Financial Planning

4 Ways for Young Adults to Capitalize on the Recession

If you can, buy low on both stocks and homes.

If you're older than 40, you would be forgiven if you took the glass-half-empty view of the economy. After all, your retirement account has been decimated, your home's value has plummeted, your credit has dried up and your job may be teetering on the edge of a cliff.

But if you're in your twenties or thirties, the nation's financial meltdown isn't all bad. Because you're young, you have plenty of time to rebound from any personal setback and even use the crisis to your advantage.

Your reflex may be to duck for cover and wait out the recession. But that will get you nowhere. You have to look on the bright side! Make lemonade out of lemons! Become a phoenix rising from the ashes! (Insert your favorite optimistic cliché here!) Sit on the sidelines and you could miss out on incredible opportunities.

Why the recession rocks

1. It's a great time to invest. Yes, the stock market has been in the toilet lately, but that's what makes investing so attractive now, especially to you first-timers. It's much better to buy something on sale than to pay full price. And you're buying low with plenty of time for your investments to grow.

As of July 8, Standard & Poor's 500-stock index stood 44% below its all-time high, reached on October 9, 2007. Yes, that's a good thing -- for you. You have 30, 40, maybe 50 years until you retire. That's plenty of time to come out ahead. The stock market has historically gained 10% per year, on average. And it has never lost money over a 30-year period. Even if you had invested in 1928, before the Great Depression, you would have earned an average annual return of about 8.5% over the next 30 years, according to T. Rowe Price.

Experts are already debating whether the market slump is over. (The S&P 500 has risen 30% since March 9.) Whether a full recovery is on its way sooner or later, you can rest assured that it is coming -- the market won't remain in the dumps forever. As a newbie investor, you probably didn't have much (if any) money in your 401(k) or other account before the market tanked. So shrug it off and position yourself now to cash in on the long run. (See Buy Stocks Now -- And Hold Them.)

2. You can get a deal on a home. Median home prices have dropped about 25% since 2006, with some metro areas seeing values drop more than 50%, according to the National Association of Realtors. That's not great news if you bought a home in the market's heyday, but the slump is welcome relief if you've been longing to buy your first home. Mortgage rates are also near record lows, making for smaller monthly payments. Plus, Uncle Sam is sweetening the deal with a tax credit worth up to $8,000 for first-time home buyers.

A cooling real estate market is good news for buyers because it's easier for them to negotiate a deal. But it shouldn't be the main reason that pushes you into your first home. Buying a house is a decision that you should make independent of what the market may or may not be doing. See How to Know When You're Ready to Buy to learn more, and take our Should You Buy a Home? quiz to test your readiness.

3. Your career options are still open. The nation's unemployment rate topped 9.5% in June. And hiring for new grads has slowed significantly. But this is a minor setback when you're young, compared with the blow it would be if you were older and more established. You have plenty of time to build a career. In fact, the recession may lead you to explore life and job paths you might not have considered otherwise.

If you don't land a position using your degree right away, consider a "stepping stone" job with good benefits to tide you over until hiring picks up again. Here are six companies hiring new grads now. Uncle Sam is also hiring.

When you're young, you haven't put down roots yet. So it's easier for you to move to where the jobs are. The job markets in big -- and pricey -- cities, such as New York, Chicago and San Francisco, have been hard-hit. But you might find stable employment, new career opportunities and a more affordable lifestyle in places such as Huntsville, Ala.; Albuquerque; Charlottesville, Va.; and Austin, Tex. (See Best Cities 2009 for more affordable places with good job prospects.)

The inability to find a job could also provide the impetus you need to become your own boss. See Six Steps to Starting Your Own Business and Entrepreneur's Guide to Success to learn more. Or perhaps now's the time to further your education or consider a career change.

4. Excessive debt is passé. Perhaps one of the best things to come out of the financial mess is the reality check Americans have had with their money. Conspicuous consumption is out. Frugality is in. For the past few years, we have hardly saved a dime of our hard-earned money (0% actually). Now, with the economy in the dumps, Americans are saving nearly 7% of their income, according to the Bureau of Economic Analysis. Getting in the habit of saving money and spending wisely in your twenties and thirties will pay dividends for a lifetime.

The fact that credit is harder to come by may be a good thing for our generation. Lenders aren't dishing it out like candy anymore. If we can't get as much credit, perhaps we won't dig ourselves too deep into debt when we're starting out. Living within your means and keeping more cash in your pocket instead of forking it over to the bank? Now that rocks.

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