A new survey shows Americans are pessimistic and have very poor retirement plans and financial assets.
Among the highlights of the Yahoo Finance poll are:
— 41% of Americans say the “American Dream” has been lost.
— 37% of adults have no retirement savings and 38% plan to live off Social Security.
— 63% of Americans believe the economy is getting worse, including 72% of those over the age of 55.
These findings are consistent with broader trends reported by The Daily Ticker in the past year:
Despite macro-economic data showing the economy has technically recovered from the “Great Recession”, the majority of Americans just aren’t feeling it.
About 49 million Americans are living in poverty, so the “real” unemployment rate is about 16% and millions more Americans are facing foreclosure. This explains why many Americans think the recession never ended.
The survey also found that a plurality of Americans do not want to assume more debt, are less confident about buying a house, and are spending less, even though their savings are lower compared to about three years ago.
What It Means
The poll results show that Americans are significantly changing their attitudes as they de-leverage (stop using credit cards) and related spending patterns in light of today’s new economic reality.
Lower real wages over the last few decades have been the greatest factor affecting the majority of American workers. According to the Economic Policy Institute, the average hourly wage for U.S. workers in 2007 dollars (adjusted for inflation) increased from $18.90 in 1973 to $21.34 in 2006, or a 13% increase in 33 years. This is a growth rate of 0.4% per year, which easily could have been or were wiped out by increases in inflation.
If overall compensation is taken into account, the picture gets worse. The median worker’s compensation increased at a rate of 0.2% from 1983-1989, or a rate of 0.1% per year, between 1992 and 2000. There was no growth at all between 2001 to 2007, according to a paper, The State of Working Americans, 2008-2009, the Economic Policy Institute, Washington DC, 2009, table 3.2. (Cited in Things They Don’t Tell You About Capitalism, by Ha-Joon Chang, Bloomsbury Press, 2010.)
Other pressing factors come from the prospects of reducing Social Security, and poor investment returns. When these two sources of retirement income are working poorly, they immediately impact spending behavior. This is especially evident because there are not many ways for Americans to make more money. Even the prospect of having both members of a family working has not produced the level of prosperity it once promised.
All this points to reduced spending, changes in consumption patterns and negative prospects for the housing market. People are thinking twice about buying expensive houses (the definition of an “expensive” house depends on your local market), but if I were to buy an “expensive” house today, I would be seriously concerned about who would be buying it at an appreciated price in five to ten years. The prospects for house price appreciation get dimmer if we factor in higher lending standards, lenders asking for a hard 20% downpayment, and the huge inventory of foreclosed properties, which is growing larger every day.
What the New Reality Means to Financial Marketers
This new economic reality has to be factored into the marketing plans of any serious financial marketer. If not, marketers will make some glaring mistakes. Take the case of Bank of America, which ignored this new consumer reality, made more visible by Occupy Wall Street, to ineptly raise bank fees and then suffer a huge PR failure when it was faced to recind the move within days. In response to this bank fee increase defeat, some consumer banking officials now say that consumer banking will never be as profitable as it was before because of the billlions in lost fee income.
The same will be true of the mutual fund industry if shareholders push to reduce 12b-1 fees, or at least get what they are paying for when a fund company changes them 12b-1 fees for decades and shareholders have nothing to show for it. Right now, shareholders remain largely ignorant of these fees and what they are paying for. But betting on prolonged consumer ignorance is a risky bet, especially as some financial professionals are pushing for increased transparency and a reduction in 12b- fees.
Source: Yahoo Finance, Nov. 15, 2011
