At Blackbullion, we are optimists but we are also realists who keep a close eye on economic and market indicators. All the numbers are currently pointing towards us heading into an economic slowdown.
I would venture that we are already living in the early stages of a recession, even if the technical indicators aren’t there yet (we are in a recession when there are two consecutive quarters of negative growth).
Although it is said that each person will, on average, experience 8 recessions and economic slowdowns in a lifetime, they are all slightly different with different outcomes and usually different ways of reducing the personal cost.
I hope to give you some understanding of what’s been happening recently and make some suggestions for what you can do, both for your personal finances, and when it comes to supporting students.*
What’s happening and why?
Stock markets have been tumbling in response to inflation surges and there are growing alarms ringing, amidst heightened domestic and global fears of asset shedding, that these persistent price increases could tumble us into a recession.
This will be the fourth recession in my lifetime and will again be different to the previous events. In 2000, we had the dot com crash caused by the irrational exuberance that formed around internet startups.
In 2008, we had the “financial crisis” where a global economic meltdown was triggered by the collapse of the U.S. housing bubble and of course in 2020, Covid created a global economic shutdown that took the whole world into economic recession within 7 months.
Fun times!
The reasons for the slowdown that is coming (or already here depending on your perspective) is being argued about and, like all complex systems, is likely the result of many elements.
But it is fair to assume that the printing of vast quantities of money – the US government printed a staggering $5.2 trillion in Covid relief and in the UK, £413bn was printed between March 2020 and July 2021 alone – was the catalyst compounding the challenges of Covid, and the ‘post-Covid’, period.
Initiatives such as the furlough scheme may well have saved the UK economy from a recession in the middle of a pandemic but mountains of money cause inflation in the end.
During the lockdowns, people couldn’t spend the money as they usually would since spending was frozen on services (cinema, travel, eating out) and more money was spent on goods (food, exercise equipment and new carpets). Too much of that money also found its way into the stock market (remember the meme stock craze?).
What can you do to navigate this period?
Shop around and look at your spending
Inflation has hit a 40-year high at 9% – this means that prices overall are up. And they’re only getting more expensive, with pundits expecting 10-12% rates before inflation starts coming down.
Headline items are seeing big hikes – like petrol (up 31.4% year on year), food (4.5%), transport (5.9%) and electricity (22.7%).
Shop around and look at your spending. There is not a lot of choice in electricity bills at the moment but food, transport and consumables still provide options to save money or reduce spending.
Move debt to cheaper facilities
Interest rates are to continue to increase: the traditional policy lever to react to inflation is to raise the cost of borrowing. This sucks money out of the system as people spend more to service debt and less on goods and services. This is why consumer debt is such an important factor.
With interest rates at historic lows, and consumer debt high, the Governor of the Bank of England will raise interest rates – making debt more expensive – and he’ll have a tough needle to thread in reducing inflation without crashing the economy.
The UK population owed £1.7 trillion (Q4 2021) and borrowers paid £124 million per day in interest.
It’s a good time to make some early changes e.g. moving any debt into cheaper debt facilities (like 0% credit cards) and remortgaging if you can. Make your debt as cheap as possible to minimise the impact of the interest rate increases.
Take stock of any investments and your pension
The market hates uncertainty and as a result, there has been a widespread sell off of stocks with $7 trillion of value wiped out across the US.
Meanwhile, the FTSE has been steady – though unexciting – but we’re keeping a close eye across the pond as what happens in the states almost always comes here.
Take stock of any investments and your pension pot but think twice (and three times) before realising any losses (selling at a loss). Historically, markets do recover; the long term trend is upwards and for many, the best thing to do right now is nothing.
Think twice about crypto
The crypto market was worth almost $3 trillion at its peak and has lost over 10% of the value (>$300bn) since the panic began. At the start of May 2022, crypto markets lost $600 billion in just one week and Bitcoin in particular is now worth less than half of what it was in November 2021.
Same as all investments; think twice before actioning anything and don’t fool yourself about ‘the dip’ – we’re likely not there yet.
In our experience, lots of the students we speak to either have invested, or are considering investing, in cryptocurrency and NFTs. Many of these are likely feeling the sting of this panic.
When it comes to supporting students, the best thing you can do is to make sure they understand the risks associated with cryptocurrency and know where to go if they experience financial difficulties from crypto investing. More info here.
How can you support students through this period?
Support students to secure paid work
While cutting spending and budgeting is great, this can only get you so far. Students can also look to mitigate the impact of inflation and the rising cost of living by trying to get their hands on more money – finding paid work is one way to do this. Here are some ideas for ways to help students find paid work.
Help students discover additional funding sources
You can also help students right now by making sure they know where to go to discover any and all additional funding sources that they might be eligible for and how they can apply for these.
In addition to hardship, other financial support funds and the bursaries/scholarships etc. at your organisation, there are also tens of millions of pounds of additional funding available for eligible students from external providers. Checking out The Scholarship Hub is a good place to start.
Raise awareness of the potential consequences of debt facilities
Debt facilities are essential for some students and in cases where they have no other option, using something like an interest-free student overdraft isn’t necessarily a bad decision.
You can help by encouraging students to move any debt into cheaper debt facilities (like 0% credit cards).
Making sure that students understand the potential consequences of debt facilities is also important, so that they can make an informed decision about whether or not to use them – such as Buy Now Pay Later (BNPL), for example. Find more information about how to support students with BNPL here.
Spread the word about financial risks
It’s at times like these when it can be tempting to try to find ways to bring in more money quickly or take a bit of a financial gamble – after all, it worked for that friend of a friend of a friend… didn’t it?
We expect to see more and more students turning to these types of activities – ones that carry financial or other risks. These include:
- Investing in cryptocurrency or NFTs
- Creating content online
- Trading and investing
- Gambling
- Borrowing from a source that’s not entirely trusted and potentially becoming vulnerable to illegal lending or a loan shark
- Taking a chance and falling victim to fraud as a result
The best thing that support staff can do is to make sure they understand what these activities are, the considerations involved and where students can get help if needed.
Encourage financial education
The rest of this year will be dominated by the fall-out from the pandemic and I believe that the best way to navigate these next 12-18 months is through education.
Please get in touch if you’d like to talk about the financial education resources we have available for students in the Blackbullion platform or how we are improving access to funds for young people.
In the meantime, look after yourself and let us know if there’s anything more we could be doing to support you or your students right now.
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*The information in this post is speculative and my personal opinion: it does not constitute any form of advice and is not intended to be relied upon in making (or refraining from making) any financial decisions.
