last 11 years! We've owned 3 homes with our bank over the last 24 years and have never been late on a payment not once! So you would think that long standing customers would mean something but they keep telling us they are a small bank and are not involved with anything Pres Obama has to offer. I say SCREW THAT! This is our home! We can't make the big payment right now and probably never again but why steal it from us and turn around and sell it for so much cheaper to strangers? Why not let us have OUR HOME at that new lower price! This is insane!
Even though my husband found a part time job, it's less than half of what he was making and I don't make enough to cover everything so unless something changes, we'll have no choice but to pack up and abandoned our home like millions of others. It's a living nightmare!

October 10 2011 at 12:34 AM Report abuse +2 rate up rate down Reply
3 replies to Gina's comment
newsrev9

No rest without blood on WallStreet!

October 09 2011 at 11:20 PM Report abuse +1 rate up rate down Reply
1 reply to newsrev9's comment
p041001

Like that will solve the problem? - I don't think so. It is a trap the cabal, the powers-that-be would love for people to fall into, though....it's called p-o -l-i- c-e state.

October 10 2011 at 1:38 AM Report abuse -1 rate up rate down Reply
BIG KELL

We've all been manipulated. We've all been conned. Should we have know it.....after a while, it should have started to become more and more obvious. I remember wondering: "Where the heck are these people getting the money to buy these huge houses, with their huge cars sitting out front." I thought I was making decent money (now unemployed) and saying.....the rule of thumb use to be...buy a house priced at 2.5 times your gross income. So I'm looking at homes for $400K, $500K.....$800K and thinking....."What ship sailed and left me behind?" Well, I found out....there was no ship......just the illusion of one. We've all been manipulated. We've all been conned.

October 09 2011 at 9:57 PM Report abuse +8 rate up rate down Reply