How to recession proof your finances: Millennial tips for Gen Zs

While millennials came of age during the Great Recession, the story was supposed to be different for the younger generation. Generation Z was expected to inherit a strong economy with a low unemployment rate and tons of opportunity. Then, COVID-19 hit.

Today, Gen Z is facing soaring inflation, high interest rates and an impending recession. So, who better to turn to for financial knowledge on how to survive and thrive through an economic downturn than the generation that came before?

Economists often define a recession as a decline in the gross domestic product (GDP) that lasts longer than six months.¹ While the specific causes of a recession will vary, the current recession is a result of several factors, including:

• A global pandemic. The COVID-19 pandemic caused a shock to the global economy and put stress on the supply chains².
• Rising inflation. Bottlenecks in the supply chains, rising costs of commodities and increases in consumer demand led to soaring inflation. To slow economic growth and reduce inflation, the Bank of Canada increased interest rates.³
• Rising interest rates. Rising interest rates make it more expensive to borrow, leading to restrained spending by businesses and individuals.³
• Fear and uncertainty. With rising interest rates and speculation of an impending recession flooding social media, people start to get nervous and spend less money.⁴

If you're worried about how a recession might affect you, there are a few regular symptoms you can expect. These include:

• Rising unemployment. As economic activity declines and demand for goods and services wanes, companies have to adjust. This can lead to an increase in layoffs and reduced working hours. Since companies are looking for ways to cut spending, high school or college graduates seeking a job might find it more challenging.⁵
• Higher cost of living. A recession is often sparked when interest rates are increased to try and slow down rising inflation. Rising rates and sky-high inflation elevate the cost of everything from groceries to gas and rent.⁵
• Increased cost of borrowing. As interest rates rise, the cost of borrowing goes up. Getting a mortgage, car loan or personal loan will cost more money.⁶
• A hit to your investments. During a recession, the stock market is often volatile and stock prices can plummet. Many investors become more risk-averse and invest less money.⁵

Here's a list of financial information and tips from millennials who not only survived the Great Recession of 2008 but went on to thrive on the other side.

When a recession occurs, companies tend to lay off their staff. It's an unpleasant experience, especially when you are starting out your career," says Sandy Yong, award-winning author and financial writer.

To get back into the job market, Sandy suggests writing down a list of your skills and experiences. This can give you a better sense of what you have to offer a potential employer. She also believes in the importance of remaining flexible so you can pivot into a different industry in order to find employment.

Sandy says, "having transferable skills is valuable when you are looking to find work in a different sector. By searching for jobs in other industries, this may reduce the amount of time you remain unemployed."

Since layoffs and cutbacks are standard signs of a recession, having multiple streams of income can provide peace of mind and additional cash flow. Tom Drake, millennial financial analyst and financial blogger, believes: "Gen Z is at the perfect age to experiment and take some risks, while still making smart money decisions."

If you're looking for ideas on how to diversify your income, Tom recommends checking out some of the side-hustle apps. He says, "whether it's driving with Uber, walking dogs with Rover, or delivering food with SkipTheDishes, there are plenty of options to find the side-gig you'll enjoy and will fit around your school or work schedule."

While diversification is important for your income, it's also essential for your investment portfolio. Personal finance writer, entrepreneur and investor Ricardo Pina says that in a recession, a diversified investment portfolio is "one of the best ways to protect your wealth."

To ensure you're properly diversified, Ricardo suggests that you spread your investments "across multiples industries, sectors and assets."

Investment writer Tony Dong agrees that a diversified portfolio is key, and adds that Gen Z investors should avoid more volatile investments like cryptocurrency and meme stocks.

Clare Y has been writing and blogging about Canadian personal finance for more than 13 years. Her tip for young people is to build up an emergency fund with 6 to 12 months of savings. Clare says, "if you lose your job, you have 6 to 12 months of living costs while you find a better job. If you find a job sooner, you may have money leftover to invest more heavily into the stock market while your investment portfolio is down."

Clare recognizes that many financial experts might scoff at the idea of holding cash on hand as it's often viewed as a "wasted opportunity cost." But she believes the psychological benefits of having cash readily available to use in the event of an emergency "is priceless."

To try and keep up with the cost of inflation and earn on your cash savings, you can consider putting your emergency fund into a high interest savings account. Not only will cash be available to you if and when you need it, your savings will have the opportunity to grow faster.

Kornel Szrejber, financial podcaster and one of Canada's youngest retirees (he hit financial independence at the young age of 32), believes when preparing for a recession, you should assess two of your largest expenses — housing and transportation.

"You don't have to rush to buy a house ASAP," he says. "Remember that a mortgage is one thing, but being a homeowner also comes with massive extra expenses like property tax, repairs and utilities." To save money, Kornel recommends those who are just starting out live with roommates to share costs.

When it comes to transportation, Kornel says, "I've always just bought used, directly from the owner, that way you don't have to pay the markup from the dealer." He adds, "it's not fancy, and you don't get to drive the best cars, but the financial benefits of this cannot be understated."

Once you've assessed your largest expenses, you can look at cutting some of your smaller costs. Chartered professional accountant (CPA) and financial blogger Nick Roberts says you can "reduce your spending by eliminating non-essentials."

"If you have recurring services like Netflix or a gym membership that you haven't used in the last month, cancel it," Nick says. You can then redirect the extra savings to pay off high-interest debt, like credit card debt, he adds.

"Figure out what you value. Not what your family, friends, co-workers or neighbours value. What you actually value. The rest is fluff. Cut out the fluff." This is advice from financial blogger Courtney Brown. Courtney and her partner achieved financial independence in their mid-30s.

"We live in this crazy consumeristic world where the more stuff you have to show off is seen as a good thing," she says. "When in reality, most of the people living these flashy lives are broke and living off credit. "

Courtney says, "life is not what you see on Instagram or TikTok. The truth is, wealth is what you can't see. It's people bringing food to work instead of going out. It's people driving used reliable older cars versus leasing the latest models. It's people living with roommates versus buying more home than they can afford."

Once you figure out what you value and how you want to spend your money, you can start to implement small changes that help you to work towards your financial goals.

A recession can feel scary, especially if you've never experienced one before. But Alyssa Davies, financial author and blogger says, "don't let the headlines and fear keep you away from building wealth for your future self."

Alyssa encourages Gen Zs to remember that "the stock market and economy move in cycles. It's normal to experience lows and it's normal to experience highs. If you can, now is a great time to start investing for your future and building a portfolio."

Investing doesn't have to be difficult. Scotia mutual funds representative Premal Brahmbhatt advocates simplifying your life by paying yourself first. “Set up an automatic contributions plan towards a savings account — be it a high interest account or TFSA," Premal says. "This can be done by asking your financial advisor to set up a pre-authorized contribution on a biweekly or monthly basis, for example on the day you get your paycheque."

While it's easy to let your emotional impulses take control of your potential savings, using this strategy allows you to have effortless, automatic savings.

While no one is excited about a looming recession, the good news is, there are many things you can do to prepare. Equipped with financial tips from the previous generation, you can make educated financial decisions that will help you survive the recession and work towards a strong financial future.