It’s now been over 10 years since the financial crisis of 2008 wreaked havoc on the financial situations (and of course 401k plans) of most Americans.
Imagine being one of those plan participants within a couple of years of retirement in 2008. Even if you were invested in target date funds—thought to be fairly well protected from massive market corrections—you likely saw your 401k balance decline by more than 20% with little time to recover.
Target-date funds with retirement dates beyond 2020 (and therefore in funds heavily allocated toward stocks) experienced losses exceeding 30%, but those plan participants still had years to continue saving, and have been able to ride the long bull market that started in March 2009.
Between 2009 and 2019, financial habits and financial security have greatly improved, but a new study from Northwestern Mutual shows Americans are more cautious with their finances today, and optimism hasn’t budged.
Back in 2009, Northwestern Mutual commissioned a study among U.S. adults aged 25+ to explore their attitudes and behaviors toward money and financial decision-making, as well as their opinions about broader ideas such as the attainability of the American Dream. The project was ultimately named the “Planning & Progress Study” and has been conducted every year for the last decade.
To mark the 10-year milestone of the research, the 2019 Planning & Progress Study kicked off this year with a look back at the original cohort surveyed—people who were aged 25+ in 2009 and are 35+ today. The findings reveal deep changes in their attitudes toward money and risk.
For starters, overall financial security and financial habits have markedly improved:
- 71% feel financially secure today vs. only 47% who felt financially secure in 2009
- Compared to 10 years ago:
- 73% say their financial situation is better now
- 88% say their financial habits are better
- 74% are carrying less debt
- 74% are more frugal
- 66% have set specific goals for the next 5-10 years, while only 57% said the same in 2009
Despite the stronger financial footing, Americans have gotten substantially more cautious over the last 10 years. Much of that can be pegged back to the financial crisis of 2008, which left a deep behavioral mark on people’s lives which extends well beyond finances.
“In many ways, 2009 feels like ancient history, but the imprint that period left is still visible in the data we collected in 2019,” said Emily Holbrook, director of planning at Northwestern Mutual.
When comparing today to how they felt during the financial crisis:
- More than one-third (37%) of adults have become less comfortable today taking financial risks vs. 18% who are more comfortable
- A quarter (26%) have become less comfortable taking career risks vs. 17% who are more comfortable; and
- More than one-third (35%) have become less comfortable taking risks with their health care coverage vs. 13% who are more comfortable
“It’s remarkable when you consider that the people we surveyed today are more financially stable than they were 10 years ago; they’re presumably more advanced in their careers and have witnessed the longest bull run in the history of the stock market. And yet they’ve become more cautious and diligent about their finances,” Holbrook said.
“For the most part we see this as change for the better, but we also suspect there’s some financial trauma mixed in, too,” she added. “It’s important to recognize the behavioral elements of financial decision-making—that’s where good planning comes in.”
Optimism remains flat
Despite the prolonged U.S. economic recovery over the last 10 years, American optimism has remained essentially flat since 2009. Among adults age 35 and older, the study found:
- Just over half (54%) agree the American Dream is attainable for most Americans. That’s down slightly from the 58% who said the same in 2009.
- Nearly three-quarters (73%) believe a person can accomplish anything if they put their mind to it, but confidence was higher in 2009 when 82% said the same.
- Two-thirds (65%) believe they will get to where they want to be in life, which is flat to the 65% who said the same in 2009.
- A little more than one-third (36%) believe the U.S. is generally headed in the right direction, which is an uptick from the 27% who said the same in 2009. But 44% feel the U.S. is not headed in the right direction, which is slightly more than the 40% who said the same 10 years ago.
“There’s a real mix of optimism and pessimism in these numbers,” Holbrook said. “At the individual level, people continue to believe in themselves, but they’re more cynical about the broader questions such as the direction of the country and the attainability of the American Dream. That’s very similar to what we heard 10 years ago, which is interesting given the uptick in financial stability we’ve seen at both the national and individual levels. It’s very likely connected to the same rise in risk-aversion and caution we’ve seen in other parts of the study.”
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
