How Millennials (and Younger Generations) Can Prepare for the Next Recession
By Amanda Finn
From tackling debt to picking up a side hustle, here’s how to prepare for financial downturns.
Recession talk has been especially relevant since the Dow dropped more than 750 points in one day back in August 2019. Although no one can know for certain when the next recession will come, economists believe it will arrive sometime in the coming year.
According to Ben Carlson, director of institutional asset management at Ritholtz Wealth Management, recessions in the United States have averaged once every five years since World War II. That statistic doesn’t seem so bad considering from 1836-1928, the United States was averaging one recession every 2.1 years. With that in mind, it’s been nearly a decade since the end of the Great Recession. And for many young people, the forthcoming (and inevitable) recession will be their first in the workforce.
So how do you prepare?
Aside from the obvious tightening of belts and watching budgets, there is actually a lot you can do to protect yourself and your financial well-being from a recession. Because they happen so frequently, it’s a good life lesson to learn as early as possible.
Ditch the debt
When a recession hits, you might find yourself more strapped for cash. If that happens and you’re straddling a lot of credit card debt, personal loans, or other types of debt, it will be even harder to knock it out. If your budget takes a hit and you can only pay the minimum payments, you’ll be stuck with even more debt than you originally had, thanks to interest fees. With that in mind, tackling that debt before the going gets tougher is probably your best bet, as it will only become more difficult as additional economic stressors arise.
Jo Yurcaba at Bustle addresses debt repayments as a major consideration for forthcoming recession woes. Especially for millennials who are battling with basic living expenses, student loan debt, and lack of savings, debts will be a big problem when the recession hits.
“The debt left by attending college, or the impact of having mostly-stagnant wages while cost of living continues to rise,” Yurcaba writes, “means many millennials also don’t invest and don’t save, which could both become even more difficult during a recession if they lose their jobs or have their hours cut.”
Consider a side hustle
Not only will a side hustle enable you to pay down debt faster, but it will give you a leg up when the recession comes. In the gig economy, it’s easy to pick up certain hustles like Uber or Lyft or food delivery, and if you already have experience built up, it will be easier to hang onto the hustle when the recession arrives.
There are a variety of things you can do, such as increasing your financial literacy, to prep for the recession. It’s only a matter of time before one arrives, but Yurcaba says it’s not time to freak out yet. Prepare, yes. Freak out, no.
“Much of the worry for millennials ahead of a potential recession is due to the way the Great Recession impacted older millennials, who entered the job market when unemployment was near 10% (that’s very high),” Yurcaba writes. “According to [Jill] Schlesinger [a business analyst for CBS News], the Great Recession was pretty extreme — it was the worst downturn the U.S. economy has seen since the Great Depression — and the next one is unlikely to be as bad.”
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