Just as the Great Depression of the 1930s (that lasted from 1929 to 1941) affected an entire generation of Americans, the 2008 recession is having the same affect, according to a new study by Allianz Life.
The people that have been especially hard hit are Generation X and the Baby Boomers. Their responses should alarm people in the financial planning industry and politicians (those that care) since the responses indicate a fundamental distrust and questioning of the economic system.
Here are highlights from the Allianz study:
- Traditional retirement is a fantasy– 82% of Boomers and Generation Xers said “a traditional retirement is a romantic fantasy of the past.” Some 84% from both generations said retiring at age 65 and “doing exactly what you want” is unrealistic.
- Saving “enough” for retirement is a dream– Gen X respondents were much more hopeless that they would achieve retirement goals and about their overall financial situation than were baby boomers. While each generation said their circumstances were tougher to manage, Gen X respondents had stronger feelings about the extent to which they feel burdened and disadvantaged. Some 67% of Gen Xers said the suggested supposed targets about how much you need to retire are unrealistic versus 49% of Baby Boomers.
- Despondent respondents– Despite clear concerns about their financial situations and prospect for a comfortable retirement, both generations are surprisingly relaxed about planning for their financial futures. An astounding 65% of Boomers and 53% of Gen Xers said they “just have this feeling that everything’s going to work out.” Read another way, this is an admission of the futility of saving the touted $1 million a person needs to retire. In a separate study, (the Economist Sept. 5, 2015) found that in 2014, about half of U.S. households said they could not cover an unexpected $400 expense without borrowing or selling something.
- Debt is a new way of life – Having large amounts of debt is a way of life for both Gen Xers and Boomers “as the stigma of owing money is gradually disappearing.” The study found that 48% of both generations agree that credit cards serve as “a survival tool.” Gen Xers reported carrying about 60% more mortgage debt than their Baby Boomers. “Even worse, Gen Xers have an alarming 82% more non-mortgage debt (student loans and credit cards) than Boomers,” the study found. This may help explain why more people are renting than buying homes.
So how are these two generation groups responding to the 2008 recession and its continued aftermath?
Despite significant stock market gains and an increase in the employment rate, the study found these two groups experienced at least six of 13 effects of the financial crisis. These effects included losses in their 401(k)s, friends and relatives being laid off, and watching house prices fall. These are painful lessons that still affect their attitudes, the study found.
These 2008 recession traumas have impacted savings and spending patterns, investing and home buying. The recession forced more people to assume more debt. and they have been taking on more debt. Meeting day-to-day living needs forced 41% of people in the study to say they stopped saving for retirement.
But in an effort to interpret these results, an Allianz Life executive said the 2008 recession “kind of paralyzes them. They are not behaving rationally. It’s kind of like they’ve got this psychological stuff going on that has profoundly affected them in the past, so they are very, very worried about the future.”
This sounds like a poor interpretation of a serious economic event by Allianz. It looks like people in the study are behaving rationally to me and this “psychological stuff” is really “personal financial stuff” and it should be taken more seriously by Allianz. It also may be important to note that the stock market gains should not be overstated since most people own stocks via their 401(k) and not in any significant amount in a personal portfolio. Worse, the recent market volatility and threats of another global recession does not build confidence in the system for people who are told to invest in equities and save some amount ($1 million per person?) for retirement when it’s a challenge to save enough for a down payment.
What makes the 2008 recession worse is that it is accompanied by gross economic inequality, wage stagnation and a poorly functioning political system where fiscal and economic policies are not being coordinated due to a war of political ideologies.
The net effect is that the nation is being held hostage by a political party intent on revoking the social safety net gains that were needed to bring the country out of the Great Depression.
These graphics should serve as wake-up calls for financial professionals :
