Will boomers and Gen Xers be the new depression-era babies, destined to retain financial habits forged from the trauma experienced by a major market crash?
Even though more than six years have passed since credit markets seized and entire countries teetered on the brink of collapse, a significant number of both Gen Xers and baby boomers say that they’re still reeling from the effects today. According to Generations Apart, a new study from Allianz Life Insurance Company, when asked about the crash, more than two-thirds (67%) of Gen X and boomer respondents said they still feel the impact in how they live, work, save, and spend.
Yet, the effects of the crash have been even more profound for a distinct segment of respondents identified as “post-crash skeptics.” This group appears to suffer from a significant psychological impact on their financial attitudes and behaviors, including lost confidence in financial institutions and a switch to more conservative investments. An overwhelming 93% of post-crash skeptics – which includes a cross-section of Gen Xers and boomers who experienced six or more major effects of the crash – said the 2008 crash still haunts them today. Accordingly, more than nine in 10 (93%) believe that the traditional definition of retirement is now a “romantic fantasy of the past” (versus 84% of the total respondents).
Although a majority of both Gen Xers and boomers (58%) said the crash had fundamentally made them more cautious and altered their thinking about risk and investments, the impact on post-crash skeptics was even greater. A full 83% of post-crash skeptics said the crash made them more cautious in their financial strategy – a fact that may adversely impact their ability to effectively save for retirement.
One of the most poignant effects reported by the post-crash skeptics was a loss of confidence in financial institutions, with more than three-quarters (77%) of this group expressing this opinion versus only 38% of the total respondents. In addition, the crash altered the way post-crash skeptics view the market and their investment strategy. More than two-thirds of post-crash skeptics (67%) said they changed their view of the market to risky (versus 32% of the total respondents) and 43% said they switched to more conservative investing or financial products (versus 22% of the total respondents).
Perhaps more significant was the reported behavioral differences in post-crash skeptics compared to the total group of Gen X and boomer respondents. Half of the post-crash skeptics reported taking on more debt after the crash (compared to 23% of the total respondents) and 41% reported that they or a partner had lost a job – almost three times as many as the total respondents (15%). Of even greater concern, 41% of post-crash skeptics said they’d stopped saving for retirement since the crash – more than three times that of Gen Xers and boomers as a group.
As a likely result of these actions, post-crash skeptics have a much more pessimistic view of their chances for a successful retirement with more than half (52%) saying they don’t believe they’ll have the lifestyle they want in retirement (versus only 39% of the total group).
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
