Once again, recession is the talk of the town.
Markets are in retreat as fears of an entrenched “higher for longer” monetary regime saps earlier confidence in the “soft-landing” scenario. The mood is turning pessimistic.
By the latest CNBC poll of roughly 300 money managers, over 60% see the market’s gain this year as nothing more than a “bear market bounce,” while 39% believe a new bull market has arrived. What’s more, 64% believed the U.S. economy will enter a recession by mid-next year or later.
The signs point to a recession lurking just around the corner – yet is the average American ready for the rocky road ahead?
The answer depends a lot on their age.
Overall, people are generally feeling ready. A recent survey by OnePoll found just over three in four (76%) Americans feel prepared for a potential recession. Increased savings may help explain this assuredness. The U.S. personal savings rate reached 4.3% in June, up from a 15-year low of 2.7% in June 2022.
Yet, looking closely shows a shift in generational attitude. The study found that 79% of millennials feel more prepared for a recession compared to 60% of baby boomers.
Diving deeper highlights the key traits behind generational attitudes to these peculiar economic times and, taking 2008 as a touchpoint, how to prepare for the worst-case scenario.
Is it… Already Here?
Recessions are notoriously difficult to predict.
“I don’t think a recession is inevitable, but the risk has increased given rising interest rates, high inflation, and other economic headwinds,” says Jorey Bernstein, CEO of Bernstein Investment Consultants. “We likely won’t know if a recession has officially started until after the fact when GDP data confirms two consecutive quarters of economic contraction. The Fed’s actions in the coming months will be pivotal.”
Others predict a milder outcome.
“A recession appears increasingly likely in 2024, albeit with expectations of it being relatively mild and lasting for just two quarters,” says John Geffert, Financial Advisor, Boston Harbor Wealth Advisors.
“Regrettably, the certainty of a recession’s arrival often remains elusive until it is already upon us… By having resources readily available, you position yourself favorably. This entails maintaining a surplus of cash on hand… it is wiser to possess resources when they are not immediately required than to find oneself in need without adequate reserves.”
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Young and Carefree?
Much is made in the media about the economic might of millennials. Fortune analysis claims the generational grouping held just 7% of the nation’s wealth in 2022, as opposed to the 22% boomers controlled at roughly the same age. Millennials’ ill-timed entry to the workforce after the 2008 financial crisis is often said to have stunted their professional development and steepened their climb to prosperity. Yet their reported calm coolness about another recession seems to be bucking this narrative surrounding the generational grouping.
“Millennials’ confidence could stem from their adaptability and digital savvy, but resilience will be tested by real economic downturns,” said Doug Greenberg, President at Pacific Northwest Advisory. “From my observation, while many millennials are proactive, a significant number still lack robust recession contingency plans.”
Yet other advisors point to pandemic policies as a catalyst for change.
“Many of my (millennial) clients put the student loan pause to good use and improved their financial situation by building up savings,” says Chris Kimmet, CFP and Founder of Steady Climb Financial Planning. “I don’t think a recession is inevitable, but if it happens I think millennials will come out of it okay.”
Some millennial planners say their generation has a distinct, yet not inferior, approach to investing.
“As a (millennial) financial advisor, I don’t share the view that my generation exhibits unwarranted overconfidence,” says Geffert. “Rather than allocating every saved dollar exclusively into retirement accounts… millennials are embracing a multifaceted savings strategy that includes brokerage accounts that often serve as both long-term retirement goals and immediate cash requirements if the need arises.”
Ghosts of 2008
Recent weeks have seen Wall Street icons, like ‘Big Short’ trader Michael Burry, who successfully shorted the market in 2008, again predicting the market is due for a major downturn. In mid-August, Burry’s firm, Scion Asset Management, bought $866 million in “put options” against a fund that tracks the S&P 500 and $739 million in bets against a fund that tracks the tech-heavy Nasdaq 100.
If a total collapse of that scale should occur again, what should ordinary investors and consumers do? Advisors reflect on what 2008 lessons taught them.
“The 2008 recession was a brutal teacher on the imperativeness of financial preparedness and adaptability,” says Greenberg. “If I were speaking to my younger self, I’d stress the importance of financial education, diversification, and an emergency fund.”
I would tell my younger self to build up a larger emergency fund, avoid lifestyle inflation as income grows, and keep fixed/discretionary expenses low,” says Bernstein. “I’d also diversify assets and review budgets frequently to enable quick adjustments if conditions change. Being proactive and planning for the worst possible outcome makes getting through tough times much more manageable.”
Amid growing concerns of a looming recession, a majority of Americans feel reasonably prepared to face what comes. For a variety of factors, such confidence is particularly so among millennials. Although the unpredictability of recession clouds the outlook, financial advisors nationwide stress the need for financial resilience. By drawing from past lessons of 2008, many investors and consumers alike can be ready to weather whatever potential storms hit in the new year.
About the author
Contributing Writer, Wealthtender
Liam Gibson is a Taiwan-based freelance journalist who covers tech, geopolitics, and finance. He has written for Al Jazeera, Nikkei Asia Review, South China Morning Post, Straits Times, National Interest, and has appeared in Fortune Magazine, and several other international media outlets.
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Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.
Frequently Asked Questions
How is a recession officially declared in the U.S.?
In the United States, recessions are dated by the National Bureau of Economic Research’s Business Cycle Dating Committee, which looks for a significant decline in economic activity that is spread across the economy and lasts more than a few months. Two consecutive quarters of falling GDP is a popular rule of thumb, but it is not the official definition. The committee often announces a recession’s start date many months after it began.
How big should my emergency fund be to prepare for a recession?
A common guideline is to keep three to six months of essential living expenses in cash, typically in a high-yield savings account you can reach quickly. Households with a single income, variable earnings or less secure jobs often aim for the higher end or beyond. Building the fund before a downturn matters because job losses tend to rise once a recession is underway.
How can I prepare my finances for a recession?
The lessons advisors draw from 2008 are practical: build an emergency fund, keep fixed and discretionary costs low, avoid lifestyle inflation and review your budget often. Paying down high-interest debt and keeping a diversified investment portfolio, rather than selling in a panic, can also help you ride out a downturn. A financial advisor can stress-test your plan against a job loss or a market decline.
Are millennials better prepared for a recession than baby boomers?
Surveys cited in this article found that millennials report feeling more prepared for a recession than baby boomers do, and many used tools like brokerage accounts and the student loan payment pause to build savings. Feeling prepared is not the same as having wealth, though. Millennials entered the workforce around the 2008 financial crisis and have held a smaller share of the nation’s wealth than boomers did at a similar age.