Six things you can do to help survive a recession

Thursday, 23 April 2020

As the COVID-19 coronavirus continues to spread around the globe, market analyst Josh Mahony says a recession in Italy and Japan is extremely likely, as well as economic disruption on an internati...

When it seems that every other day brings a prediction of economic doom, it's easy to get carried away by a wave of pessimism.

But while you can't control the spread of Covid-19 or how the New Zealand economy responds to the measures introduced to contain it, there are some steps you can take to bolster your financial position to help get through the downturn.

BE WILLING TO CHANGE

Chris Walsh, founder of financial research site MoneyHub, said people should be prepared to change careers to keep money coming in if they were to lose a job.

'We've read media reports of pilots working in horticulture and supermarkets whereas six months ago they arguably had jobs for life,' he said.

* More KiwiSaver questions answered as investors worry about market wobbles

* What would a recession really mean for an 'average' New Zealander?**

'Be adaptable and let go of any ego - New Zealand is doing well compared to other countries and earning a regular income solves so many problems.'

Economist Tony Alexander said modern young people were 'highly adaptable', which would help them, and make them more valuable to employers.

'They know nothing other than a continual stream of new things to learn, new technologies, a great range of job opportunities, and learning through many different things.

Markets have recovered some of their March drop.

'This generation of young people will be far better able to respond to job loss than any previous generation as very few people these days will start out in a job expecting to be with the business for many years. They are taught not to think in terms of a career but in terms of continual learning.

'Previous generations had specific skills and struggled to adapt to new roles. These days skills can become obsolete very quickly and young people know they need to keep updating.'

When you're looking for a new job, think about what experience and abilities you have that can be transferred, rather than getting stuck in the industry you think you 'should' be working in.

PLAN

Financial coach Hannah McQueen said it was important to diagnose your financial situation correctly.

'Understand how long your cash runway is, understand what is probable and possible, consider income dropping by up to 50 per cent. Get certain about options, make tactical moves to lengthen your runway. When you stabilise, we need to move you forward fast.

'When you move into a recession you build financial resilience quickly and then you move from defence to offence.'

Financial adviser Liz Koh said, the less debt people had, the easier they would find it to survive a recession.

If you're worried about the loans you're carrying, focus on paying them down as fast as you can.

'Have a good look at your budget and upcoming expenses and be proactive about getting help. Don't leave it until you get into difficulty, because when you are under stress and feeling emotional, it is much harder to find the energy to make the necessary changes.'

STAY ON TOP OF TROUBLE

Tom Hartmann from Sorted answers a few of the most frequently asked KiwiSaver questions.

If you're concerned about keeping up with things such as loan repayments, get in touch with the lender early.

Banks are reporting thousands of applications for home loan 'holidays'. While interest will still accrue during the period you have your loan on hold, it gives you some breathing room and takes pressure off during a stressful period.

Some landlords have also been willing to negotiate rent relief.

'It's very important to talk to people you owe money to if you get into difficulty – whether that is the bank, your landlord, your power or phone company or Inland Revenue,' Koh said.

'It is in their interests to help you find a way to meet your obligations over a period of time without going through messy legal procedures or debt collectors. Find out what financial assistance is available to you from Work and Income if you have lost your job or had a big drop in income.'

STAY IN LOCKDOWN MODE

The experience of being in level four lockdown has shown many people how much money they can save if they have to. Apart from large amounts of money spent on flour and toilet paper, our spending has dropped substantially.

Spending was down 72 per cent on the first day of the level four shutdown compared to pre-lockdown levels, according to the Paymark.

The key to getting out of credit card debt is to act early, before it gets out of hand.

Alexander said people could continue on that level of spending for a few months to build an emergency savings account to call on if needed in future.

Walsh said cutting back on luxuries would be a good lesson for many households.

'Second cars, plans for overseas holidays - all of these burn cash. Instead, do more with less - takeaways for kids birthday parties, support local businesses for experiences and treats and keep money within New Zealand until we recover. We are creating an extreme version of paying it forward.'

He said people could also consider replacing insurances.

'MoneyHub constantly compares insurance premiums and there are very competitive deals out there, even from the big brands. But you have to switch to take advantage. Car, home, contents and pet are all switchable with no downside for most people.'

Changing personal insurance policies is different because you can lose cover for pre-existing conditions. But many insurers are offering premium holidays or the option to put a policy on hold for a period.

IGNORE YOUR KIWISAVER ACCOUNT

While markets have recovered a significant portion of their March losses, many people still have KiwiSaver balances that are lower than they were at the start of the year.

As long as you don't need the money immediately, you're best just to stop checking your balance and assume markets will rebound eventually.

Even if you've discovered you're in the wrong type of fund for your risk appetite, once markets start to move it's almost too late to do anything about that because any move will lock in your losses.

Koh said people needed to remember that recessions were a normal part of the economic cycle. 'This is not the first recession, nor will it be the last. It is likely, however, that this will be the deepest recession we have seen since the Great Depression. While the economy as a whole will recover in time, there will be winners and losers.

'Learn the lessons from this recession. When the next boom time comes, use this as an opportunity to build up your financial resources, because a boom is always followed by a recession.'

Alexander said New Zealanders were experiencing the biggest economic shock in decades, 'which interestingly means older people can no longer say [younger people] never had it rough'.