Apr
07
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Do I Need Life Insurance?
If you’re trying to decide if you need life insurance, ask yourself: Would anyone be put at risk financially if I weren’t around anymore?
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Apr
07
2025
Can You Get Unemployment Deferment for Student Loans?
If you’ve lost your job, you may be able to defer your student loan payments. The unemployment deferment and repayment options available can depend on the type of loans you have.
For instance, if you have federal student loans, one option is the Unemployment Deferment program offered by the government. Unemployment Deferment is a program run by the Department of Education that allows eligible federal loan borrowers who are out of work or cannot find full-time employment to postpone payments on existing educational debts.
Read on to learn how the Unemployment Deferment program works, plus other alternatives, including deferment opportunities for private student loans.
What is Unemployment Deferment?
For anyone who has federal student loans, student loan deferment allows eligible borrowers to put student loan payments on hold for a predetermined period.
Unemployment Deferment is awarded to eligible federal student loan borrowers who are seeking unemployment benefits or who are unable to find full-time work.
Those who qualify can temporarily pause putting money toward student loans for up to three years for federal loans, assuming that they continue to meet all the requirements.
It’s important to note that if you have unsubsidized loans or Direct PLUS loans, interest will continue accruing during any deferment period. This means the balance owed on outstanding loans would keep growing. So, over the life of the loan, a short-term savings from deferring repayment could mean owing more in the end.
In general, interest won’t accrue on federal subsidized loans.
If you qualify for deferment and your loan continues to accrue interest, you can choose between two ways to pay back the interest. First, you could make interest-only payments. Or, you could let the interest accumulate during the deferment, adding whatever accrues to the total balance owed.
Currently, if a borrower decides to forgo interest-only payments and allow interest charges to rack up on an unsubsidized loan, that interest is added onto the total balance of the student loans, which is a process called “capitalization.”
In addition to having a larger loan amount due down the line, future interest is calculated on top of the new balance. Therefore, borrowers pay interest on top of interest, potentially resulting in higher monthly payments than before the deferment.
However, thanks to new regulations that begin in July 2023, this kind of interest capitalization on federal student loans will be eliminated.
What Types of Student Loans Are Eligible for Unemployment Deferment?
If you’re unemployed with student loans, federal student loan unemployment deferment is available for Direct Loans, FFEL Program loans, and Perkins Loans. Here are a few specific examples of loans that may qualify.
• Direct Loans
• Family Education Loans (FEEL Loans)
• Stafford Loans
• Perkins Loans
• PLUS Loans
• Direct Consolidation Loans
In addition, if a borrower received federal student loans before July 1, 1993, they may qualify for other deferments.
Private loans from private lenders are not eligible for the federal Unemployment Deferment program. However, some lenders may provide economic hardship programs for borrowers.
Borrowers can contact their loan servicer for details on any hardship repayment or deferment programs they may offer.
Who is Eligible for Unemployment Deferment?
Deferring payments on federal student loans isn’t automatic.
Borrowers first need to apply with supporting documentation to determine if they’ll be eligible for a student loan unemployment deferral.
Generally, an applicant can qualify either by providing proof of eligibility to receive employment benefits or by demonstrating that a diligent search for full-time employment is underway.
In the second case, certifying that you’re registered with an employment agency (whether privately owned or state run) can help show that an active search for work is being carried out.
Applicants seeking unemployment deferment under the searching full-time employment category may receive a deferment period for only six months.
If you need to extend the deferment past that time, you’ll have to submit a new application certifying that you’ve made at least six attempts to find full-time employment. The deferment period cannot exceed three years.
To pursue unemployment deferral, you must first fill out the unemployment deferment form at StudentAid.gov — answering questions about your job search, current unemployment benefits, and understanding of what loan deferment entails.
What About Private Student Loan Deferment?
Although private lenders aren’t legally required to offer unemployment deferment options, some do.
But, it’s worth keeping in mind that, similar to federal student loan Unemployment Deferment, private loans typically still accrue interest during the approved deferment period (even refinanced student loans with lenders who honor grace periods).
In other words, the total student loan balance would continue to grow even while payments are suspended. This is one of the basics of student loans.
Over the life of the loan, this could add to what the borrower owes overall. Some private lenders allow borrowers to make interest-only payments during a forbearance to help avoid interest capitalization.
Even with the accrual of interest and limited options, deferment is preferable to defaulting on student loans.
Borrowers with private student loans can contact their lender to learn if special deferment is available for those who are unemployed. This private student loans guide may also be helpful.
Advantages and Disadvantages of Unemployment Deferment
So, what are the potential pros and cons of pursuing an unemployment deferment on student loans?
These are some of the advantages and disadvantages you may want to think over:
Advantages
Whether a borrower has been laid off due to an economic downturn or they have recently graduated and are struggling to find employment, unemployed deferment is one way to help ease the financial pressure of repaying student debt in the short term.
For borrowers in need of financial relief, student loan unemployment deferment can help temporarily lower monthly expenses. This can be especially helpful if an unemployed borrower would otherwise run the risk of student loan default.
Defaulting on loans can have a negative impact on your credit history, complicating your ability to pursue mortgage or other loans in the future.
And, with student loans, simply not paying them does not erase the amount owed or the interest that can keep accruing.
If a borrower has only subsidized student loans, the unemployment deferment program comes at no additional cost because interest does not accrue.
And, while it’s completely fine to apply for a deferral, borrowers are typically expected to use the approved deferment period to find a new job; some unemployment protection programs from private lenders even have stipulations to that effect.
Disadvantages
In the case of unsubsidized federal student loans, taking a deferment will increase the total amount owed on the loan. And even if a borrower decides to make interest-only payments, they’re not not chipping away at the principal amount.
Unemployed student loan borrowers may want to weigh whether the short-term savings tied to reduced or suspended loan payments are worth owing more money on those loans later on.
When a borrower does eventually find employment and the deferment ends, the future payments on their student loan payments may be higher each month—to cover the additional accrued interest.
For someone who is just adjusting to a new job, higher loan payments may come as a shock and could be hard to budget for.
Understanding the long-term implications of applying for student loan unemployment deferment can help borrowers to decide whether this sort of program is the right for the current and future financial situations.
Alternatives to Unemployment Deferment
For federal student loan borrowers who don’t qualify for the Unemployment Deferment program, there may be other ways to handle student loans during a job loss.
Forbearance and income-driven repayment plans are two potential options:
Forbearance
Similar to deferment, federal or private loan forbearance temporarily suspends or reduces loan payments.
However, while principal payments are postponed, interest will continue to accrue, no matter what type of loans you have. To see if you qualify, contact your loan servicer.
Because forbearance does not suspend the accrual of interest on a student loan, it can make sense to consider other options, such as income-driven repayment.
Income-Driven Repayment
Income-driven repayment plans calculate loan payments based on a borrower’s current income and family size. They also, typically, stretch the loan repayments over 20 or more years.
There are four different types of income-driven repayment plans run by the US government:
• Revised Pay As You Earn Repayment Plan (REPAYE Plan)
• Income-Based Repayment Plan (IBR Plan)
• Pay As You Earn Repayment Plan (PAYE Plan)
• Income-Contingent Repayment Plan (ICR Plan)
Although this type of plan may trim monthly loan payments, it could cost borrowers more in interest over the life of the loan.
So, once your financial or employment situation improves, you may want to switch to an alternative repayment plan.
Public Service Loan Forgiveness (PSLF) Program
Having been previously employed in certain public sector jobs may also qualify some borrowers for student loan forgiveness if unemployed.
By definition, loan forgiveness means that the remaining amount owed is, well, forgiven—the borrower is no longer bound to pay it back.
Eligible federal student loan borrowers who’ve completed 10 years of employment with a qualifying job—such as, a public school teacher, some non-profit employees, Americorps recipient, or government worker—might be eligible for the PSLF program.
If you think you may qualify for the federal forgiveness program, and your goal is to lower your monthly payments, you may still want to switch to an income-driven repayment plan while the PSLF application is being reviewed in order to lower your monthly payments.
Student Loan Refinancing
After exhausting federal program options, or if none are quite the right fit, borrowers with federal or private student loans may want to look into refinancing student loans.
When you refinance student loans, you replace your loans with one new private loan. One of the advantages of refinancing student loans is that qualified borrowers may either get a lower monthly payment or help reduce the total interest paid over the life of the loan. Note: You may pay more interest over the life of the loan if you refinance with an extended term.
But it’s important to be aware that by refinancing federal student loans with a private lender, borrowers give up benefits and protections such as federal Unemployment Deferment, PSLF, and income-driven repayment.
Lenders that offer refinancing options usually look at applicants’ qualifying financial attributes—including employment status, credit history, and income. So, refinancing student loans is not necessarily available to all who apply.
The Takeaway
There are numerous possible student loan repayment options for unemployed borrowers who qualify, including deferment, income-driven repayment, federal student loan forgiveness programs, and student loan refinancing. One good place to start is by calling your loan provider to review all options you may qualify for.
If you decide that refinancing your student loans makes sense for your situation, SoFi offers loans with a low fixed or variable rate and no fees. By filling out a simple application, you can find out if you qualify in just two minutes.
Check your student loan refinancing rate today with SoFi.
About the author
Ashley Kilroy
Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.
SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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How Long Do You Have to Have Life Insurance Before You Die?
There are two main types of life insurance: term and permanent. The costs and coverage time of term life and whole life differ.
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27 Weird Ways to Make Money
If you’re interested in bringing in more cash, you may be happy to know there are countless weird ways to make money, from selling your hair to testing food to beekeeping. With today’s high cost of living and inflation chipping away at paychecks, many consumers are seeking extra income by starting part-time work or a side hustle.
So, if you want to pad your wallet with extra cash, here are some odd ways to make money in your spare time.
Key Points
• Renting out your backyard for campers can provide a unique earning opportunity.
• Participate in sleep studies, clinical trials, and market research to earn extra cash.
• Earn by testing websites and providing usability feedback.
• Help people move their belongings as a professional mover.
• Compete in food challenges or writing contests to win cash prizes.
Benefits of Weird Ways to Make Money
Generating additional income is a key benefit of starting a side hustle, and sometimes you need to be creative about how to do that. When you hit on an idea that pulls in more cash, you can use that to afford some small splurges (go ahead and get that pricey salad you love twice next week), but it can also help in a more lasting way. Whether you bring in an extra $100 or $1,000 per month, you can reap the following advantages:
• Repay debt. High-interest debt, especially from credit cards, can gobble up your income and inhibit financial growth. Paying off debt can be a huge step forward in your financial health.
• Boost retirement savings. Take advantage of the power of compounding returns by stashing more money into your IRA or 401(k) — your retired self will thank you!
• Achieve financial stability. Your extra money can build an emergency fund that allows you to handle unexpected expenses or survive for a few months without work, protecting you from the consequences of sudden job loss or a downshifting economy.
• Follow your passion. While your day job might not be the career path of your dreams, a side hustle allows you to explore what you love and earn money along the way. For example, your woodworking hobby or love of knitting can become a profitable business.
• Accomplish a financial goal. Whether you want to take an overseas vacation or update your kitchen, making extra money can help you afford a financial goal without taking on debt or dipping into your savings.
• Grow professionally. Although your second job might be unusual, such as becoming a professional eater, it can allow you to make new connections, acquire new skills, and open the door for career opportunities.
• Structure time intentionally. Another job will cut down your free time, but this can be a net positive — for example, it can help you direct the hours you have to yourself to what matters most, such as spending time with friends and family. Hard work can help highlight the good times with the ones you love.
💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 3.80% APY, with no minimum balance required.
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Making Money: 27 Unusual Ways
If you’re looking for ways to make money from home or in the outside world without loads of special training, check out this list of weird ways to make money.
1. Renting Your Backyard for Campers
No matter where you live, if you’re in a house, your lawn could be a sought-after destination for adventurers and budget vacationers. Via websites like Hipcamp, you can advertise a comfortable, affordable place to stay for a couple of nights for backpackers or vanlifers. Bonus points if you’re near popular attractions. At Hipcamp, the average active host pulls in between $8,000 to $15,000 per year.
2. Becoming a Professional Sleeper
Another one of the strange ways to make money is by sleeping (seriously!). Despite its necessity and benefits, sleep is mysterious to us, and the scientific community has much to research about it. For instance, you could become a subject for researchers trying to better understand sleep. One University of Colorado study paid almost $3,000 for a study to be completed in less than a day. Sleeping also has commercial utility in various situations. For example, you might try out a company’s products, such as a prototype pillow or sleep mask. To find gigs, set up some search-engine alerts with keywords such as “sleep study” or “sleep tester” and also comb job boards, especially at universities doing research.
3. Renting Out a Shed
Have enough room on your property for extra boxes, appliances, or tools? An app like Neighbor lets you rent out your extra storage space for other people’s possessions, processes payments for your services, and is free to use. It’s like Uber or Airbnb — but with your attic or garage.
Recommended: What to Know Before Renting Out a Room in Your House
4. Test Websites
You can be a professional web surfer by testing websites for companies wanting to improve their online capabilities. Tasks range from clicking a link to finding a specific page on a website. A few minutes a day could earn you income (anywhere from 10 cents to 10 dollars per assignment, depending on the time required), and payments usually come to you through a convenient app like Venmo or PayPal.
5. Being a Professional Mover
Moving is a challenge and can be a very stressful experience. People will often pay big money for help packing, cleaning, and transporting items. This job is physically demanding, so it may not be for everyone. You can work weekends for a moving company or become an independent mover with a company like U-Haul. You might also advertise your services locally if you have a van and access to moving supplies.
6. Professional Eating
Here’s another odd way to make money: If you can gulp down food in a matter of minutes, professional eating is a viable side hustle. Local restaurants might give rewards for accomplishing food challenges. In addition, Major League Eating hosts food challenges across the United States with cash prizes for winners. Want to aim high? The annual Nathan’s hot-dog eating contest pays a $10,000 prize.
💡 Quick Tip: Want a simple way to save more everyday? When you turn on Roundups, all of your debit card purchases are automatically rounded up to the next dollar and deposited into your online savings account.
7. Cuddling
Today’s modern, fast-paced world can deprive people of physical touch, a vital factor in mental and emotional health. Cuddle Comfort is a secure website that sets up platonic cuddling sessions. At around $80 per hour, you could be well-compensated for helping others snuggle up and feel less isolated.
8. Befriending a Stranger
If you’re personable and love embarking on new experiences, being a professional friend may be right for you. RentAFriend.com is a website helping those lacking companionship. Whether you’re walking through a park or attending an evening event, your job is to spend time with people looking for friendship, make interesting conversation, and let your personality shine. Rates typically range from $20 to $50 an hour.
9. Being a Test Subject
Looking for more crazy ways to earn money? According to Ziprecuriter, the average income for a test subject nationwide is $53 an hour. By participating in market research, psychology studies, and clinical trials, you can turn your spare time into profitable experiences where you can reap the financial rewards.
10. Selling Plasma
Blood plasma is helpful for medical studies and healthcare procedures. It can save lives during surgery complications and aid scientific breakthroughs. Your body naturally produces this valuable substance, which you can sell twice per week in a process that’s similar to donating blood (but takes longer). For most people, the process has no side effects.
Plasma donors typically receive payment in a prepaid card and can earn around $100 per donation. Plus, companies like CSL Plasma pay new donors up to $700 for their first month of service to sweeten the deal.
11. Joining Writing Contests
If you have a way with words, a writing contest could be right up your alley. Whether you write as a creative outlet or to explore new ideas, you can get paid for your passion by entering a writing contest. Dozens of fee-based contests exist, meaning you can likely find your niche, enter your pieces, and hopefully win the top prize. As a bonus, you may receive reviews of your work and pointers for sharpening your craft. Search online for opportunities.
12. Being a Food Tester
Who doesn’t love to eat? This delicious pastime could become a weird way to earn money if you become a food tester. You might test new snacks and meals for a “sensory testing company” like Matrix Sciences. You can generally earn a minimum of $25 to $30 per session, though it could be more depending on the type and length of the test.
13. Reviewing “Sensitive Content”
Another unusual way to make quick cash is to review sensitive content for websites like YouTube and Reddit. Millions of users post content every day, making it almost impossible to review all of it. Therefore, large companies often hire people to review sensitive content to ensure everything is appropriate for the internet.
Remember, though; you may have to view some vulgar and upsetting content. So, if you have a weak stomach, this might not be your side hustle.
14. Recommend Items You Love
We all have our go-to essentials, like a preferred makeup brush or olive oil brand. Rather than just waxing poetic to your friends about them, you can write or post videos about your recommendations. Affiliate links online can earn you commissions. How it works: You direct your web audience to your favorite company’s website and receive cash rewards when they make purchases.
15. Cleaning Pet Poop for Others
While not the most appetizing of propositions, that poop needs to get taken care of somehow. Pet owners without the time or physical ability to clean up after their beloved animals can make good use of your services. All you need is transportation and clean-up equipment to get started. You can build your clientele base by posting flyers around your neighborhood or advertising online. Consider charging between $40 and $80 to clean up a messy yard.
💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure mobile banking app.
16. Host City Tours
Another unusual way to make money: If you live in a town that attracts tourists, you can conduct tours for visitors. You might have a passion for your city’s beloved parks or knowledge of its history. Whatever your specialty, you can build a website advertising your services or use an app like Showaround or FreeTour (where you earn money via tips) to put your skills to work.
17. Waiting in Line for Someone
While it’s boring when doing this for yourself, waiting in line in someone else’s place can be a profitable side hustle. Apps like Spotblaze or TaskRabbit allow you to connect with customers looking for someone to wait in line for a concert ticket, new tech gadget, or parking permit renewal. The more popular the event or product, the more you can charge (some people report having made $80 per hour). Plus, you can listen to an audiobook, podcast, or music while you wait.
18. Losing Weight
Here’s a weird way to earn money that’s also potentially healthy. Shedding pounds can also mean big capital gains with websites like HealthyWage. Here’s how it works: You set your weight loss goal and then wager a dollar amount of your choice that you’ll be successful. This setup gives you extra motivation by putting your money where your mouth is. If you hit your goal, you win prize money and receive your initial investment back. However, failing to hit your goal means losing your wager.
Recommended: 39 Passive Income Ideas to Build Wealth
19. Selling Your Hair
This opportunity is more selective, as you’ll have to grow your hair at least 10 inches long in most cases to sell it for a significant profit. However, if your hair grows quickly, you can pair this side hustle with others to generate income. Human hair is excellent for weaves, wigs, and scientific uses, and you can sell yours on websites like Hairsellon or eBay.
20. Give Your Opinion With Online Surveys
If you love giving your opinion, filling out online surveys can be a great way to earn extra cash. Platforms like Survey Junkie and Swagbucks want people to share their detailed opinions on specific topics. Surveys can take anywhere from five minutes to one hour to complete. If you complete three surveys daily, you can earn as much as $40 a month.
21. Selling Digital Templates
Folks with a knack for design can enjoy selling digital templates and potentially make thousands of dollars monthly. You can create e-book page layouts, brand kits, social media packages, and more. Using a site like Canva, you can create endless digital templates that you may be able to sell from the comfort of your own home.
22. Beekeeping
Here’s another offbeat way to bring in money: Beekeeping is the practice of caring for bees so they can contribute to the growth of your garden or the environment. Before you can start making money, you will need to gain some experience (if you don’t have any). Once you gain experience, you can make money by selling bee products such as honey, providing pollination services, or educating others on beekeeping.
23. Organize Other People’s Things
We can thank The Home Edit and Marie Kondo for encouraging everyone to live a life of organization. But, while it comes easy for some, others may struggle to get started. So, if you enjoy organizing the closet, cabinets, papers, or anything, you could make between $30 and $130 per hour organizing people’s homes. To get started, sign up for sites like Thumbtack and Westtenth and let people know about your services.
24. Being a Statue
Believe it or not, you can make money without even lifting a finger, or actually moving at all. Acting as a statue on a busy street can help you earn some extra dough from passers-by and tourists who leave tips. Depending on the time and traffic of the location you choose, you can make as much as $60 to $80 per hour.
25. Taking Notes for Others
Another unusual way to make money is to sell your college lecture notes. Sites like EduBirdie allow you to sell your notes to students who missed a lecture or need help getting through course material. Keep in mind that notes need to be typed, not handwritten. Pay runs around $1 per lecture note.
26. Mystery Shopping
When you become a secret shopper or mystery shopper, you can earn cash by shopping at local retailers, completing shopping surveys, or taking photos of displays. Registering for an account with apps like Mobee or Marketforce can help you start earning extra money shopping.
27. Review Music
Music lovers can make extra money by reviewing unsigned artists online at Slicethepie. Some categories will pay more than others. However, all payments will be listed at the top of the category page so you can decide if the review is worth your time. Typical pay for those just starting out is less than 20 cents per review, but if you love listening, this could bring in some extra pocket change.
The Takeaway
Using these weird ways to make money can help you boost your savings, pay off debt, or allow you to get paid for doing something you love. So whether you make extra cash sleeping, eating, shopping, or giving your opinion, you can inch one step closer to your financial goals.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Where can I sell weird things?
Websites like Ecwid, Facebook Marketplace, Etsy, and eBay are just a few platforms where you can sell weird items like keychains, eccentric jewelry, or clothes. People have even marketed air on some of these sites.
How much money can I make from these weird ways to make money?
The amount of money you make in these weird ways will depend on the gig you choose and how much time you invest in it. For example, if you choose to start reviewing music and only post a few critiques, you might only make a dollar; if you clean up someone’s messy yard of dog poop, you might earn $80 per session after proving to be a competent and reliable provider.
Are any of these weird ways to make money illegal?
No, all of the crazy ways to make money above are legitimate and legal.
About the author
Ashley Kilroy
Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.
Photo credit: iStock/Diamond Dogs
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Read moreApr
07
2025
What Are Emerging Markets?
Emerging markets or emerging market economies (EMEs) are in the process of achieving the building blocks of developed nations: they’re establishing regulatory bodies, creating infrastructure, fostering political stability, and supporting mature financial markets. But many emerging markets still face challenges that developed market countries have overcome, and that contributes to potential instability.
To further answer the question, “What are emerging markets?”, it helps to understand developed markets.
Developed economies have higher standards of living and per-capita income, strong infrastructure, stable political systems, and mature capital markets. The U.S., Europe, U.K, and Japan are among the biggest developed nations.
Because these economies wield so much power globally, many investors don’t realize that, in truth, emerging markets make up the majority of the global economy.
India, China, and Brazil are a few of the larger countries that fall into the emerging markets category. Some emerging market economies, like these three, are also key global players — and investors may benefit by understanding the opportunities emerging markets present.
What is an Emerging Market?
In essence, an emerging market refers to an economy that can become a developed, advanced economy soon. And because an emerging market may be a rapidly growing one, it may offer investment potential in certain sectors.
Internationally focused investors tend to see these countries as potential sources of growth because their economies can resemble an established yet still-young startup company. The infrastructure and blueprint for success have been laid out, but things need to evolve before the economy can truly take off and ultimately mature. At the same time, owing to the challenges emerging market economies often face, there are also potential risks when investing in emerging markets.
Investors might bear the brunt of political turmoil, local infrastructure hurdles, a volatile home currency and illiquid capital markets (if certain enterprises are state-run or otherwise privately held, for example).
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Emerging Market Examples
What constitutes an emerging market economy is somewhat fluid, and the list can vary depending on the source. Morgan Stanley Capital International (MSCI) classifies 24 countries as emerging; Dow Jones also classifies 24 as emerging. There is some overlap between lists, and some countries may be added or removed as their status changes. Greece, for example, is no longer considered a developed market but an emerging one.
India is one of the world’s biggest emerging economies. Increasingly, though, some investors see India as pushing the bounds of its emerging market status.
China
China is the second-largest economy globally by gross domestic product (GDP). It has a large manufacturing base, plenty of technological innovation, and the largest population of any country in the world.
Yet China still has a few characteristics typical of an emerging market. For example, the gross national income per capita falls below the threshold established by the World Bank for a developed country: about $12,600 per year versus the higher standard of above $13,200 per year. With its Communist-led political system, China has embraced many aspects of capitalism in its economy but investors may experience some turbulence related to government laws and policy changes. The Renminbi, China’s official currency, has a history of volatility. And finally, post-Covid, China’s economy has lagged.
India
India is another big global economy, and it’s considered among the top 10 richest countries in the world, yet India still has a low per-capita income that is typical of an emerging market and poverty is widespread.
At the same time, India was ranked as being among the more advanced emerging markets, thanks to its robust financial system, growing foreign investment, and strong industrials, especially in telecommunication and technology.
Characteristics of an Emerging Market Economy
As noted above, there isn’t a single definition of an emerging market, but there are some markers that distinguish these economies from developed nations.
Fast-Paced Growth
An emerging market economy is often in a state of rapid expansion. There is perhaps no better time to be invested in the growth of a country than when it enters this phase.
At this point, an emerging market has laid much of the groundwork necessary for becoming a developed nation. Capital markets and regulatory bodies have been established, personal incomes are rising, innovation is flourishing, and GDP is climbing.
Lower Per-Capita Income
The World Bank keeps a record of the gross national income (GNI) of many countries. For the fiscal year of 2022, lower-middle-income economies are defined as having GNI per capita of between $1,136 and $4,465 per year. At the same time, upper-middle-income economies are defined as having GNI per capita between $4,466 and $13,845. (By way of contrast, the U.S. is considered a high-income economy, with a GNI of $76,370.)
The vast majority of countries that are considered emerging markets fall into the lower-middle and upper-middle-income ranges. For example, India, Pakistan, and the Philippines are lower-middle-income, while China, Brazil, and Mexico are upper-middle-income. Thus, all these countries are referred to as emerging markets despite the considerable differences in their economic progression.
Political and Economic Instability
For most EMEs, volatility is par for the course. Risk and volatility tend to go hand in hand, and both are common among emerging market investments.
Emerging economies can be rife with internal conflicts, political turmoil, and economic upheaval. Some of these countries might see revolutions, political coups, or become targets of sanctions by more powerful developed nations.
Any one of these factors can have an immediate impact on financial markets and the performance of various sectors. Investors need to know the lay of the land when considering which EMEs to invest in.
Infrastructure and Climate
While some EMEs have well-developed infrastructure, many are a mix of sophisticated cities and rural regions that lack technology, services and basic amenities like reliable transportation. This lack of infrastructure can leave emerging markets especially vulnerable to any kind of crisis, whether political or from a natural disaster.
For example, if a country relies on agricultural exports for a significant portion of its trade, a tsunami, hurricane, or earthquake could derail related commerce.
On the other hand, climate challenges may also present investment opportunities that are worth considering.
Recommended: 27 Potential Ways to Invest in a Carbon-free Future
Currency Crises
The value of a country’s currency is an important factor to keep in mind when investing in emerging markets.
Sometimes it can look like stock prices are soaring, but that might not be the case if the currency is declining.
If a stock goes up by 50% in a month, but the national currency declines by 90% during the same period, investors could see a net loss, although they might not recognize it as such until converting gains to their own native currency.
Heavy Reliance on Exports
Emerging market economies tend to rely heavily on exports. That means their economies depend in large part on selling goods and services to other countries.
A developed nation might house all the needs of production within its own shores while also being home to a population with the income necessary to purchase those goods and services. Developing countries, however, must export the bulk of what they create.
Emerging Economies’ Impact on Local Politics vs. Global Economy
Emerging economies play a significant role in the growth of the global economy, accounting for about 50% of the world’s economic growth. Moreover, it’s predicted that by 2050 three countries will have the biggest economies: the U.S., China, and India, with only one currently being a developed economy.
But, while emerging markets help fuel global growth, some of those with higher growth opportunities also come with turbulent political situations.
As an investor, the political climate of emerging market investments can pose serious risks. Although there is potential for higher returns, especially in EMEs that are in a growth phase, investors need to consider the potential downside. For example, Thailand and South Korea are emerging economies with high growth potential, but there is also a lot of political unrest in these regions.
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Pros and Cons of Investing in Emerging Markets
Let’s recap some of the pros and cons associated with EME investments.
Pros
• High-profit potential: Selecting the right investments in EMEs at the right time may result in returns that might be greater than most other investments. Rapidly growing economies could provide ample opportunity for profits. But as noted above, it’s impossible to guarantee the timing of any investment.
• Global diversification: Investing in EMEs provides a chance to hold assets that go beyond the borders of an investor’s home country. So even if an unforeseen event should happen that contributes to slower domestic growth, it’s possible that investments elsewhere could perform well and provide some balance.
Cons
• High volatility: As a general rule, investments with higher liquidity and market capitalization tend to be less volatile because it takes significant capital inflows or outflows to move their prices.
EMEs tend to have smaller capital markets combined with ongoing challenges, making them vulnerable to volatility.
• High risk: With high volatility and uncertainty comes higher risk. What’s more, that risk can’t always be quantified. A situation might be even more unpredictable than it seems if factors coincide (e.g. a drought plus political instability).
All investments carry risk, but EMEs bring with them a host of fresh variables that can twist and turn in unexpected ways.
• Low accessibility: While liquid capital markets are a characteristic of emerging markets, that liquidity still doesn’t match up to that of developed economies.
It may be necessary to consult with an investment advisor or pursue other means of deploying capital that may be undesirable to some investors.
Why Invest in Emerging Markets?
Emerging markets are generally thought of as high-risk, high-reward investments.
They are also yet another way to diversify an investment portfolio. Having all of your portfolio invested in the assets of a single country puts you at the mercy of that country’s circumstances. If something goes wrong, like social unrest, a currency crisis, or widespread natural disasters, that might impact your investments.
Being invested in multiple countries can help mitigate the risk of something unexpected happening to any single economy.
The returns from emerging markets might also exceed those found elsewhere. If investors can capitalize on the high rate of growth in an emerging market at the right time and avoid any of the potential mishaps, they could stand to profit. Of course timing any market, let alone a more complex and potentially volatile emerging market, may not be a winning strategy.
Recommended: Pros & Cons of Global Investments
The Takeaway
While developed nations like the U.S. and Europe and Japan regularly make headlines as global powerhouses, emerging market countries actually make up the majority of the world’s economy — and possibly, some very exciting opportunities for investors.
China and India are two of the biggest emerging markets, and not because of their vast populations. They both have maturing financial markets and strong industrial sectors and a great deal of foreign investment. And like other emerging markets, these countries have seen rapid growth in certain sectors (e.g. technology).
Despite their economic stature, though, both countries still face challenges common to many emerging economies, including political turbulence, currency fluctuations and low per-capita income.
It’s factors like these that can contribute to the risks of investing in emerging markets. And yet, emerging markets may also present unique investment opportunities owing to the fact that they are growing rapidly.
Emerging market exchange-traded funds (ETFs) might invest in different assets within a single country or spread their investments throughout multiple countries. Bonds can also play a role in an emerging market portfolio. Many countries with developing economies have used the issuance of new debt to borrow money to build out their infrastructure. That means some emerging economies could offer bonds with attractive yields. But investors need to carefully weigh the potential risks.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
About the author
Ashley Kilroy
Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.
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