A Canadian recession in 2023 as some predict would be the first one outside the pandemic for Generation Z, one that could lead to defaults on unsecured debt but more maturity for their adult future.
Generation Z is the generation born between 1997 and 2012, whose members are now aged between 10 and 25, and follows the Millennial Generation, or Gen-Y, born between 1981 and 1996. The economic downturn of 2008 was prior to Gen Z’s working years, while the pandemic-related recession of 2020 included generous taxpayer-funded supports. However, another economic dip may be just ahead.
The Royal Bank, Deloitte, Desjardins, and even the Australian-based Macquarie Group predict a Canadian recession in 2023. David Doyle of Macquarie group told BNN Bloomberg on Sept. 30 that the recession “will be pretty severe in Canada” and “is almost inevitable.”
Rafael Gomez has taught many of this generation as an associate professor of employment relations at the University of Toronto. He says Gen-Z would enter a recession with a limited frame of reference.
“The easy availability of credit is something that has made this very recent generation unaware of what’s happened before. The depth of knowledge and historical connection to events past that shape our behaviour has gone through the distance [of time]. Old mistakes pop up again, when new generations don’t have a tangible link with the past,” Gomez said in an interview.
“They just see the economic problems were solved by making money easier to get, and making interest rates as low as possible, and allowing demand to meet the supply—the supply being largely taken up by globalization—which has all been disrupted for the last two and a half years.”
Gomez says the pandemic’s economic disruptions are still reverberating, curtailing the supply of goods and services to meet demand.
“We don’t have the means to meet the expectations of people. Perhaps that could be a shock to this generation,” he said.
The unique characteristics of the apparently pending recession also differ from past generations by labour market forces, according to Gomez. He says Generation Z is “still laughing” because they’re needed to fill jobs—especially as baby boomers exit the workforce.
“Irrespective of how bad the economy gets, we still need people to supply services that are in short supply, to be involved in the production of goods, work in jobs that require face-to-face activity, which a lot of people have regarded now as unsafe or not wanting to do it.”
An online survey conducted in June by Angus Reid showed that 30 percent of Canadians aged 18–34 expect to need to rely on their children for financial support when they get older, a proportion much higher than that for those aged 35–54 (18 percent) and for those 55 and older (15 percent). A higher proportion of Canadians in the 18–34 age group (66 percent) also worry more than those two older age groups about being unable to leave a “financial legacy” for their children, at 59 percent and 43 percent respectively.
Gomez says such statistics more likely reflect Gen Z’s stage in life than its prospects.
“If you would have asked me that question 30 years ago when I was in my 20s, I would have answered the same. I didn’t have anything, I didn’t have any assets,” he said.
‘It’s Going to Be a Shock’
Ian Lee, a business professor at Carleton University, says the medium- and longer-term future is “much brighter” for Gen-Z, but a “bleak” time is likely just ahead.“It’s going to be a shock for quite a few of them, and some will lose their jobs. Generally, people that are in precarious employment, their first job, minimum wage, hospitality, restaurants, that sort of thing, they are more vulnerable,” Lee said.
“It’s going to be tough, and it’s going to be not fun. But the good news is, I don’t believe it’s going to last very long, because of the ongoing, desperate shortage of people because of the collapse of the birth rate.”
Decades ago, Lee spent nine years offering loans and mortgages for one of the major banks. He says that delinquency on unsecured debts such as credit cards and car loans can “go up very dramatically” in a recession but that defaults on rent and housing will remain rare.
“The last thing anyone defaults on is their rent or their mortgage because that’s really the worst of the worst. The consequences are so awful because then you’re homeless, and nobody wants that.”
Lee says tough times aren’t all bad because they can make tougher people.
“I lived through the 1980 recession, but then I lived through subsequent recessions. It’s an eye-opener. It’s a wake up call. It makes you realize that life is not always a picnic, life is not always a beach. And when you’re young, you think that everything is like a big party.
“But when you go through a recession, and you lose your job—and I’m saying from hard experience, because it did happen to me way back when in the day, and it’s sobering—it’s a maturing experience. You realize you have to start thinking about the future more because not everybody’s gonna look after you. I realized I had to look out for myself, and that’s when I went back to school.”
Gomez says some in Gen-Z will make the “work and effort” to have the lifestyle they want, but others will “rationalize” and accept the easier path of having and doing less than they dreamed of. However, he believes some who are attempting to engineer society want this latter effect.
“This is an actual contested question of what we want from our future and what this generation should be allowed to have—access to the same things we did, or a reduced set of options because our planet’s ‘at stake’?” he said.
“What have they been complaining about for the last 30 years? We are living beyond our means, the sustainability of the planet is at risk. Well, isn’t this [lower consumption] what they wanted the whole time?
“But of course, this has ramifications for the generations that are living in this. As labourers, this generation will have an advantage. As consumers, they might have to realize they can’t have everything that they were told they could.”
“Fewer will qualify for mortgages than would have been the case years ago. Most of those that do obtain mortgages will necessarily spend less on other things. During times of economic stress, we typically see defaults on debt increase,” he said in an email.
“Bottom line: Each person will respond to the current higher inflation and interest rates in accord with their own priorities, both economic and ethical.”
