PREPARING FOR POSSIBLE STORM
If recession hits, millennials face especially tough position
L| ast year’s brief inversion of the yield curve has stoked fears of an economic recession on the horizon.
For younger people, preparing for the worst presents unique challenges due to generational gaps in wealth.
“I don’t think that many millennials are prepared,” said Holly Mirabella, the assistant director for poverty solutions for Maryland’s Department of Housing and Community Development and a millennial herself.
And, indeed, by almost every economic measure, young people right now are less financially secure than previous generations: 37% of millennials own a house, eight percentage points lower than Baby Boomers when they were young, according to the Urban Institute. In addition, the average millennial has $34,504 in student loan debt, according to the credit reporting agency Experian.
A 2018 study by the Federal Reserve found that young millennial men are earning the same amount of money that their Generation X counterparts were making when they were younger, and more than 10% less than young Baby Boomers (young women have seen a slight increase in earnings, which the study’s authors attribute to modest gains in gender equality in education and the workplace).
“When it comes to generally how we are doing, we’re not doing well,” said Mirabella, who is also the former policy manager for the CASH Campaign of Maryland, a nonprofit that provides Volunteer Income Tax Assistance and financial coaching to low-to-moderateincome individuals.
So, what can young people do to prepare for a recession? The traditional advice is to bulk up savings.
“The most important thing is having cash set aside,” said Levi Sanchez, a certified financial planner in Seattle who caters to millennials, who suggests saving enough to live for three months for individuals and six to 12 months for families.
“One thing I do tell people is to not wait until they’re debt free to start saving, because that can take years,” said Luis Rosa, another certified financial planner and the host of the On My Way to Wealth podcast.
But with high debt and stagnate wages, putting away at least three months of living expenses isn’t realistic
for many young people. What should they do?
“Actually, some of the newer research about emergency funds are showing that even a couple hundred dollars, or $500 or $750, could actually prevent going into a major financial crisis,” according to Jodi Jacobson Frey, a financial social worker and the chair of the Financial Social Work Initiative at the University of Maryland, Baltimore. “Even small amounts of savings can be very helpful.”
Frey also suggests using tax season as a way to become more financially secure, suggesting that people take advantage of free tax preparation sites and Volunteer Income Tax Assistance services to find ways to save.
“When you do get a large tax refund or you’re able to save money at tax time, it can be very positive for starting a small savings bucket that could be used on a rainy day,” said Frey.
In addition, taking a look at recurring expenses at the beginning of the year could help people living paycheck to paycheck start a small savings fund.
“Everyone hates the b-word, but definitely do a budget,” said Rosa, suggesting that people re-evaluate expenses such as subscription boxes and streaming services. “Those little things might add up to where they might create some savings, even if it’s a hundred dollars, you might be able to couple that with a tax refund, and now you’re increasing your reserves.”
There are also programs that employers can get behind to help young people secure their financial situation.
“I think employers are starting to see that financial distress not only stresses out employees, but it also has an impact on their productivity and bottom line,” said Frey, adding that many employers are addressing this by adding emergency savings accounts and interestfree loans to their menu of employee benefits.
None of these programs alone are “going to solve the financial situation we’re in right now in this country, but I think they can provide some hope and safety net building for millennials and younger workers,” said Frey.
To Frey and Mirabella, it’s clear that a major recession could be too large for many young people to solve on an individual level.
“Structures have created poverty, just like structures and policies created a middle class, like the GI Bill for example, and Social Security,” said Mirabella. “I think that, unfortunately, there are structures and policies in place that prevent people from getting out of a financially insecure position,” citing the way the cost of higher education and the resulting student loan debt have grown for younger generations.
“When you think millennials, a lot of people think student loans,” said Mirabella. “We’re the most cost-burdened when it comes to student loans and many of us will die with them, unfortunately.”
“I’m not sure they can dig their way out given the current economy,” said Frey. “In a recession, people talk about taking advantage of opportunities to buy real estate and build their wealth, but if you do not have any money to invest, you can’t take advantage of a situation when prices are low. Without some kind of loan forgiveness, I think we’re in an almost desperate situation to help millennials get to a point of financial stability and prosperity.”
For one of Frey’s social work students, there is a sort of silver lining: “We think, as millennials, we are the most prepared for the next recession because we’re so used to being poor,” said graduate student Maryrejahlil Lanier.