Beyond unemployment: How downturns shape young people’s futures

Periods of rising inflation and tighter household budgets reduce the choices available to young people. Families facing financial stress often have fewer resources to support learning, well-being, and social participation. These pressures affect day-to-day life and accumulate over time, influencing outcomes that extend far beyond the immediate economic cycle.

A study commissioned by Ara Taiohi, the peak body for youth development in Aotearoa, found that youth workers were engaging with young people from minimum-wage or lower-income households at around two to three times the rate of those from middle-income households. Engagement was far higher still when compared with high-income households. 

The same study reported that 61 percent of the rangatahi youth workers support have high or very high needs. This highlights how economic hardship concentrates disadvantage, increasing the level of support required in communities.

The impact that economic hardship and education have on each other is a major factor in the development of a young person. While differences in educational achievement between students from high-and low-income households are well documented, what drives these gaps is often misunderstood.

Research out of the University of Cambridge in 2023 suggests that behavioural traits or socio‑emotional skills, often claimed as the driver of achievement gaps, account for only a small proportion of the disparity. Instead, material factors associated with household income – such as access to stable study places, reliable transport, digital devices, and adequate nutrition – play a far more significant role in shaping learning outcomes.

Young people in lower-income households are far less likely to participate in afterschool programmes, tutoring, sport, cultural activities, and other extracurricular opportunities. These activities help build confidence, collaboration skills, time management, and problem-solving capabilities that support educational achievement and positive transitions into adulthood.

They also offer important social connections beyond school. When financial pressure forces families to withdraw from these opportunities, rangatahi lose access to the skills and social capital that help support sustained educational achievement.

Schools in lower-income communities are more likely to experience limited funding flexibility, higher staff turnover, and constrained access to specialist services. During periods of economic stress, these pressures intensify, and schools may need to do more with less, even as student needs become more complex due to at-home pressures.
  
Reduced access to up-to-date learning materials, youth workers, counsellors,  and extracurricular opportunities compounds disadvantage and reinforces the cycle of educational inequity.
 

The effects of financial stress on educational engagement are also evident in students’ day-to-day experiences of schooling. Economic hardship can lead to overcrowded housing, food insecurity, and limited access to transport or digital resources.
 
These factors influence attendance and academic performance, and have long-run impacts on a young person’s capacity. When these pressures persist, they reduce their ability to fully engage with learning and develop confidence in their own academic ability, limiting their options as they move through the education system and into adulthood.
 

Lower educational achievement in lower-income contexts does not reflect lower aspiration or effort. It reflects constrained opportunity. Rangatahi facing consistent structural barriers must work harder to achieve the same outcomes as their peers. Understanding the economic impact on education, and the flow-on effects into employment, health, and well-being, is essential for assessing the full cost of downturns. 

A 2022 study found that a 10 percent decrease in earnings per capita reduced the college-degree attainment by 15 percent, and decreased average earnings in adulthood by five percent. These findings suggest that the effects of economic downturns endure well beyond the period of economic recovery, especially for young people already experiencing disadvantages.

Economic downturns affect young people through a compounding set of pressures that extend well beyond short-term employment outcomes. When household finances are under strain and schools face increasing constraints, young people experience reduced access to the resources, relationships, and opportunities that support learning and well-being. 

If we are to understand the full costs of economic downturns and design policy that supports equitable futures, the long-run effects on young people’s opportunities and life trajectories must be treated as central to economic analysis, not incidental.