They are insecure, pressurised, overdrawn and debt-ridden. The iPod generation - which is anyone under the age of 35 - looks likely to be the hardest hit by the recession.

Mark Dampier, of Hargreaves Lansdown, the independent financial adviser, says: “Young adults are in a difficult position. They have been lulled into a false sense of security by banks and have been encouraged to borrow so much for so long. In a downturn, marked by a sharp decline in lending after a decade of easy credit, it is inevitable that they will suffer.”

However, the most ravaging effects of a recession can be mitigated with the right financial planning.

Employment

There has been a record rise in unemployment in the past six months, and a prediction from Citigroup, one of the world's largest banks, is that three million Britons will be jobless by 2011. Sadly, the youngest workers are often shown the door first, as many companies operate a “last in, first out” policy. In addition, large numbers of young workers are on temporary contracts and have few employment rights.

One option for young people worried about losing their job is insurance. However, in the deteriorating jobs market many insurers are withdrawing products offering unemployment protection. Emma Walker, of moneysupermarket.com, the comparison website, suggests that employees take out cover sooner rather than later. She says: “If you do not have unemployment cover in place when you find out that you may lose your job, it could be too late. Most insurers will not pay out if you knew that your job was already at risk when you bought the policy.”

Most unemployment protection policies are offered within payment protection insurance policies, but some standalone products are available from specialist insurers. For example, £1,000 a month of unemployment cover over a 12-month period for a 30-year-old male, with a 30-day deferred period, costs £19.50 from i:protect insurance.

You could also opt for combined accident, sickness and unemployment cover or add it to your existing life or critical-illness cover.

Mortgages and property

In the past three years more than a million first-time buyers - mainly younger people - have entered the housing market with an average deposit of only 10 per cent.

Homeowners who bought recently, at the height of the market, are likely to be the first to be hit by a wave of negative equity triggered by a 14.6 per cent fall in house prices over the past year. It could trap three million people in homes worth less than their mortgages by 2011.

The biggest problem for younger borrowers remains the withdrawal of mortgages for those who have smaller deposits. There are only 215 deals for borrowers needing a loan worth 90 per cent of a property's value, against 1,160 a year ago.

Without the option of remortgaging on lower-cost fixed or tracker rates, many young homeowners are being forced on to their lender's expensive standard variable rates (SVRs). This can add hundreds of pounds to monthly repayments and raises the spectre of repossession for those on already overstretched budgets. The Council of Mortgage Lending predicts that the number of repossessions will jump by 50 per cent next year to 45,000.

Mortgage experts recommend paying as much towards your mortgage as possible to increase the size of your equity and boost the chances of finding a new deal. Ask your lender about remortgaging deals, which can be significantly more competitive than those for new customers, or reversion rates, which can be more attractive than SVRs.

Personal debt

The iPod generation is more likely to have built up credit card debt, have other personal loans and be in the red on a current account than any other age group, according to research by moneysupermarket.com.

Beccy Boden Wilks, of National Debtline, the charity, says: “Debt has been considered normal for this generation and the past five years has been dominated by cheap credit.”

National Debtline has experienced a 15 per cent increase in the number of calls it receives over the past six weeks - about a third of which have been from anxious under-35s.

Meanwhile, banks have been raising rates on credit cards and loans, according to Sean Gardener, of Moneyexpert.com, the financial website. The average rate for an unsecured loan is now almost 21 per cent. Black Horse, the lending arm of Lloyds TSB, increased loan rates by nine percentage points last month. Borrowers are now charged an eye-watering 36 per cent on loans between £1,000 and £3,000.

Almost half of young adults are considering consolidating debts with another loan, according to research by moneysupermarket.com. But Ms Boden Wilks says: “If you decide to consolidate credit card and other debts into a single loan, you need also to change your spending habits. When people keep spending on their plastic after consolidating, it is the beginning of a spiral of debt that can leave borrowers in serious trouble.”

She also recommends creating a personal budget and paying the most important bills, such as mortgage or utilities, before looking at other unsecured debts. For further advice or help with budgeting, visit the website at www.nationaldebtline.co.uk or call 0808 8084000.

Pensions

One in ten people has cut back on pension contributions in the past six months, according to uSwitch.com, the comparison website.

Tom McPhail, a pensions expert at Hargreaves Lansdown, says: “Over the next three years adults in their twenties and thirties are more likely to suspend pension contributions in favour of clearing debt in personal loans or mortgages, or paying more for products such as income insurance. This could see them through the current financial turmoil, but in the long term it is only deferring a problem and these groups could find that there is a shortfall in their contributions.”

Malcolm Cuthbert, of Killik & Co, the financial planner, says that if a 25-year-old cuts £200 a month from pension contributions for three years, he would reduce his final pension pot by £55,347. Mr Cuthbert adds: “Your pension income would be reduced by £3,200 a year, assuming that you retire at 65 and achieve 4 per cent real rate of growth.”

Burden increases on the Bank of Mum and Dad

Parents are expected increasingly to provide financial support to grown-up children, contributing to deposits for houses, savings and even day-to-day living costs.

A report released by the Council of Mortgage Lenders found that growing numbers of first-time buyers under 30 received financial support from parents or other relatives to obtain a mortgage, up from 38 per cent last year to almost 50 per cent this year.

It is backed up by research by Times Money that found that almost half of final-year students were depending on the Bank of Mum and Dad for a leg-up on to the property ladder.

The survey of students from the London School of Economics, University of Leeds, University of Bristol and Liverpool Hope University, in conjunction with Moneysupermarket.com, the price comparison website, found that final-year students believed that they would need to save at least £20,000 for their first home and 47 per cent expect their parents to help them to raise this money.

But the iPod generation does not only ask parents for help to buy a home. Many parents subsidise rent for offspring living at home, while others add children to their car insurance. Nigel Snell, of Liverpool Victoria Friendly Society, says: “Parents should encourage children to live financially independent lives. Subsidising living costs can store up problems for the future by providing unrealistic expectations.”

Meanwhile, other research from Moneysupermarket.com found that 23 per cent of parents are forced to guarantee loans for cars or weddings for their children. Tim Moss, of Moneysupermarket, says: “Younger people are especially vulnerable in this climate - they tend not to own a home and are more likely to have missed the odd payment on a mobile phone or credit card, which can effect your credit record dramatically.”

Laura Whateley

Case study: debts piling up

Sandra and Kevin Dunham, aged 32 and 33 respectively, are worried about the scale of their debts, particularly since the birth of their son, Alfie, in May.

The couple bought their three-bedroom home in Hornchurch, Essex, at the height of the market in 2006 for £250,000, with a loan for 80 per cent of the property's value. They have managed to clear only £222 of the original debt. Their current mortgage deal expires at the end of the year and they are crossing their fingers that rates will fall by Christmas, though the signs are not promising.

Mrs Dunham says: “I know that it is a lot more difficult to get a mortgage with a smaller deposit now and I only hope that we will find a deal that will not push up our repayments.”

The mortgage is not the only debt secured against the home. Last year Mrs Dunham, who earns £28,000 a year as an asbestos surveyor, took out a £30,000 loan from First Plus, at a rate of 9 per cent. She used it to consolidate a number of debts, mainly on credit and store cards, but has since borrowed a further £4,000 on credit cards. Mr Dunham, a carpenter earning £25,000, owes £2,000 on his credit card.

She adds: “People our age want the latest flatscreen TVs, the newest technology and in the past we have been able to borrow to get it. Now it feels like our options are disappearing all at once.”