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Millennials rolled off the starting block and into adulthood just as the Great Recession was heating up. The oldest of them were still in their mid-twenties. With all the warning signs pointing to an impending recession today, it looks like their younger Gen Z siblings are headed for a similar fate.
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Today’s teens and twenties can’t do much about GDP, inflation, the stock market, employment rates, or whatever else makes a recession so miserable, but that doesn’t does not mean that they are helpless.
GOBankingRates asked financial experts from different fields what Gen Zers can do to strengthen their financial defenses in the face of the recession that so many analysts are predicting. They gave the following advice.
Young people want compound interest to work in their favor by investing, not in favor of the bank by borrowing irresponsibly, especially if economic trouble is brewing.
“Avoid debt,” says Meredith Lepore, personal finance expert at Credello. “It’s a fairly simple concept, but one that can be very difficult to implement. Avoid debt by living within your means and saving for big purchases.
If you have outstanding debts, Lepore recommends paying off those with the highest interest rates first.
“The reason is that the more debt you have, the more interest you will accrue,” she said. “That means paying off high-interest debt first will save you money in the long run.”
Some Gen Zers have already entered the workforce, but many more leave high school with the intention of pursuing their education first. If a recession is truly imminent, the last thing they want is to stumble out of college with student debt. Higher education is best achieved at the lowest possible cost.
“That could mean pursuing trade school or technical college instead of getting a bachelor’s degree,” said Melanie Hanson, managing editor of EDI Refinance. “That should definitely mean targeting a college for its low tuition, and maybe starting at a community college for even cheaper tuition. Unless you’re looking for extremely prestigious schools like the Ivy League or a handful of others, just having the degree is the thing that matters most.
Gen Z is the first generation in history to have grown up with social media, so it’s only natural that they confuse influencers with experts. With interest rates rising and the crypto and equity markets in the tank, it’s more important than ever to view influencer-based financial advice with a skeptical eye.
“Social media creators on apps like TikTok and Instagram often promote day trading and stock picking and try to convince viewers that it’s easy,” said Mark Henry, Founder and CEO of Alloy Wealth Management. “If it sounds too good to be true, it probably is. Even trained professionals can’t really predict and time the markets. It’s important to do your own research instead of just listening to financial influencers and talking to an advisor who can help you create a long-term investment plan.
If the pandemic has taught America anything, it’s that multiple sources of income offer more security in times of crisis than an emergency savings fund — although it’s still better to have both.
One of the best ways for Gen Z to protect themselves against the economic onslaught of a recession is to insure against job loss and unexpected expenses by bringing in cash from multiple sources.
“The parallel turmoil has become a crucial element in the fight against rising inflation and exorbitant rents,” said Brian Dechesare, founder of Breaking Into Wall Street. “An often overlooked benefit of having a side hustle is that it allows people to save and invest more of their overall income.
“In an uncertain world, saving for the future may seem futile, but it actually becomes even more important. In addition to allowing us to increase our savings, a side hustle can also allow people to put money into investments, which can be a fantastic tactic for building future wealth security.
Reshape your budget “muscle”
Right now, a recession is still only a possibility – but given enough time, an economic downturn is inevitable. The best thing Gen Zers can do right now before things get worse is to make a habit of tracking their spending. It’s a skill that will definitely come in handy when a recession sets in.
“You’ll want to build your budget tracking ‘muscle’,” said Julia Pham, CFP and Wealth Advisor at Halbert Hargrove. “Following a budget is like developing any other new habit. It’s not easy at first. There will be days when you just don’t feel like doing it. Break tasks into goals smaller ones and set aside time on your calendar to achieve this.
“Remember, when tracking your budget, pay special attention to your monthly needs or essential expenses — such as housing, transportation, utilities, medical bills, debt repayments, and food. – in relation to your desires, such as entertainment and travel.”
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