KEY POINTS:
Prospects for the Kiwi economy are looking weak as the global financial crisis deepens, yet a quarter of the population has, until now, known only sustained economic growth.
The oldest members of Generation Y, loosely defined as people born between 1978 and 1999, would have been only 9 during the 1987 crash - the last time New Zealand experienced an economic storm.
The question is how a group, frequently stereotyped as the spendthrift, debt generation, will weather it.
"We probably do spend irrespective of where things are going," says 25-year-old Duncan Rutherford. "But if it turns bad, it might change the perspective of people who haven't been through a recession."
"It's a bit of a worry with companies going bust and tens of thousands out of work," says Kristen Perrett, 29. "We haven't had to go through hard financial times, so it's new for us."
Retirement Commissioner Diana Crossan says: "They've been able to have what they want when they want it, but they won't be able to get credit like they have."
Veda Advantage NZ country director John Roberts says in the six months to June 30, Generation Y accounted for a quarter of credit inquiries but represented 33 per cent of defaults listed.
"That would indicate that group is under financial stress, or lacking financial literacy. It tends to be the 'I want it now' generation. When the new generation iPhone or iPod comes out it's a must-have, but they don't want to save to pay for it."
The leading default areas among Gen Y are from telcos and hire purchase, Roberts says. "That would suggest they are getting into debt that they can't manage."
Crossan expects a mix of reactions to the recession. "There will be people who can't believe it - they'll have to change their lifestyle - but there will be others who live within their means."
Perrett eschews debt. She falls outside the Gen Y characterisation as she's a mum to 11-month-old Billy, and the only one among her friends with a baby. She and partner Dave Taylor, who works at Auckland University, rent their home in Beach Haven and have a small car.
Despite being a young family on one income, they live within their means, which isn't easy.
"I used to buy more expensive brands, but now I look around at the supermarket and try to get more for my money," says Perrett, whose Gen Y friends are also feeling the pinch.
"When our parents had children, they never had the latest strollers and cots and things, but now there's a lot of pressure on parents to have the latest things. We've become a lot more materialistic, so I think something like this will hit us a lot harder.
"We've come to feel like we deserve it and we should have these things, whereas our parents got by on not a lot for their children. It will be hard if things get worse."
Rutherford says generalisations about Gen Y being materialistic over-spenders are "pretty accurate", but he is debt-free. Flatting in Parnell, he sees an upside to falling markets because he may be able to buy a house late next year when he believes the prices will have dived further.
Westpac senior economist Doug Steel says falling asset prices facilitate a "wealth transfer" towards the younger generation because it can afford more assets, such as housing, than it could have previously.
Crossan says many Gen Ys won't be affected by the credit crunch - they'll be studying, or in their first or second jobs.
Their purchasing power may be affected as prices rise on imported goods but this may be balanced by companies having sales to keep going.
Christchurch University student Karryn Penney, 23, has always been a saver but with rising living costs, "I've become more aware, and budgeted more". She says this is typical among her peers: "If they decide they like something they put it on hire purchase." But Penney detects her friends are modifying their behaviour, impacted by factors such as petrol prices.
"Instead of deciding to drive across town, they stop and think about whether they need to go."
Despite working part-time with disabled people, Penney will face a total student loan of more than $16,000.
Roberts says coming out of university with debt means some 20-somethings are familiar with debt when they get their first job and flat.
"It's pretty easy to buy a widescreen TV on no deposit and no interest payments for two years, and possibly a hi-fi and a car - but there's always the day of reckoning," he says.
"Suddenly they load $30,000 of consumer debt on top of $30,000 of student debt, and in anyone's language you need to be earning a fair amount to service that."
Crossan says Gen Y's primary concerns will be paying off student debt and "getting on with life".
"I don't think it's going to be too bad in New Zealand," Rutherford says. But he expects fallout from the international market turmoil may cause some of his friends in Britain and the United States to come home. "They are all professional, working in banks or law firms, and there will probably be quite substantial job losses."
He left his job working for an exporter/importer about a month ago because he "wasn't enjoying it", but is confident there are "quite a few opportunities" despite the economic good times ending.
Crossan says Gen Y is unlikely to have invested markedly in stocks and shares, because it didn't have the cash.
"There's a whole group of them - they're nurses, teachers and builders - who at this stage haven't accumulated enough wealth to make those investments," says Crossan.
Gen Y may see some effects of market volatility in KiwiSaver accounts. Crossan's advice is not to panic. "You've got a long time if you're that young." She says it's a lesson in the importance of diversifying investments. "Nothing is safe forever."
Steel says in times of turmoil, it's good to be aware of the risk position. "Many people don't tend to be too conscious of their risk profile. If you're uncomfortable with it, reduce consumption and save more."
Roberts says if Gen Ys have defaults loaded on their credit files they sit there for five years - which will affect their ability to get mortgages. "Behaviour now can have a big impact on the way you manage your financials down the track."
