Millennials, born between 1981 and 1996, have only lived through one recession, The Great Recession. This economic downturn lasted from 2007 to 2009 and if you were born later in the generation, you might only remember its effects from watching your parents deal with them.
Some financial analysts are predicting an impending recession, even with strong GDP growth and unemployment at its lowest since 1969. It might sound scary and it can be, but we won’t truly know how it will affect us until it is here.
For now, learning how to protect yourself from getting hit hard, as well as acting on those steps, can greatly benefit you if a recession does hit.
Recessions are defined by the National Bureau of Economic Research (NBER) as “a significant decline in economic activity spread across the economy, lasting more than a few months.”
This basically means that the economy does not just stop growing, but it begins to shrink and does not recover for a significant amount of time.
Why we may be headed towards a recession
If the GDP is strong and unemployment is low, why do big names in the financial game like Bank of America and Goldman Sachs think that our risk levels for a recession are on the rise?
Here are two of the big ones: the trade war and yield curve.
Well, some of the fear comes from the ongoing trade war between the United States and China. China is one of the U.S’s biggest trading partners, with both countries trading a combined $636 billion in goods in 2017.
With no end in sight, many experts fear that we could lose one of our biggest partners, seriously hurting our economy.
An inverted yield curve is often looked upon as a sign that a recession is coming. The yield curve becomes inverted when the interest rates for long-term bonds become lower than those for short-term bonds.
Unfortunately, the yield curve became inverted on August 14th, 2019, pushing some financial analysts to believe that we could see a recession by 2020.
How the recession will affect Millennials
These days, Millenials tend to get a bad wrap when it comes to finances. What many don’t know is that Millenials are one of the poorest generations in recent history and The Great Recession is believed to be a big factor.
Older Millenials are still picking up the pieces from The Great Recession, while younger Millenials are just starting to develop their financial habits. This could create a large difference in how different sets of Millenials feel the impact of the next recession.
The recession will impact Millennials in the following four ways.
1. Job market
The job market can already be difficult to navigate, and for Millenials, a recession could make it even harder. In the last recession, the unemployment rate jumped to between five and ten percent! This means over 15 million people were unemployed.
If a recession happens, you can bet that your company will begin to look for ways to save money on their budget. If your job function is not a necessity, you could be out of a job. If that happens, you can expect it to take longer to find a good job. When the job market is flooded with good candidates and there are fewer jobs, employers have much more room to be picky with their hires.
Luckily, if another recession hits, it is not expected to hit the housing market with as much force as The Great Recession. You could even have more luck buying a home, definitely, if you have a stable job and bulked-up savings.
Millennials, who were not directly impacted by the last recession could have an even better chance than other generations! Younger Millenials have not felt the blows to their savings account that those who went through The Great Recession felt, meaning that the market might just be in their favor.
If you have investments, you can almost guarantee that you are going to see them lose value during a recession. This might put you on high alert, but it is important to remember that with time, the stock market has always recovered from past recessions.
Before you make any quick decisions, it is a good idea to check in with your trusted investment advisor.
For Millenials, a generation with the third-largest amount of student loan debt of any generation, paying off debt might be one of the hardest things to do during a recession.
Due to potential troubles in the job market, Millenials can expect to have less money to pay towards debt during a recession, making it easy to fall behind.
How to recession-proof yourself
We can’t know for sure exactly when a recession will happen, but we can protect ourselves for when the next one inevitably comes. For Millenials, who are just starting to take control of their finances, this is an important step to safeguard yourself!
So in my humble estimate, I wouldn’t wait for a second longer.
Please note that I am not a financial advisor and these are just my best tips for protecting yourself.
Bulk up your savings
One of the best ways to protect yourself against a recession is to bulk up your savings. Having a financial safety net can help in case you lose your job or have an unexpected expense.
If you are an investor, your savings might come in handy for more than just emergencies during a recession. After you have built a solid emergency fund, consider saving some money to invest within the stock market. During recessions, the market can take big dips and the price of stocks can decline significantly. Using your savings to buy while the market is down can give your portfolio a big boost when the economy recovers.
While any savings is better than none, savings accounts with a high APY can help you get ahead even faster. Below are two accounts that I happen to like.
- CIT Savings Builder is an amazing high yield account that will help you grow your money. With an APY of up to 1.85%, you can let your money work for you! This account requires a minimum balance of twenty-five thousand dollars or a monthly deposit of $100 per month.
- Capital One 360 Savings is a favorite among many who are building their long term savings. This account offers a high APY of 1.80% on any balance, which is five times the national average. Plus this account requires no minimum balance, minimum deposit, and no annual fee.
Pay your debts
During a recession, money retention is important. Paying off your debts now and being careful not to create more is a very important step in preparing your finances for a recession. If during a recession you are having to spend your income on making debt payments, it is easy to start getting behind.
Balance transfer cards are great tools to help you pay off your debt. These credit cards take on all, or most, of your debt and make it easy to pay off in one place. One of the best features of balance transfer cards is their ability to take on your high-interest debt and letting customers repay it at a lower interest rate.
The Chase Freedom® Card is a favorite of those looking to pay off their debts. Chase Freedom offers a competitive 0% Intro APR on Purchases for 15 months and a 0% Intro APR on Balance Transfers for 15 months, and then a 16.49% – 25.24% Variable APR.
Also, Chase Freedom’s balance transfer fee is Either $5 or 5% of the amount of each transfer, whichever is greater.
So lots of options make this card attractive.
Make yourself invaluable
If a recession hits, chances are that many people will lose their jobs due to major budget cuts and the job market will be flooded with quality candidates. If you happen to lose your job, you must be prepared to compete with all of these other candidates if you intend to find a new job.
How to make yourself valuable will change depending on your industry, but passion alone is not going to carry you through. If you have been waiting for the right time to take a certification program or even just learn a new work-related skill, now is the time! Work on educating yourself within your field every day.
If you tend to skate by in the office, now may be the time to start stepping up. Work hard to solve problems before they escalate to your boss, try your best to meet every deadline, and don’t be afraid to speak up when you have ideas. Employers value people who are able to do the right thing for the company, without making their jobs harder.
Stay on the job hunt
You might love your job, but during a recession, it might not love you back. Staying one step ahead of the job market will help you just in case you are one of the cuts that your employer is forced to make.
Spending even ten minutes a day searching job boards, updating your resume, and planning for your next career step could make your possible transition into a new job much easier.
Diversify your income streams
Having one income stream is a pretty common situation, but it might hurt you if a recession happens. When businesses begin losing money, the staff are sometimes one of the first cuts that they make, and having one income stream could leave you in the dark.
If you lose your job, having a second, or even third stream of income can help keep you afloat. While a second job might not sound like a fun use of your free time, it can significantly better your financial situation. It can even help you pay off your debts earlier!
Trust the market
If you have investments, watching them take a dip during a recession might be difficult, but don’t make any sudden changes to your portfolio without checking in with your financial advisor. If the market takes a nosedive, it might be tempting to pull out of the market completely, but this can be worse for your portfolio in the long run!
At the end of the day, it is important to be patient and trust the market.
No one can truly say exactly how the recession will affect Millennials, or how long it will take them to recover from one. What we do know is that it is bound to happen again and when it does, you don’t want to find yourself unprepared.
Instead of being fearful of how it will affect you, start taking action now to help ensure that the next recession does not leave you struggling to recover.