Americans are all too familiar with the usual spiel on financial security hocked by pundits: Buy securities! Buy real estate! One of the immediate effects of the Great Recession is that these conventional ports of financial refuge were suddenly not so safe. Certainly, diversification mitigates risk in fluctuating markets , but few could predict the kind of across-the-board financial upheaval the recession unleashed. Lower-risk investments, mutual funds and pensions all took a hit. Most worryingly perhaps, is that even the supposedly secure real estate market has taken a severe beating. Instead of providing families with a steady increase in equity, many who hold real estate right now are simply holding more debt.
While markets have begun to recover, it is still not altogether clear that the stock market or real estate will return to being infallible income-builders to the same extent they have been in the past. But perhaps a new understanding of financial security is emerging. The Wall Street Journal recently reported that consumers enjoyed the highest levels of consumer financial security in 17 months, despite continuing fears surrounding the job market and the performance of financial markets. How is this possible? Perhaps Americans are finding new places to stake their security.
Seek Stability Where You Can
For most, the concept of “security” means stability, even playing fields and unchanging rules. In the financial realm, a sense of security stems from metrics that are predictable and hopefully favorable: low inflation, steady interest rates, and a steadily appreciating real estate market.
Perhaps the most harrowing development of the post-recession global economy is that even the most traditional, conservative pathway to financial security – the savings account – has been called into question. Recent reports from Greece and other beleaguered European Union nations reveals a slow motion run on the banks as worried citizens move their savings to more stable foreign markets.
Historically, the United States suffers from a kind of opposite problem when it comes to its citizens’ relationship with the stodgy, old savings account—a reluctance to put money in savings while more seductive and exciting investment options are out there offering the allure of higher returns. Und the specter of an inflation rate that outpaces the interest yield in savings accounts, Americans became convinced that savings accounts were losing propositions. This has made the relative safety of corporate bonds more appealing, as indicated by the Investment Company Institute’s report showing that Americans have placed $136 billion into incorporate bonds between the first of the year and the beginning of May. Still, despite an interest rate of less than 1%, the Federal Reserve’s most recent survey shows more people moving to the stability of insured savings accounts and Treasury bonds. Between corporate bonds and the tried-and-tested savings account, a return to the combined use of these safer, albeit lower yield savings tools, indicates that Americans are rediscovering that slow and steady really does win the race in the end.
Roll With the Upheavals by Staying Flexible
Forbes recently reported that financial security has driven hordes of Millennials to choose renting over home ownership. While trumpeted as a negative trend founded on young consumers’ fears about committing to a mortgage, it is worth questioning whether this trend is altogether bad. After all, renting allows individuals and families to control an important chunk of their finances in the event that incomes fall or change. Is rent too expensive? Find someplace cheaper to weather the storm. Enjoying an unexpectedly good year? Expand to a larger abode, knowing that it is not a permanent commitment. Did jobs in one’s area dry up? Pack up and move cross-country to where the job market is booming. Even better, renting shields consumers from a host of expenses associated with homeownership: repairs, maintenance, increasing property taxes, liability, and home association fees.
Is this to say that home ownership is simply off the table? Not in the least. Home ownership, in the long-term, has always been a winning financial proposition, even during short-term upheavals. Nevertheless, by finding a sense of security in renting while their careers are new and ultimately uncertain, young consumers are able to save and build a foundation for more secure home ownership in the future.
Redefine Security to Meet Your Needs
All to often, as the cliché goes, history is forgotten, but history can offer some perspective on retuning to living standards based on more realistic expectations. Everyone is aware of the intense austerity forced on families during the Great Depression, after the country had just been on top off its game. The Roaring 1920s roared due to expanding incomes and an exploding stock market, resulting in a sense of boundless opportunity that pervaded the country. Security was defined not as a sense of stability, but as having access to the incredible wealth and capitol that flooded the nation. At that time, security was about expansion, not about stability. Sound familiar?
While it is important to note that the country has not been reduced to bread lines and encampments, the Great Recession has brought about an adjustment in expectations that redefines financial security in more immediate, intimate ways. Will every family enjoy ever-increasing equity and returns aimed at affording that vacation home and hobby vehicle they were once convinced was a kind of birthright? Perhaps not.
But it’s clear that security still exists in more basic, if not enduring, ways: knowing that renting can serve as a cost-cutting tool while saving to buy a home, and knowing that slow and steady investment options do exist to protect hard won savings. These are the new hallmarks of personal security and the foundations of a new sense of stability all young Americans can appreciate.