Unlike the rest of the world that has had so many economic challenges over the last three decades, Australia is going through its first recession in 30 years. Many young people in particular wouldn’t know what a recession actually is let alone having had to live through one. Australia has been protected all these years because we’ve been right in the centre of China’s rapid growth and our population has grown faster than most Western countries, so this has kept us sheltered from economic pain.
So what is a recession?
A recession occurs when a country goes through six months of continuous falls in gross domestic product or GDP. What’s GDP? This term refers to all the goods and services a country produces in a year. So think food, clothes, push bikes, financial services, manicures, massages, etc.
That means what Australia produces over a six-month period goes backwards into the negative. In simple terms, if we made a $100 billion worth of goods and services in one year and then only $98 billion in the next, our GDP would contract by $2 billion and economic growth would be minus 2%. (We actually make around $2 trillion worth of goods and services a year!) This goes hand-in-hand with increasing unemployment, along with a collapsing stock market and house prices falling. If this growth keeps going backwards for a much longer period, a country can fall into a depression but we’re a long way from that.
So how does a recession affect people in a young demographic? What does a government do to stop a country going backwards?
Let’s tackle the second question first. To put it briefly, a government gets in and spends money, just like our federal government is doing now with JobKeeper and JobSeeker. And it’s good they have the money to spend otherwise we’d be in a real pickle. Spending money either keeps people in jobs or gives them money so they can keep spending to stop the economy from going further into the negative. And the government tries to pump money into the economy in any way it can so we don’t fall down in one big heap.
We all know that the world is going through a challenging time. Here in Australia it’s been even worse for a lot of people because our year kicked off with horrendous bushfires that did so much damage to our economy. And then along came COVID-19. Some people say it’s a bit like wartime but in a war lots of young people get killed or injured. This Coronavirus is certainly killing jobs and to some extent your future prosperity but tragic as it is for older people and people with immune problems, it rarely causes young people to lose their lives.
So what can you do to keep yourself ‘safe’ during a COVID-19 induced recession? And how long will these challenging economic times last?
New research put out by the big accounting firm EY shows that a worker aged between 18-23 could have $22,000 less to spend on a home and $30,000 less down the track in superannuation because of this COVID-19 induced recession. If you’re trying to kick off your career, not being able to find a job could really affect you because you need to work to give you experience. Recessions slow down pay rises and kill off jobs and this affects how easily you can save to buy a property or build up your super.
So how can you protect yourself during this recession time?
If you’ve been lucky enough to keep your job, use this as a time to learn how to insulate yourself from the heat of an economy under fire. If you’re in debt, keep paying off the minimum amounts you have to pay so you avoid getting a bad credit rating.
Try not to live from pay cheque to pay cheque because when bad times hit and you might lose your job, you won’t have much to live on. Use this recession experience to plan the way you use money better so you’re more prepared to take challenging times head on. Life will always present you with challenges, so think about doing a budget so you have emergency money set aside, that one day you might use to invest and make more money.
Wise entrepreneurs often say they used a crisis to get better at business and to turn a threat into an opportunity. This Coronavirus crisis should encourage you to take control of your spending, get the best and cheapest credit cards, use debit cards, save a little each week so it builds up and generally end up financially stronger.
How long will this recession last and could it get worse?
Economists think this recession will end by the end of September and the economy will recover in 2021. But recessions often see unemployment remaining high for some years after, so life won’t go back to normal overnight.
A lot of bosses have kept their staff but their profits have been smashed by the closures and lockdowns of the economy so this might make pay rises harder to come by.
If you find yourself in debt and feel you just can’t manage, call the National Debt Helpline on 1800 007 007 or the Salvos on 1300 371 288 or Lifeline 13 11 14. These organisations really know how to assist people and they’re often stacked with young people who are only too keen to assist.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
