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You had your best-laid plans and then COVID-19 came along and hammered the entire economy. But you’ve got this – if you have the right information. Join Rob Carrick and Roma Luciw on Stress Test, a podcast guiding you through one of the biggest challenges your finances will ever face.

ROB: Economic headlines are bleak these days. It’s impossible not to wonder if we’ll slip into a recession. Scare-mongering aside, now is a great time to prepare your finances in case the downturn materializes.

ROMA: So we’ve gathered advice for 20- and 30-somethings on how to prepare for changes in the job and housing markets, investing and the cost of living.

ROB: Welcome to Stress Test, a personal finance podcast for Millennials and Gen Z. I’m Rob Carrick, personal finance columnist at The Globe and Mail.

ROMA: And I’m Roma Luciw, personal finance editor at The Globe.

ROMA: We all just lived through some difficult years with the pandemic. So it’s no wonder many Canadians are stressed at the prospect of even more economic turmoil. No one, and I mean, no one, wants that.

ROB: We want to alleviate some of the stress by talking to experts about practical measures you can take if the worst-case scenario plays out. First up after the break, we’ll talk about the job market.

ROMA: First up is Globe and Mail economics reporter Matt Lundy, who joins us to talk about what’s going on in the economy - and the job market.

ROMA: There’s a general consensus out there that we are in for a recession. What do you think it will look like? How’s it going, uh, compared to previous recessions?

MATT: First off, we’re not technically in a recession, but an increasing number of people think that it’s going to be happening pretty soon. And there’s a really diverging range of opinions on what that’s going to look like. But by, you know, by and large, people don’t expect it to be a particularly severe recession. So yeah, I mean, it’s not certainly not great. People don’t want to hear that word recession. But at the same time, like no one’s really projecting something like ‘08, ‘09 financial crisis era, certainly nothing like the pandemic where we shut down the economy and things, you know, millions of layoffs happened. It could be potentially mild by comparison.

ROMA: Okay normally during a recession, we have job losses. Do you expect that to be the case, this time? What’s the outlook for the job market?

MATT: So the labor market is still really tight. There are a lot of job vacancies out there right now. If you look at the numbers from Indeed Canada, they post the total number of job vacancies they have on their site. It’s been trending down a little bit, but it’s still 60% higher than before the pandemic. There are a lot of opportunities depending on the sector you’re looking at.

ROMA: Do you think that kind of divergence is going to continue going forward? Or will we see the job losses accelerate and things getting a bit more dire in the job market?

MATT: I do think to some degree, it is an industry specific thing going on, like some of the most visible layoffs that we’ve been seeing have been in technology, for instance, right. And those companies were growing frankly at rates that were probably unsustainable. At the same time you have near a record number of job vacancies in health care and social assistance. And I would guess that those aren’t necessarily going away anytime soon. Hospitals need those jobs, long-term care facilities need to fill those roles. So I do think one thing that we probably will be seeing is that companies that really wanted to ramp up their hiring are maybe going to remove those job postings. So we could see a lot of that demand taken off through those postings rather than say layoffs. But, you know, keep in mind from the employers perspective, they’ve all been talking for the last two years about labor shortages. Right. And that is really the big question right now is like, to what degree will they hang on to their workers, as we head into a time of really meager economic growth? Right? They’ve spent two years saying it’s really difficult to find people so are they going to hang on to them. I think a lot of companies will say, You know what, it was so tough to find these people to begin with that we’re willing to hang on to them for a while to see how things shake out.

ROMA: Matt, it feels to me like we have this funny job market now, where some young people are in unusually strong positions, where they can negotiate things like higher pay or move jobs, while others are struggling to land jobs or are worried about losing them. How do you navigate that?

MATT: One thing that we’ve definitely seen over the pandemic is that for the average worker, especially over the past year and a bit, their wages are not keeping up with inflation, right. So and another sort of big trend that we’ve been seeing is that not a lot of people in Canada compared to the US have been switching their jobs. Like the great resignation was a big trend in the US, people talk about it a lot here. It’s not really materialized in the numbers as much as you would think. And I would say, for a lot of people out there like, yes, it’s, you know, it’s one of those things, that’s easier said than done. But more people should be looking to switch their jobs. And I know, that’s difficult in sort of a recessionary environment and that sort of thing. But we didn’t see it over the past couple of years all that much that people were looking to find better circumstances. And I think that is part of the reason why wage growth wasn’t necessarily as strong. That people were really valuing security. People were sort of hunkering down in their jobs and granted, you know, if you’ve got, if you’ve got kids in daycare, and you’re navigating, sort of pandemic restrictions and all these things, return to work policy is like, sometimes you just wanted the most stable thing possible, right. But I think a lot of people should keep their eyes out, because the way to get better pay is generally to switch your job.

ROMA: For Gen Zed, this is going to be the first recession that they are going to experience. And for Millennials, this is going to be the first real economic downturn when they potentially have kids and a mortgage. When it comes to the job market, what other type of specific advice can you provide for them?

MATT: I mean, this is definitely not the ideal time to be graduating from school or starting your career. I graduated around 08/09. And I, you know, I had a bachelor’s degree and no one would take an interview with me. In my case, I went back to school, did a one year degree to you know, at least bolster my resume so that it looks like you’re doing something during that time. So I think, you know, education and training is definitely something that people want to be looking into. I would also say, don’t freak out too much, right? Like we’ve been seeing a wave of retirements lately, for instance. So a lot of people are leaving the workforce for various reasons. One thing that I would point to for younger listeners is that we have had a huge decline in the number of self-employed people in the country. Since the start of COVID. We’ve lost about 250,000 self-employed people in Canada. More than 50,000 of them have been in construction, so we’re talking skilled trades. About 60,000 have been in this weird category that Statistics Canada calls other services. That’s barbershops, that’s beauty salons, that’s dry cleaning services, that’s repairs of machinery. So auto mechanics. There are all these jobs in self-employment, things that tend to skew a little bit more blue collar, but things that are often overlooked by young people but which allow you to work for yourself, maybe have some flexibility in setting your hours. And that is an area where usually in a recession, you get a lot more self-employed people because it’s not like people lay themselves off. And if you have been laid off, you start maybe working from yourself or for yourself to tide yourself over. And I would say that is an area where maybe younger people want to look towards. We have all these jobs that people have left over the pandemic, and they could use a lot more people right now.

ROMA: Thanks, Matt. Next up, we’ll talk housing.

ROB: Joining us is Kelly Ho, financial planner and partner at DLD Financial Group in Vancouver. Do you think that a recession provides an opportunity to buy houses, maybe prices go down a little bit more? And if you’re financially solid, this might be just a really good time to get in?

KELLY: Yes, absolutely. I have many clients who have been sitting on the sidelines for several years, because in their minds, it’s been a matter of time, they feel that the market has been inflated for a very long time. And every single year, I do their annual review with them, we look at how much money they set aside for their down payment, I actually run a, my, version of the stress test to make sure that their financial plan can still sustain itself with the mortgage, possible strata fees, property tax, insurance. So for those who are thinking, hey, you know what I would like to make a home purchase in the next year to year and a half, not looking to pull the trigger right away, not wanting to be in a bidding war situation. They’re laughing all the way to the bank, because they’re getting close to 5% on their one year returns. A lot of clients I work with have a chunk of money, they’ve been saving for several years set aside waiting for this to happen.

ROB: Kelly, if I’m buying a house, what downpayment should I be putting on it right now?

KELLY: No less than 20%. And the reason for that is a) depending on where you are in the country, you don’t want to be paying the CMHC fees. Because talking about cash flow, we’re trying to minimize how much we owe. And it doesn’t help to try to buy something more expensive than when you can actually afford. And you know, having these discussions with clients now, we’re even talking about putting more than 20% because we’re trying to minimize the amount of debt payments that they’re committed to on a monthly basis.

ROB: So just to be clear, when we talk about CMHC fees, we mean mortgage default insurance that the buyer pays when they have less than a 20% down payment, correct?

KELLY: Correct, that’s correct.

ROB: Kelly, there’s an expression house poor to describe people who maxed out on the home they bought and don’t have a lot of extra cash. Do you think a recession will make more owners house poor?

KELLY: I think it will make those who were already on the fringe, meaning they budgeted around the low interest rates, those people I would be very nervous for them. Because effectively, you know, it’s one of those things where the, “Oh, everyone else is buying. Yes, there’s bidding wars.” And it’s the fear of missing out. So, I mean, one of the things that I often say in the last 10 years, many millennials are spoiled with cheap money. And that’s a problem. And one of the exercises I do when I’m doing financial planning with my clients is I stress test them by using higher interest rates in their financial plans. Because I want to make sure that even as interest rates go up, that they can afford to still save for the retirement and not have to carry a mortgage till they’re 75 years old. And sometimes people will stretch themselves especially in the last few years with the bidding wars where they ended up paying 55 wasn’t dollars more than we had anticipated, which obviously makes a difference to their mortgage payments. And now, especially with the interest rate increases, they’re definitely feeling it, it definitely comes up in every single conversation that I have with clients who currently carry variable mortgages. And sometimes we do need to look at cutting back their savings until, you know, just just so that they can get by.

ROB: I like the point you made there about taking a break on savings or cutting back if you need to survive in the short term. That’s okay. Right?

KELLY: Yes, yes, absolutely. I mean, what’s the point in putting money away, if you’re carrying a credit card debt? I mean, the interest rates aren’t low. I don’t have many clients who are in that situation. But I know that amongst Canadians in general, that people will do what they have to do. And if it means that they got to put it on the credit card in order to feed their families, that’s what they’re going to do. And if sometimes people push came to shove, if the paycheck didn’t come in at the right time, and they’re just cutting it with their cash flow. And they need to hold back their savings one month, I say, You know what, let’s do that. Let’s make sure we do that. Because guess what you’ve got the next 20 years to save.

ROB: Should you be crisis proofing the situation by saying what happens to our mortgage if one of us loses a job or has our income reduced?

KELLY: I have clients in that situation. And unfortunately for some of those, they’ve had to go into a situation where they had to borrow from their line of credit, or they have to find a job or any kind of job, it might not be their ideal job. But I’ve there was a situation where I said, you know, the solution to your situation is literally finding a job. It may not be your dream job, it may not be as good as your previous job. But right now, we just need to make sure your cash flow needs are being met.

ROB: We’ve got an interesting situation in the economy now where we have some people spending quite aggressively, travel, restaurants, and other people really cutting back. Where are your clients on this? Are they are they big spenders, are they are they well set? Or are they people who have had to cut back a bit?

KELLY: I’ve had both. It’s a matter of making choices. I mean, one of the exercises that I conduct with my clients is I’m very nosy. I actually asked them, Hey, what are your fixed costs? And what are the so-called variable costs, where you actually are able to make a choice on whether you’re spending the money on A or B. An example of a fixed costs would be something like your mortgage, your property taxes, and so on, so forth. So you don’t have an option, like those bills have to be paid. You have to pay your cell phone bill, you have to pay your internet bill because those things are essential. And then I think it’s a product of the pandemic. There’s this whole thing about okay, well, we all survived this worldwide pandemic, it’s time to live it up. So it’s that whole notion of the roaring 20s. You know, life’s too short, we don’t know if we’re gonna live again. And then I asked them going, Okay, you mentioned that you want to travel. Okay, so within your cash flow situation, how much can we actually allocate to travel without you having to sacrifice your future goals. So it brings people back down to earth is what I have the way I’d like to put it. It brings them back down to earth to go, it’s still a matter of making choices. You can make half a million dollars, you can make 250 thousand dollars. If you spend and you don’t actually calculate how much you’re spending, the person who’s making less can still be better off than the person who’s making more.

ROB: I wanted to address this idea of living it up. Is it time to dial back a little bit to get ready for tougher economic times ahead?

KELLY: I think it’s important to have a strong contingency so that you’re not living from paycheck to paycheck. So in the event, if we do get into recession, and people start losing their jobs, well, you shouldn’t be living paycheck to paycheck, you should be able to pay the next three months rent or the next three months mortgage. Hopefully, if it’s a dual income situation, hopefully both people don’t lose their jobs at the same time. If they’re in an unfortunate situation, where they do both lose their jobs, that we might have to look at the savings that we’ve set aside to see if they’re, we’re able to help them pull through this difficult period. And hopefully it’s temporary.

ROB: Thank you, Kelly. After the break, we’ll discuss investing.

ROB: Joining us to discuss investing is Aravind Sitham-para-pillai, Investment Advisor with Ironwood Securities of Aligned Capital Partners. Aravind, what are your thoughts for Millennial and Gen Zed investors on the looming potential recession?

ARAVIND: First of all, I think whether a recession is officially called or not, especially for millennials and Gen Z, is really a bit of the wrong question they should be asking themselves. And the reason is this. Regardless of whether we hit the official economic definition of a recession, we’re seeing some of that impact right now. I have clients, large companies where hiring freezes have been instituted. We’ve seen inflation impact people’s budgets directly. And we’re seeing interest rates climb to stop inflation. We are seeing those direct impacts on individuals right now. And so if companies are sort of preparing for that, then we should also be asking ourselves, should we be preparing for what happens if I lose my job, or I’m on a contract, and I have to manage a different life than I was used to six months or a year ago?

ROB: You’ve talked a lot about the possibility that a recession will create some sort of an economic emergency for families. And yet, at the same time, they’ve got rising mortgage rates, and young people today very well understand the need to invest for the future for retirement. How do you balance all those priorities?

ARAVIND: Good question. And I think the first thing is sort of triaging what’s important. So for many people, if they are locked into, say, as an example, a family situation where they have kids, and they have to worry about putting food on the table, that is going to be a priority. Next, I would say focusing on some of those key debts, like your mortgage, things where if you go into arrears, or if there’s a struggle, you know, it creates sort of a downstream impact to your own personal situation. I would say, focusing on what are your key priorities? What are those non-negotiables? Those are your first step towards figuring out and making a game plan for where you need to allocate your money.

ROB: Aravind, if you’re financially stressed, because of the recession, and you think I cannot afford to invest this year, is that okay?

ARAVIND: It depends on where you are. But taking a step back, I would say no, if you have a plan in place. So first of all, if you have a plan, and you’ve looked long term, and you’ve got time on your side, saying, Hey, I’m going to take some of the money that I would have used for investments, and pivot that over to my mortgage, because now I’ve hit a trigger rate and I have to increase my mortgage payments. I don’t think that will impact your long-term plan if you also have a plan for as the mortgage gets paid down, or as interest rates come down, you can sort of re-pivot some of that back.

ROB: Let’s say I get a cash bonus for 2022, what’s the best thing to do with it, put it into the markets as an investment or pay down my debt with it?

ARAVIND: Oh, that’s a great question that’s really going to be person to person. And here’s why. There are going to be many people where and I think I actually discussed this in something I wrote, where if you have a mortgage that’s coming up for renewal, and you know, you’ve gone from, say, two or 3%, to now, say five and a half, or 6%, that increased rate might actually be an impact to your budget overall. And so I would say, for people like that, who are especially concerned about whether they can make those payments, that cash bonus is going to be better off used paying down debt. Now, on the other hand, if you have someone who’s a little bit later, maybe they’ve been really aggressive with making those payments, and now, as they look forward they don’t see their monthly payment changing too much, that might be an opportunity to use that money and put it into their investments.

ROB: I think you and I are probably in agreement that you can’t go changing your investing plan, just because there’s headlines saying, calamity here, catastrophe there. But can we look at some of the investing challenges posed by a recession?

ARAVIND: Yes, so I agree with you. But one thing that I will say is as we go through this period of time, for many Millennials and Gen Z, this might be one of the first prolonged downturns that they’ve seen, coupled with the worries of a recession, inflation, interest rates, the war in Russia and Ukraine. And so that might be the first time that they’re really feeling that emotional burden of watching their investments go up and down. And so that might be an opportunity to take a look at the investment plan and say, did I sort of choose the right level of risk for my emotional comfort and my emotional peace of mind.

ROB: And when we talk about a plan, we mean some sort of a diversified portfolio where you have some exposure to stocks in Canada, the US around the world and some bonds, maybe a little cash. I’m just wondering, the markets are down, bonds are down, stocks are down, the diversified portfolio is down this year, is that actually a good time to pour money in if you’re a young investor?

ARAVIND:  If you’re a young investor, in general, if we look forward, we expect positive returns. Now, we don’t know what that looks like. So even at the beginning of this year, we would have said we expect positive returns over, you know, a 5, 10, 15 year period. But it’s really about that up and down where that noise, as we would say that, you know, makes things difficult. So if we expected positive returns six months ago, one year ago, for a 10 year, or a 15 year investment horizon. Now, we still expect those positive returns. And all else being equal, we expect, you know, lower prices to mean higher expected returns in the future.

ROB: I’m going to circle back on that one and just say it seems to me stocks are on sale right now and so are bonds. It seems like a rare opportunity to put some money into a diversified portfolio and buy on sale.

ARAVIND: That’s a great question Rob. If stocks and bonds are on sale right now is now a good time to invest. I would say now’s a great time to invest with the caveat that, again, it depends on your personal situation. I have some clients who are in sales to small businesses. As much as they would love to invest right now, they’re seeing their sales numbers go down as small businesses, you know, sort of say, hey, we’re taking a step back, we might wait. I have a client specifically who may not hit his quota this year specific to those sales. Would I tell him that now’s a good time to invest? No, because for him, he’s in a very different situation. I focus on midwives as a niche, though. And their income is more government related. People are still having children, for them now is definitely a great time.

ROB: Aravind, what advice would you give specifically to Gen Z, and then specifically for millennials when it comes to investing?

ARAVIND: Millennials, take care of your emergency funds, make sure you’re in a good position to weather some of these next periods of time, such as a mortgage coming up for renewal or if you have a variable, some of those increased payments. For Gen Z, though, as they’re entering the workforce. A mentor once said to me, Aravind, the best time to get ahead is when things are in change. And so if we look at the millennial population, where things are a little bit tighter, where they might have to stay hunkered down a little bit more. For Gen Z, I would say don’t bite off more than you can chew. Because if you know that many other people are in a position of challenge, this might be an opportunity for you to work with your company when a relocation opportunity comes up. Or when a promotion with a little bit more risk comes up because you are in a position to take that risk because you don’t have those fixed payments that many other populations might have right now.

ROB: Thank you, Aravind. Last but not least, we’ll discuss the cost of living.

ROMA: Alyssa Davies is a Calgary-based personal finance writer and podcaster. So Alyssa, there’s a growing consensus that we’re in for a recession, Canadian households have been feeling the pinch of higher prices, you know, for a while now. We’re paying more for everything from groceries to gas. What are some of the biggest financial challenges you see young Canadians facing in the coming months?

ALYSSA: Ya so, It’s really not an easy time to be a young person dealing with this economy. It’s a bit petrifying, because all I see constantly are just really overwhelming headlines. And it’s debilitating for myself even because I struggle to find the positive news out there. And I know personally, I’ve already had to adjust my grocery budget four times this year. It went from around $600 a month at the beginning of the year to now we’re over $1,100 a month. So it was quite a climb, mostly actually, because of formula costs. There’s a formula shortage. And so that was a difficult cost to kind of manage. So that’s one of the things we’ve changed.

ROMA: Now most Canadians, including older millennials have lived through recessions. Gen Zs have not, at least not while working and supporting themselves. Why is it important to prepare yourself emotionally as well as financially for a recession?

ALYSSA: Oh, yeah. I think that when it comes to your mental health and your money, they’re much more connected than people realize. I know that when my mental health is insecure, that’s when I don’t make the best financial decisions, not the most sound financial decisions because you’re distracted or you have a lot of other worries going on. And so it’s really important that you check in with yourself, or just find someone that you can openly talk to about your money worries, particularly when you are dealing with any sort of financial difficulty. A lot of people really feel a lot of guilt and shame for just simply struggling. So it’s super important that you’re able to check in with other people. And also check in with yourself.

ROMA: What specific advice, I’m assuming budgeting will be a part of this, but what advice do you have for Gen Zed and millennials when it comes to managing the cost of their life, you know, during an economic downturn?

ALYSSA: One thing that I have to say right off the bat is there isn’t much you can do to manage external factors like a recession. It’s outside of your control. So right away, you have to look at, you know, what can I do with my money? And what can I change in my financial life. And the first step is always to look at your budget. I like to say, it’s a really good chance for people to prepare by doing a mock up of what will I need to do in the coming months. So maybe it’s scenario A, B, and C. Maybe the first option is Scenario A, my groceries have gone up. Groceries have increased by around 11%. So that’s a really high increase, other inflation has been closer to 7 to 9%. So perhaps you need to decrease your expenses by 20%. Where can you cut back? And maybe Scenario B is what’s my bare bones budget? I have to cut way back, maybe I lost my job, maybe prices continue to climb. When you are looking to cut back on your budget, because that’s not an easy thing to do, I always like to look at my fixed costs first. And so when you consider making more permanent changes in your budget, rather than attempting to cut out those smaller costs that are more driven by joy, things like coffee, or takeout or your hobbies, those might not move the needle as much as it would negotiating your rent, or taking inventory of all of the subscriptions that you stack. Anything you pay for monthly, and that’s a fixed price, saves you the headache of having to worry about whether I’m going to be okay, next month. If you’re just changing those non-essentials, you might have to look at your budget every single month and wonder, you know, how am I going to make this work?

ROMA: We’ve talked about cutting back costs. Is it realistic to also think about increasing your income at a time when the economy is struggling?

ALYSSA: Yes. Right now is such a great time for people that are young, who have flexibility and hours in their day to find more work, or take on a side hustle, because this is a really unique recession in that sense. It gives you more room to build long-term wealth if you’re an investor. And the time is on your side. The stock market and everything you’ve seen in the news right now might deter you from contributing to your retirement accounts. But this isn’t typical, and things will rebound if you plan to invest and not touch your funds until you get closer to retirement.

ROMA: I can’t help but think that these economic recessions take us back to our personal finance basics. You know, which always brings me back to having an emergency fund. It’s something that, you know, we write and talk about a lot. And you know, there was a lot of eye rolling about that when times were really good. It’s likely too late to start saving one now if you don’t already have one. But maybe tell us a bit about why having that rainy day fund is so important for people heading into a first economic downturn

ALYSSA: For sure. So, life doesn’t move exactly the way we predict it will. I think a lot of people who weren’t as focused on the economy or the job market, or inflation, didn’t see this coming. It’s really important to have that security blanket. You need to be able to pull money from somewhere if you can’t increase your income. Some people are completely tapped like as a parent myself, I can’t take on another job. There aren’t enough hours in the day. So unfortunately, it does come down to what can I cut and if I can’t cut anything else, that’s when your emergency fund really comes into play, and gives you back that peace of mind that so many of us crave when it comes to our money.

ROMA: Thank you, Alyssa. Now, you’ve just heard my spiel about personal finance basics and emergency funds. Rob, what advice sticks out to you from the conversations we had today?

ROB: What sticks out to me is that there’s some good advice here for preparing for a recession. I don’t think there’s any need to panic. Recessions are very natural, the economy is constantly cycling between growth and pulling back a little bit. I think there’s time now to get your affairs in order so if there are some bumps in the road ahead you’re ready for them.

ROMA: Thank you for listening to Stress Test. This show was produced by Kyle Fulton, Emily Jackson and Zahra Khozema. Our executive producer is Kiran Rana. Thanks to Matt, Kelly, Aravind and Alyssa for joining us.

ROB: You can find Stress Test wherever you listen to podcasts. If you liked this episode, please give us a five-star rating on Apple podcasts and share it with your friends.

ROMA: On the next episode of Stress Test we talk about home renovations. Spending on renovations can be more affordable than buying a place that already meets your needs. We look at the pros and cons of taking this potentially cheaper path to getting the home you want.

ROB: Until then, find us at the Globe and Mail dot com. Thanks for listening.

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