Answering Questions About COVID-19 and the Economy
May 2, 2020
How is the COVID-19 pandemic changing life for you and your family? You’ve likely been asked to make changes to prevent the spread of the disease. Your school has probably been closed. You might be practicing social distancing. You may even have been asked to stay home for weeks at a time.
But the pandemic is not just a health problem. It’s also a problem for the economy, and for many individual families, in a number of ways. We know you have questions. Here, we’ll walk you through some of the answers.
What’s the connection between the COVID-19 pandemic and money?
People across the U.S. and the world have been told to stay home or practice social distancing to slow down the spread of the new coronavirus. Although some things can be accomplished remotely—many people are working from home and shopping online, for example—others can’t.
Americans have had to stop eating in most restaurants. Gyms and stores are closed. Movie theaters and other places where large groups of people gather have been shut down, too. And entire industries, such as airlines and hotels, have seen their business vanish overnight as people have stopped traveling. All these businesses have less money coming in. Some have no money coming in. As a result, many companies have had to lay off or furlough employees. That means less money for individuals and families.
Why are businesses in my town closing?
In many states and cities across America, businesses that are not essential have been ordered to close to prevent the spread of COVID-19. These are businesses that don’t need to be open in order for people’s basic needs to be met. Hair salons, toy stores, clothing stores, and gyms are examples of nonessential businesses that have closed during this pandemic. While toys are fun and haircuts are important, these are not things you must have. Grocery stores, banks, hospitals, and gas stations are considered essential, so more of these are open. In most places, restaurants have been allowed to stay open, but only for takeout and delivery. Those that don’t make enough money this way may close on their own.
When will businesses reopen?
Unfortunately, no one knows for sure. But everyone hopes that sometime very soon, life and the economy will start getting back to normal. At that point, many businesses will be able to start bringing back some of their furloughed workers.
Until then, how are people who lose their jobs making money?
Together, the state and federal governments provide something called unemployment insurance. Usually, if you lose your job for a reason that isn’t your fault, you are eligible to receive money from your state that covers a portion of your salary for about 26 weeks. Because of the pandemic, those benefits have been extended for an additional 13 weeks. The federal government is making additional payments of $600 a week until at least July to people who lose their jobs.
What else is the government doing?
The government passed a $2.2 trillion law called the CARES Act. CARES stands for Coronavirus Aid, Relief, and Economic Security. The law was created to get money to people in the U.S. in a time of need. It allows for a number of things to happen, including payments of up to $1,200 per adult (and another $500 to parents for each child under 17). It also includes loans for small businesses. Payments on home loans, called mortgages, and student loans can be paused for a few months without penalties. Plus, the deadline for filing taxes has been pushed back by three months. The government also lowered interest rates, so it’s less expensive for people and companies to borrow money. Lower interest rates also encourage consumers to spend. All of these actions are designed to keep the economy going.
What is a recession, and why is the pandemic causing one?
A recession is a decrease in overall economic activity for an extended period of time. Recessions happen when consumers stop spending. Sometimes, consumers stop buying individual items because prices go up.
When gas prices are high, for instance, fewer people take road trips in the summer. But these individual changes don’t usually cause recessions. Recessions can happen when lots of people stop spending money on lots of things at the same time. The coronavirus has caused millions of people to lose their jobs in a period of a few weeks, and many more to worry that they may lose theirs in the future. As a result, and because people are staying home, spending dropped very quickly.
What’s going on with the stock market?
Lately, if you turned on the evening news or a channel focused on business news, you might have heard the word volatility. It means a tendency to change rapidly and frequently. That’s what the stock market has been doing ever since the country started dealing with the coronavirus pandemic: going up and down like a roller coaster.
Stock prices (which are what you pay for shares of companies like Disney, Apple, and McDonald’s) represent the current value of those companies. They go up and down based on how investors expect those companies will do in the future. Right now, there is a lot of uncertainty about that. Investors are trying to understand how companies will be doing in the coming months or even years, and many investors have sold stocks as a result.
When people sell stocks, stock prices fall. When the prices are down, other people think some of those stocks are bargains and buy them, sending prices up again. In the short term, we expect that the stock market will continue to be volatile. But for the long term, experts believe prices will go back up.
Have we ever had a pandemic like this before?
Yes. In fact, this may be the second pandemic, and the fourth global health emergency, you’ve encountered in your lifetime. Swine flu was a pandemic in 2009. Ebola was considered a global health emergency from 2014 to 2016, as was Zika in 2015 to 2016. What makes the current virus different is that it’s much more infectious than the others were. It has also infected far more people in a much shorter period. That’s part of the reason the economy is suffering so much this time.
What do experts think will happen next?
Experts believe that by practicing social distancing and staying home, people are helping slow the spread of the virus. These experts are working to figure out when and how it will be safe for us to return to normal life. Scientists are working on vaccines that will help us keep COVID-19 under control in the future. When life returns to normal, experts hope people will be able to go back to work, businesses will reopen, and the stock market will stabilize. It’s safe to say that everyone is wishing for a speedy recovery.
—By Rebecca Cohen
Click here for the Grade 5 Teacher’s Guide.
Extra! Click here to read a related article from TIME for Kids.