What Will This Recession Teach Us?

Posted by truecreek on July 29, 2009 under Opinions. Everyone has them. | Be the First to Comment

The Great Depression, by far the biggest economic downturn of the 21st century, taught an entire generation of Americans a horrible, yet valuable lesson.  After Black Tuesday, when the stock market totally collapsed, life for many of these people would never be the same.

Jobs were gone overnight.  Banks failed. Entire industries were devastated.   Commodity prices plunged, taking with them so many family farms.  Tent cities sprung up all around our nation.   Life had never been harder.

As a nation, the shock to our collective system was so severe that our grandfathers and grandmothers became cynics. No one trusted the banking system.  People started hoarding cash, hiding it anywhere they could.  We became a nation of savers, simply because we didn’t want to expose our families to a repeat of the disaster.

And they never forgot.

The same shift in our financial psychology is happening again. After seeing their collective portfolios dive 40 to 50%, people are now on the sidelines, watching the market, willing to accept next to nothing in return simply because they are afraid to lose even more.

Savings rates have increased by ten fold, according to some statistics.  Six fold at the very least.   Consumer’s behavior has changed and in my opinion, for good.

My clients are seeing this firsthand.  We are too.  Financial conservation is back in vogue.  The average homeowner is doing everything they can to clean up their household balance sheets.  This popular frugality has permeated virtually all segments of our population, from the poor to the very wealthy.

And we are learning a lesson we will never forget.  Just like they did back in the 1930s.

For those who think that we will bounce right back to the ways we did things before this hard recession started, think again.  We are witnessing a sea change in the way the consumer deals with the economic realities at hand.

I find it very hard to believe that those lessons will be quickly forgotten.

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