4 Steps Everyone in Their 20s Should Take to Beat a Potential Recession

UPDATED: September 11, 2023
PUBLISHED: September 30, 2022
4 Steps Everyone in Their 20s Should Take to Beat a Potential Recession

According to the Nationwide Retirement Institute, 15% of Gen Zers and millennials “reduced contributions to their 401(k) and similar retirement plans over the last year.” But if there was ever a time to make financial cutbacks, this isn’t it. Investments toward your future should be the last expense on your chopping block.

Currently, all economic signs point to a recession. Inflation reached 9.1% in June, a 40-year high. Analysts at both Goldman Sachs and Bank of America predict a recession will occur in 2023, but because gross domestic product dropped 1.6% in the first quarter of 2022 and 0.6% in the second quarter, many believe it’s already happening.

A recession is a natural part of the business life cycle, and it can be good for a healthy economy—it makes room for future economic growth. However, it also affects how people and businesses handle their money. You’ll likely see headlines that create a sense of fear around the recession, but you shouldn’t be swayed by the media.

Even though other people might be pulling their investments, you should hold firm. There’s a saying, “Great people are willing to do things average people are not.” The same holds true for long-term investors. The willingness to make small sacrifices now—even if it’s only $50 a month—can have a major impact in the long run. 

So, here are four steps you should take in your 20s to come out of any possible recession on top:

1. Understand economic cycles.

If you haven’t yet lived through a recession as an adult, you might not understand what happens to the stock market in a recession. Recessions are part of the economy’s life cycle, which consists of five stages:

  • Peak
  • Recession
  • Trough
  • Recovery
  • Expansion

The bottom line: Recessions should be expected. Though it might sound counterintuitive, they’re a sign of a healthy economy. Consider the record-setting 128-month expansion following 2008’s Great Recession. Pandemic or not, the economy was destined for a drawback. It makes sense that we’re here after a global event interrupted unprecedented growth.

2. Ignore the media.

No matter what sector you’re interested in, the financial press is largely filled with a “doom and gloom” narrative. But you’re young, and recessions lead to innovation and economic growth. For instance, Uber, Airbnb and Square were all founded during the 2008 recession. And they’re not alone. Microsoft, HP, General Electric, Warby Parker, Netflix and Trader Joe’s were all founded during earlier recessions.

Although millennials dealt with a troubling economy early in their careers (I entered into the financial industry in 2008), the economic and investment growth they have experienced over the past decade has made those experiences well worth it. On top of that, the market created careers and industries that didn’t exist before. So, as terrifying as the news around the recession might seem, don’t let it get to you.

3. Get started now.

What happens to the stock market in a recession? Prices go down. That might be bad news for those already in retirement or close to it—Americans lost about half a trillion dollars in wealth in the first quarter of 2022. However, for anyone over a decade from retirement, the recession presents a discounted buying opportunity.

Stock prices are generally down across the board from the all-time highs experienced last year. That gives you a second chance at a discounted price to buy into equities and exchange-traded funds. As Baron Nathan Rothschild once said, “The time to buy is when there is blood in the streets.” He should know: He built one of history’s largest fortunes profiting from the post-Waterloo recession.

4. Find your ideal job.

People think a recession means high unemployment, but the two factors are not necessarily related. Recessions can cause stress about job security for young professionals, and there are certainly companies facing tough financial times that are either going through mass layoffs or filing for Chapter 11 bankruptcy. But the good news is the Great Resignation created a market that favors job seekers.

As of July 31, 2022, there were 11.2 million job openings in the U.S., creating a “dream recession” for anyone under 30. And people are still quitting their jobs at near record highs. This means the days of accepting unpaid internships just to get your foot in the door are over. Job seekers are finding creative ways to enter the workforce and leverage their power for what they want, whether it’s pay, offices, fewer hours or something else entirely. 

During this time of tightening budgets, use your day job and side hustle to maximize your earning potential. You can separate yourself from your peers financially and retire in comfort. It just takes small steps starting now. If you can see the potential recession as just something that happened in your 20s, you’ll have a solid foundation for retirement.

Photo by GaudiLab/Shutterstock

Sara Gelsheimer is a senior wealth manager at Plancorp, a full-service wealth management company serving families in 44 states. Sara came to Plancorp with a strong financial background and a commitment to financial education, particularly for women. With this passion, she founded InspireHer: Plancorp’s Women’s Initiative, which inspires financial confidence in women through education and impactful support. By giving women a comfortable space to learn and ask questions, she strives to empower them to be more confident in their financial lives. She has a passion for helping others and has spent several years as a mentor through a local non-profit, sponsors two young women in Uganda, and is on the parish council at her church. In her free time, she enjoys live music, hiking, chasing around her three small children, and the all-too-rare date nights with her husband.