How young earners are coming to terms with the reality of recession

How young earners are coming to terms with the market crash and the possibility of a weak future

Published: April 13, 2020 at 11:25 am

Before the lockdown, there was already an evident slowdown in the economy with the stock market gradually slipping down from Jan 2018 levels. Now with dwindling cash reserves, lower profits and mounting debts, many are starting at job loss and pay cuts. Pratik Jain discusses how fellow young earners are coming to terms with the market crash and the possibility of a weak future.

We had earlier discussed how the lockdown affects business owners & entrepreneurs and a guide to surviving lockdown impact: Are you prepared for pay cuts or job loss?. Now let us find out the perspective of young earners.

Pratik has just started his career with a degree in computer engineering. He is interested in Technology, Coding and personal finance. Regular readers may have found his earlier contributions useful:

As we are experiencing the steepest fall in history, are we heading towards a prolonged recession? As of now, you must have heard many ‘Experts’ comparing it with past recessions like the great depression. I am not predicting it will be a recession or not but will discuss how young Investors are reacting to it.

Before the crash: There were problems regarding employment in some sectors even before this crash, such as Automobile. Though there were not many stories of layoffs, I know some examples of car companies reducing shifts of production. 

An easy way to understand this problem of employment is looking at college placements. When I was about to take admission into engineering, I collected placement numbers of various streams and colleges. When I completed my engineering, numbers for the Mechanical branch were significantly down for many colleges. Other branch students were not affected much before the crash.

After graduation, many guys struggle for one year, those who don’t get a job settle for Non-Technical Jobs. Non-technical jobs do not mean lower-paying jobs but sales and marketing jobs. This does not mean they are suffering financially. What is the problem then? We will discuss this later in the article.

Just like the majority of Indians’ investing and tax saving is one and the same thing for the majority of youngsters too.  For hardcore freefincal readers who love data, I have a sample. Out of 71 first time taxpayers of an IT firm, 37 invested in ELSS for tax saving for 80C benefit. Fifteen are yet to decide where to invest or want to pay tax and YOLO. Others are investing in Tax Saving FD, and very few are investing in PPF. I spoke to many of them, and the primary factor in deciding where to invest was lock-in time and then the returns!

Though we can’t claim this small data as representative of all youngsters, it is interesting to know about what was the medium of investing. Many of these guys who invested in ELSS do so via a distributor and others based on someone else’s advice. I am yet to meet anyone amongst these, who is fully DIY or investing via Fee-only Advisor.

Crash and talk of Recession: After making and enjoying memes on this situation for months when lockdowns were announced in the country, everyone got a sinking feeling in their stomach. Markets started falling like a stone. This was when things got real serious.

One of my friends was promised 18% return by his Distributor. When he saw his amount was down by 30%, He wanted to know how to open a PPF account. Everyone wants to invest in a crash before they experience a crash! This was the first time many young investors started hearing about emergency funds. I doubled the amount of Emergency fund even though I live with my parents. 

On the one hand, all investments made are in deep red and on the other hand, there is a fear of job loss. Recently, I came to know a couple of IT firms decided to postpone the raise scheduled for this financial year. This is just the start. Many are expecting salary cuts in almost all of the sectors. Sales team people are also experiencing a reduction in incentives. What is worrisome to me is layoffs. Even though you have an emergency fund and all, you can’t prepare enough for a layoff in recession time.

You need to have a job to continue your SIP! It is the last thing we will worry about when our job security is in danger. This fear is in everyone but more in the people mentioned above, who did not get a job in their field. If you have done graduation in one thing and working in some other field job, Insecurity is high in your mind. Even a salary cut is not easy to handle for everyone. A good friend of mine took Home Loan just after he completed one year of working.  EMI is 80% of his salary, so even if he stays with his parents and doesn’t have any other expenses, he can’t bear more than a 20% salary cut! He has paid only 6-7 months of EMIs as of now. Already he knows it will be late to get possession as everything is shut.

We don’t even know how long this is gonna continue, but the future already looks scary and shady.

What is in our hands? This may sound like generic Gyan, but this is what I am doing to survive recession if it comes.

  1. Educate yourself about the basics of Personal Finance: Not having enough savings, taking Loans more than your capacity, wrong investments and misplaced confidence in Investments are the products of Financial Illiteracy. So let us put in some time in learning things by ourself and stop listening to sales/Media people for money advice.
  2. Acquire New Skills: This is easier said than done, but there is no other choice if we want to remain competitive in our job. Learning new skills related to our job is a good way to secure our position. Many people also suggest doing social networking, but I don’t understand how one can consciously do social networking. Well, there is always a lot to learn from life.
  3. Think about a secondary source of Income: This will not only reduce our reliance on our job but can also help in retirement/FIRE(yes I am still dreaming about this). I know this is very boring and tiring to do but definitely more Productive than whisking Dalgona Coffee!

Please feel free to share what are your plans to deal with this situation.

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
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