How Americans Are Still Reeling from the Great Recession

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Carl, an investor in his mid-forties, was already juggling a few balls before the recession hit. He was doing his best to add to proactive college funds for his children, paying off his mortgage, and trying to save for retirement. In 2008, it all got derailed, and he had to rethink his entire future, a process he’s still in today.

Luckily, consumer optimism is back to its pre-recession levels, but that doesn’t mean that everyone feels the way they did in 2007. This particularly applies to Carl’s generation. They were hit hardest by the recession, and are recovering the most slowly–they’re the least optimistic about the economy, and the most convinced that social security won’t be there for them when they need it. Millennials, who feel they have all the time in the world to catch up, and baby boomers who retired long ago might have emotionally recovered from the recession, but Carl still feels left behind.

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Money in the New Millennium

Carl looks back on his pre-recession years as remarkable for their un-remarkability: He wasn’t overly optimistic about his finances, but he was on a pretty secure path to his goals. Like many people working during the recession, his income had been steadily increasing, allowing him to start paying off his mortgage, credit card debt, and student loans.[1] He’s family-oriented too:[2] In financial terms, this translated to his contributions to his college tuition costs for his children.

In these early years of the 2000s, Carl’s investments were looking fairly promising, on the whole. He was working with a financial advisor, as were a growing number of Americans his age.[3] Though his stocks dipped a little during the secular bear market starting in 2000, they regained some ground in the years following. Nonresidential investment per capita also grew slightly in the years leading up to the recession, suggesting Carl was far from the only one gaining financial confidence.[4]


18 percent of those aged 35 to 51 have credit card debt higher than 20 percent of their salary.

In other words, Carl was fulfilling some of his financial priorities and struggling with others, but he had faith that all would go according to plan.

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Navigating the Crash

In 2010, towards the technical end of the recession, Carl was still reeling. Like many of his generation, he had invested heavily in high growth stocks, which crashed hardest during the financial crisis.[5] From 2007 to 2010, median household net worth decreased by over $33,000.[6]

Carl managed to keep his job, but his spouse didn’t, and it’s been hard for them to make up the difference: Though more than half of the jobs lost during the recession were middle-wage ($28,142 to $42,973 in annual salary), three-quarters of the ones added since have been lower-wage ($15,621 to $28,122).[7] Workers his age also had to work longer hours for less pay—an average of 10 more hours a week than before the recession.[8] He was still trying to support his children, and had to dip into his retirement savings as a result.

Gen-Xers lost an average of about $33,000 per capita in the recession in varied aspects of their finances, such as retirement funds and investment assets.[9]

Badly burned by the market, and having tightened his belt significantly, Carl resolved not to invest in anything with higher risk than treasury securities for a while. Some call it “the new frugality,”[10] but to Carl, it’s just necessary.

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The Fallout

For many, the recession is fading in the rearview. Wage growth has climbed steadily since 2012, possibly giving investors more financial freedom:[11] As of 2015, nonresidential private investment per capita thrives well above pre-recession levels.[12] The strongest GDP increase in the U.S. since the recession was aided by growing investment.[13] But experts say that the trauma of the recession runs deeper than most people think, and it means that they’re less willing to spend or invest, whether or not they’re aware of it. For people in Carl’s situation and at his age, who lost everything at a pivotal time in their lives, progress is harder.

In fact, some studies show that Carl’s generation will only replace half of what they lost in the recession, assuming they retire at 65: While wages have risen overall since 2008, Generation X has only just recouped its pre-recession wage levels, missing out on the raises that should have set them up for retirement.[14] It also means he may have to work for more years than he expected to, give up time with his family to work longer hours, or reconsider how he’s investing. That might explain the new financial baselines he’s made for himself, passing up riskier investment opportunities to focus on careful saving: From 2007 to 2014, he likely was one of his age group who more than doubled their nest egg for retirement, which is good news.[15] But, also like many his age, he has to finish putting his children through college, and provide financially to some degree for his aging parents. No wonder he’s keeping his cards close to his chest.

The New Landscape

But there are signs to suggest the trauma of the recession isn’t insurmountable: New strategies that harness data and algorithms minimize human emotions and motivations in investing, and top-down regulations are doing their best to keep fraudulent banking in check. Stock portfolios have consistently had higher returns than home prices since 2010, suggesting a little investment can go a long way:[16] In 2013, for example, a surge in private investment gave the Dow and the S&P 500 a five-percent bump each.[17] After the abrupt losses he took during the recession, though, Carl is determined to have more control over his assets (call it a side effect of the "investment hangover"). He now presses potential investment funds for their long-term strategies, so that he can better match them to his financial goals.[18] He has consolidated his portfolio somewhat, because the fewer assets there are to manage, the more attention he can give each of them: Above all, investors “should know where the money is going,” according to David Swensen, the head of Yale University’s endowment.[19] Carl’s generation lived through the tech boom, the following tech bust, and the recession, meaning he’s now less confident about the markets than both his parents and his children.

Because of that, he now prioritizes doing his research, vetting any financial partners three times over, consulting trusted friends and family, and working longer hours than his parents did at his age, probably with a later age of retirement. Interestingly enough, he recently read a 2016 study that found that 52 percent of Carl’s generation who worked with an advisor had $100,000 or more saved for retirement, but only 27 percent of those flying solo had as much saved.[20]

Cautiously looking ahead: The average Gen-Xer estimates their retirement needs at $1 million, and nearly a third at $2 million—higher than both Baby Boomers and Millennials, who both estimate $800,000 on average.[21]

So Carl doesn’t want to go back to pre-recession behavior – he wants more control, more information, and more trust, and fortunately, there are more resources than ever before to help him get it.

Illustrations by CCCCCC

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