#MakeItMakeSense is a series by The Star that breaks down personal finance questions to help young Canadians gain more confidence and understanding of financial literacy.
A recession could be looming as many economists have expressed concerns that the Bank of Canada’s campaign to raise interest rates is likely to plunge the economy into recession.
Given that this would be the first experience young Canadians – particularly Generation Z – would have, many are wondering if there is reason to panic and what to expect.
While much of Gen Z hasn’t experienced an official recession, money expert Jessica Moorhouse said the generation got a glimpse of what typically happens during the peak of the COVID-19 pandemic. This was also a time when corporate budgets were cut and jobs were lost.
In 2008, young people coming of age at the time were hit hard by the Great Recession.
“It changed the lives of all millennials because we all sort of started our lives when that happened and that really defined our generation from the choices we made financially or professionally,” Moorhouse said.
So what can we expect in a recession today for young people in Canada who are similarly managing their career launch and personal finances? We brought in Moorhouse to give us her insight into this week’s #MakeItMakeSense.
What happens during a recession?
In a recession, you’ll find that unemployment rises, the stock market falls, and people are less willing to spend. Fears of job loss and the urge to save for emergencies are more present, Moorhouse explained.
“When I started (during the Great Recession), there were no jobs, just hiring freezes… It didn’t just affect people’s careers, it affected how much money they made, which then had a long-term impact. ” She said.
On the one hand, starting with lower salaries can have an impact on future income growth. And they and many others worked in contract jobs much longer than previous generations due to a lack of stable employment.
How do recessions end?
As people spend less, inflation may fall, but Moorhouse said it won’t have an immediate impact until things become more stable.
Due to the combined factors of people spending less, the stock market declining and the lack of job opportunities, interest rates have been lowered to encourage people to borrow and help restore stability to the economy, Moorhouse said.
The economy depends on people’s spending, Moorhouse said, but not too much as it drives inflation up.
“I think when inflation comes down…then there’s going to be a point where they’re like, ‘Okay, we’ve done too much, now we have to lower interest rates again to encourage people to spend’…People want ( changes) but immediately it will take a while,” added Moorhouse.
Should young people panic in a recession?
Moorhouse said the best advice she can give 20-year-olds right now is to be okay with a change of course.
During the Great Recession, Moorhouse was in her early 20s and had recently graduated. Navigating both in adulthood and in a new career, In the end, she applied for several jobs in different fields before she landed a marketing gig.
While she didn’t want to get into the field, she took the opportunity to make money and learn new skills.
Careers go in different directions, so it doesn’t hurt to try unexpected avenues to see where they can lead, Moorhouse said. Even if it doesn’t work out perfectly, it’s important to give yourself some grace, she said.
Young people shouldn’t panic, she said, but if they’re worried it’s never a bad idea to have a few backup plans.
For example, if you’re afraid of being laid off, you can start by making a list of other similar companies or organizations — inside or outside your industry — that you could potentially work for, based on your skills and experience.
“I think a lot of people realized during the[Great Recession]that even if you have a stable job, there’s no stability, you can still get fired… Any industry or company can make a decision to fire you,” Moorhouse said.
“There are so many different options, and when one doesn’t work, it can hurt, but if you turn around, you might find that you’ve discovered something that aligns with your interests and veers in a new direction,” she said .
How can young people prepare differently this time?
Moorhouse said recessions can be nerve-wracking, especially when it comes to jobs, but she said there are more opportunities for people these days to generate income and grow in their careers.
For example, Moorhouse has seen More and more young people are starting businesses online, engaging in freelance work and using social media to their advantage to earn money on the side.
“For me, we are in better times than we were in the last recession. It’s about your perspective, your mindset, and finding those opportunities,” she said.
Moorhouse adds that with inflation high, this is also a good time for young people to consider how to be conscious about their savings.
“Focus on paying off your debt and if you haven’t started investing yet… start focusing more on learning more.” When I invested early on, I didn’t understand what I was investing in. I wish I had taken more time to learn more about it,” she said.
Young people, she said, should not hesitate to invest at this time. Taking a moment to think about the future can help calm the panic and make wiser decisions. This is part of the economic cycle, Moorhouse said.
“It goes up and down and in those downturn times, that’s the time you want to free up cash flow, pay off your debt and invest in those investments so you buy cheap and it’ll go back up,” she said.
How much can you save on a good pillow?
Moorhouse points to her tips on emergency funds. It’s usually best to save on living expenses for about three to six months, but people can take that as a starting point and adjust it to suit their personal situation and needs.
She emphasizes that taking care of debt can give you more breathing room to focus on saving for emergencies.
“Once your (emergency fund) gets to a point where you’re comfortable paying off any high-interest debt so you don’t have those monthly obligations, then you can free up a few hundred dollars a month, and that could be a big one.” be difference. ” She said.
Additionally, Moorhouse said when financial difficulties hit, it’s okay for people to resort to frugal living to save money, whether it’s cutting monthly subscriptions or limiting the amount they spend on entertainment.
“I think a lot of people oppose thrift because it seems like it’s a permanent thing, but it doesn’t have to be… If you’re better off financially, you can add something to your budget,” she said.
“If you’re like, ‘I want to be safe because I really don’t feel safe with my income,’ then pause on a few things and see how you feel and if that makes you more comfortable, then that’s it worth,” he told Moorhaus.
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