I went to a mall for the first time in years the other day, and it got me to thinking – could the Great Recession have the kind of impact on people as the Great Depression did for those that lived through the 1930’s?
As the traditional media wrings their hands about the death of retail, and occasionally blaming millenials (like here, here, and here), very few people are talking about what I think is a key cause of this trend. It’s not technology, although that obviously plays a role (things you could once only get at a mall or store can be more easily bought online). And it’s not millennials (P.S. stop blaming them for everything, media).
I have a theory – that the death of retail is due to The Great Recession (the GFC, or Global Financial Crisis, for my overseas readers).
The Great Recession was the worst economic crisis since The Great Depression. Millions lost their jobs, and their homes. People born when I was had to deal with the dot-bomb recession of the early 2000’s, and then just a few years later were kicked again by the economic crisis. I was 28/29 when it happened, and I can tell you that it had a direct impact on how I view debt and spending. It’s very similar in many ways to my Great Depression era relatives perspective.
Comparing The Great Recession To The Great Depression
Despite everything you read about The Great Recession being the worst crisis since The Great Depression (which it was), the two were very, very different. Check out this cool infographic I made to compare the two for you:
As you can see, the Great Depression was much, much worse than the Great Recession. We have in place today a lot of social safety nets put in place during the Great Depression that we may take for granted – Social Security (and Social Security disability) for those unable to work due to old age or disability; unemployment payments for those unable to find work; and FDIC insurance to prevent a run on the banks.
The other key is that the government, banks, and others learned from the Great Depression. Those that run the economy are acutely aware of what happened in the 1920’s and 1930’s, and took many quick steps to prevent the same thing from happening again. Ben Bernanke, the gentleman in charge of the Federal Reserve in the late 2000’s, was actually a scholar of the Great Depression – he studied it the way other people study the Civil War, or WWII.
During a college lecture in 2012, Bernanke had this to say about the Great Recession:
Obviously, based on the crisis and what happened and the effects that we’re still feeling, it’s now clear that maintaining financial stability is just as an important a responsibility as monetary and economic stability. And indeed, this is, you know, very much a return to the—where the Fed came from in the beginning. Remember the reason that Fed was created was to try to reduce the incidents of financial panics, so financial stability was the original goal of creation of the Fed. So now we sort of come full circle. ~ Ben Bernanke
If you have or had a Great Depression era relative, you’ll know that many of them were extremely adverse to spending. They stockpiled food, didn’t spend money even decades after the crisis was over, and generally lived frugally and avoided debt. Why?
They saw the impact that debt had when things go wrong. They had seen breadwinners lose their jobs and be unable to find work. They watched people lose their homes, and need to stand in bread lines. They avoided investing because their parents, grandparents, friends and neighbors lost 90% in the market.
I remember my father talking about a friend of my grandfathers, who only got back to even in the stock market decades later. The NY Times published an article that talks about it taking only a few years to get “back to even” when you account for dividends, deflation, and the distinction between the DOW and the overall market.
I think the Great Recession has had a similar impact on some people, and that’s why we’re seeing such drastic changes in spending habits. Yes, technology and online shopping are playing a big role as well – if I can get what I need online, why would I go to the store? But it’s also true that if you spent your late teens and early adulthood struggling, and seeing all your friends struggle, you become more averse to spending frivolously.
Where can we see this today? Of course, there’s the death of the retail sector as I mentioned at the start of the article. I also saw that apparently going out for lunch is a dying tradition, with Americans making 433 million fewer lunch trips last year, resulting in a $3.2 billion loss for the restaurant industry. These things taken together make me wonder if we’ve entered a new age of somewhat-austerity-at least in parts of the economy.
But Isn’t The Great Recession Over?
The official Great Recession ended relatively soon after it started – in June 2009, in fact. But if you asked most Americans whether or not the recession was over, even years later they would tell you it’s still going on. Why? Because that’s what they feel in their day-to-day lives.
A recession, and a recovery from recession, is defined academically. It is “two consecutive quarters of negative GDP growth as measured by a country’s gross domestic product.” By that academic measurement, the recession started in December 2007 and ended in June 2009. But that doesn’t tell the full story.
In June 2009, the economy started growing again, but it wasn’t yet at the same place it was before the crisis. It took at least another year for the economy to grow back to that point. After June 2009 nearly another million people lost their jobs. That same article I just linked in this paragraph said that in 2010, 15 million people were unemployed and another 9 million were unwillingly working part-time.
Feelings and perception of economic strength are not related to academic definitions. Real GDP might be growing, but if you’re stuck in a part-time job while looking for a full time one, or living off unemployment and unable to find work, to you the economy is doing poorly. In fact, if you read through this Bloomberg article about how people feel about the economy, you’ll notice there’s a pretty consistent trend of about half of people not being very optimistic-in all measurements.
As the saying goes, “It’s a recession when your neighbor loses his job. It’s a depression when you lose yours.”
Generational Impacts – They’re Personal
If you’re someone who stayed employed through the Great Recession, you may have noticed no real change in your standard of living, perception of debt, or perspective on savings. But if instead you’re someone who:
- Lost their job, or had a family member lose their job
- Watched your company go under, or nearly so
- Lost a home to foreclosure or short sale
- Had to file bankruptcy after a medical event, job loss, or other unexpected financial turn
- Watched the economy in your town decline and never recover
- Were or are underemployed, or stayed in/started school in an effort to get a job-any job
- Struggled to find a job once you completed college
- Saw the stock in your company go from $100 per share down to $4 – and even now about a decade later it has not returned to the high
Your perspective on the importance of debt freedom and savings may have changed drastically.
I know mine have changed over time. I’ve always been a good saver and investor (I like to say I’ve been working toward FI for 20 years), but life knocked my family around a lot over that time. My husband’s factory closed in 2009, and he lost his job. Then a few years later he had a medical crisis that hugely raised expenses while lowering our income. He’s never been able to return to full time work, meaning that I continue to support our family of five – as I have for eight years now.
Fortunately, I was able to increase my income during that time by completing an MBA and getting better jobs. Today I make more by myself than we used to make combined. But all those events completely shifted the way I view debt, and the importance of savings. I’m much more conservative than others my age when it comes to savings, and striving to be completely debt free (including my mortgage, which I want to have paid before I’m 40).
So I can imagine there are many families in a similar situation. One spouse may be disabled, or in a line of work that no longer pays well at all. Perhaps someone was forced into early retirement by their company and has never been able to find a comparable job. Or you might be a millennial who couldn’t find work in your field, and you’re still struggling to get out of lower wage jobs (once you get in, it can be hard to get out). And if you didn’t drastically increase one income to make up for the loss in another, you could be at a much lower standard of living than you once were.
Not every member of a generation will be impacted the same way, even if they experienced the same kinds of hardship. Even during the Great Depression, there were people who never lost their jobs or homes, and cruised right through without changes in lifestyle. But there was a subset of the population who was scared forever. And I believe that is also the case with the Great Recession.
I Want To Hear From You!
Tell me all about how the Great Recession impacted you – a bit, a lot, or not at all? Have you noticed the same patterns I have – that many people who were heavily impacted continue to live more frugally today than they used to? Let me know in the comments!
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