How the Russia-Ukraine conflict could affect young people’s finances

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The Russian invasion of Ukraine has rattled global stock markets. It’s also sparked anxiety around personal finances, which have, for many around the world, already been strained by rising costs in the wake of the coronavirus pandemic.

Globally, young people were among the groups that have felt the economic effects of the pandemic most disproportionately. A survey by the Organisation for Economic Co-operation and Development, published in July, found that more than a third of people aged 18-29 across 25 countries reported experiencing financial difficulties since the start of the pandemic, more than any other age group.

The potentially far-reaching and destabilizing economic effects of an escalating Russia-Ukraine conflict could jeopardize the world’s tentative financial recovery just as young people are getting back on their feet.

Here’s what financial experts say are the main financial challenges young people could face in this crisis, and advice on how they can protect their money.

Manage fuel costs

Oil prices have also been driven higher by the Russia-Ukraine crisis, as sanctions imposed on Russia by Western allies have prompted concerns of disruption to energy supplies. Brent crude futures hit $105 a barrel on Sunday evening, having topped $100 on Thursday for the first time since 2014. One analyst has even estimated that the oil price could hit $130 a barrel.

Energy commodities like oil had already been on the rise prior to the escalation of geopolitical tensions, feeding into higher fuel prices. A gallon of gasoline in the U.S. stood at $3.610 on Monday, according to AAA, up from the national average $2.717 a year ago.

Besides using public transport more to cut back on car fuel, which isn’t always possible, Sarah Coles, personal financial analyst at U.K. investment platform Hargreaves Lansdown, suggested that keeping up with easy car maintenance could reduce overall costs. This includes ensuring your car is serviced regularly and that tires are properly inflated. She said that even removing additional weight on the car, like roof bars and boxes, as well as taking heavy loads out of the trunk, could help.

“Driving styles make a big difference too: driving more slowly, in the highest appropriate gear and accelerating more gently,” she added.

Natural gas prices surged after the attack on Thursday, with futures up around 3.5% on Monday morning. The European Union is the largest importer of natural gas in the world, according to the bloc’s Directorate-General for Energy, with the largest share of its gas coming from Russia (41%).

Coles said that for those with money to do so, it’s worth investing in housing insulation, to minimize heating costs in the longer term. “Otherwise, there are still steps you can take — like turning the thermostat down by one degree, switching radiators off in rooms that aren’t used regularly, being more ruthless about how often you run the dishwasher and washing machine, or installing DIY draught-proofing.”

In addition, she said higher energy costs would also likely make “every step in food processing and transportation more expensive.”

Coles said the conflict could also mean fewer food exports, which could also push up prices. For instance, she pointed out that Russia and Ukraine make up 29% of wheat exports, 19% of exported corn and 80% of sunflower oil exports.

Alan Holland, CEO and founder at sourcing technology company Keelvar, told CNBC that Ukraine is considered the “bread basket of Europe” and warned that conflict could see the food supply chain get “hit hard.”

Paul Dales, chief U.K. economist at Capital Economics told CNBC via email that increases in global agricultural prices over the past nine months suggest that U.K. food price inflation could soon rise from 4.3% in January to around 6.0%, for example.

However, he also pointed out that the level of global agricultural prices hadn’t risen much since the Russian invasion of Ukraine began.

Dales added that, in the case of the U.K., grocery stores have been willing to absorb big price increases into their margins rather than risk losing customers. “So while it is possible that food price inflation rises further, it seems unlikely that it will really soar,” he said.

Don’t ‘switch and ditch’ stocks

Coles at Hargreaves Lansdown told CNBC via email that Russia’s invasion of Ukraine had already led to some “fairly dramatic market turbulence.” Coles recommended that investors try to look beyond these events and focus on their long-term financial goals.

“Daily market moves are concerning, but this isn’t the time to switch and ditch stocks, as this can lead to over-trading and capitalising losses,” she said.

Coles said the most important action young investors can take is to ensure their investments are diversified, “with exposure to a variety of geographies and an appropriate asset class mix for your age and investment horizon.”

Becky O’Connor, head of pensions and savings at U.K. investment platform Interactive Investor, similarly acknowledged that concerns about slow and volatile investment growth may scare some people from investing their savings. But she told CNBC via email that “they have a far better chance of making something if they can leave their money in the markets for a good few years.”

Coles said that people looking to cut costs may be tempted to do so by reducing contributions into their pension fund, but she advised against this.

“By paying into your pension regularly, it means you pay in when markets are lower, when your money goes further and buys more units,” she said, explaining that this means investors stand to gain even more once markets recover.

Don’t rely on higher interest rates

Concerns around how higher energy prices could drive up inflation more broadly has prompted investors to readjust their expectations for Federal Reserve interest rate hikes.

Elliot Hentov, head of global macro policy research at State Street Global Advisors, told CNBC’s “Squawk Box Europe” on Friday that he believes the U.S. hiking cycle “cannot be stopped, it will be slowed down, it will be flattened, perhaps stretched out, the Fed can maybe take a little bit more time” in raising rates.

However, Hentov said European central banks’ plans for raising rates had probably “changed course,” given it is likely to be more hard hit by the risk of “stagflation” amid the conflict. Stagflation refers to a combination of a slowdown in economic growth and rising inflation.

Ultimately, O’Connor said, interest rates will probably rise further, along with inflation, acting as a short-term “double whammy” on rising borrowing and living costs.

“In terms of savings, interest rate rises might be a good thing but they don’t really feed through neatly to savings accounts,” she said, explaining that the interest rates on cash savings accounts were still “way behind” the rate of inflation. “It’s alarming how much value money held in savings is losing.”

CNBC’s Yun Li and Cat Clifford contributed to this report.

Check out: With Russia’s invasion of Ukraine roiling the stock market, making calm decisions is the best way forward

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