There are ways to reduce the stress of a looming recession.
- 42% of Generation Z put the state of the economy and high inflation as a top financial stressor.
- 73% of Gen Z say the economic climate has made it hard to save money.
- Whatever generation you’re from, you can prepare for a potential recession by stashing cash into your emergency fund, paying down debt, and making a budget.
A recent Bank of America (BoA) survey showed that the economy and high rate of inflation are top financial stressors for 42% of Gen Zers. Almost three quarters say the current economic environment has made it hard to save, and over half say it’s created extra financial stress.
It’s not only headlines about a potential recession that have people worried. It’s also the fact that so many aspects of life have become more expensive. From rents to groceries to gas, prices have been creeping up for quite some time. And the latest data shows those price hikes aren’t going away.
Gen Z and the economy
Many Gen Zers say inflation is making it harder for them to achieve financial goals such as saving and paying down debt. The latest Consumer Price Index shows prices are up around over 8% year on year, with notable increases in the cost of shelter, food, and medical care.
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Indeed, 40% of the 18- to 25-year-olds surveyed said they’re having trouble paying for day-to-day essentials because of the huge upswing in rent or home costs. Additional BoA research shows that younger consumers have been hardest hit by rent increases. In July, the median rent payment for Gen Z was up 16% year on year, compared to just 3% for baby boomers.
Higher living costs have also pushed some Gen Zers to look for new jobs. Others have taken on extra work or turned hobbies into side hustles in order to bring in extra income. Almost 60% of those surveyed said that the high cost of living presented a barrier to financial success.
How to prepare for troubled economic times
High prices and economic uncertainty impact all of us, no matter what generation we’re in. Right now, unemployment is low. But if we enter a recession there’s a chance companies will cut back and people will lose their jobs. Here are three ways to prepare:
1. Make a budget — or update the one you have
If you already have a budget, it might be a good time to revisit the figures. Living expenses have changed a lot and your costs may have crept up in the last few months. If you don’t have a budget, you’re not alone. Many people push budgeting so far to the end of their to-do lists that it always gets nudged to another day. But make today your budget day.
Try to view a budget as something that’s constructive rather than scary. It means you will know how much you can spend and how much you need to save. If you don’t know where to start, there are some great budgeting apps out there. Once you know what you spend vs. what you earn, you can start to recession-proof your finances.
2. Top up your emergency fund
An emergency fund is like a big grown-up security blanket. It gives you some protection against a serious financial issue such as a medical crisis or job loss. Many experts recommend having three to six months’ worth of living expenses socked away in a separate emergency savings account. But with a potential recession looming, some — such as Suze Orman — suggest building up enough money to see you through 12 months. Every extra dollar you can put into your emergency fund today will help you if the economic situation worsens.
3. Pay down debt
If you have high interest credit card debt, pay down as much as you can. It is easier said than done, particularly if you’re already struggling financially. But as interest rates rise, the cost of carrying debt will increase. Plus, if you lose your job, you’ll still have to make at least minimum payments toward that debt — money you could otherwise be using to keep a roof over your head and food on the table. It’s not reasonable to hope to become debt-free overnight, but you can make a plan on how you’re going to reach that goal.
It’s been a difficult few years, but we’re not out of the woods yet. Each generation is grappling with rising costs of living and economic uncertainty. Look for ways to cut costs, sock away some savings, and pay down high interest debt. If we don’t hit a recession, you’ll have money in the bank to fund something fun or ready to invest in your future. If we do, you’ll have a financial cushion to tide you over.
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