A Time Too Painful to Repeat

Where you were during the Great Recession, and how you scraped through to the other side is likely something you’ll never forget.

The depth and severity of the financial crisis left permanent scars for many. Layoffs got so bad the recitation of numbers became a regular segment on the nightly news. Hundreds of thousands of people lost their jobs every month. Many of those, suddenly dumped on meager unemployment benefits, eventually lost their homes to foreclosure when they exhausted their savings and burned through needed 401(k) savings. It was a downward spiral of misery and we didn’t hit bottom until 2009. While our economic world in many ways recovered, it was a slow process and somewhat uneven. A few people did well in the years after the Great Recession, most did not, and that discrepancy of recovery exists to this very day.

Where you were when the recession struck also made an impact on how well you’re doing today. Many jobs that disappeared never really came back. Research has shown that the regions hit hardest by job losses remain depressed relative to other areas. What jobs did return paid less and offered fewer benefits.

A Different Kind of Fear

The uneven recovery has resulted in widespread underemployment. Once good jobs disappear they often don’t return. That has left many Americans fearful of losing their jobs or experiencing  a catastrophic event such as a major medical emergency that drains what little savings they’ve managed to scrape together.

It doesn’t help that wages were slow to recover even as employment rebounded. Warren Buffett says Americans are being far too pessimistic about the future, which is easy to say when you’re a billionaire. It also doesn’t help that wage increases, which have outpaced inflation by a small margin, have not been equitably distributed. Those at the top of the wage scale, like Warren Buffett, have benefitted the most from rising wages.

The Political Overhang

The fear of job loss and being stuck in low-paying, dead end jobs is driving much of the political rhetoric on the campaign trail. Calls to bring manufacturing jobs back to America combined with accusations that free trade agreements are the reason the U.S. is losing jobs are finding a receptive audience, especially among those lacking a college degree. What tends to get lost in the vitriol is that manufacturing is coming back to America but those jobs are being filled largely by machines, not humans. Instead of building walls and putting up trade barriers we should be working at making our service economy a better deal for everyone but that message doesn’t fire up the voting public and it doesn’t fit on a bumper sticker.

Financial Lessons Forgotten

There were a number of hard lessons that should have stuck from the Great Recession but haven’t. One of the biggest is that mobility is a tactical advantage in the job market. Being able to easily relocate to where jobs are more plentiful is a huge advantage over people nailed to the ground by a mortgage and housing costs. Unfortunately, as we build our lives and families, mobility is no longer a simple matter of choice.

Not so with the other key lesson – which it really shouldn’t take a disaster to teach us.  We have the option, any time we make the choice, to take key wealth off the trading table.  Yes, we need growth in our investments at all stages of life, but we can be smart about it, and realistic about how much time we have to recover in case of disaster.

Other lessons that seem to have gotten lost are making sure that you don’t have too much of your wealth in stocks and that you practice preservation of cash value through regular purchases of liquid hard assets.

Warren Buffett is right that the financial pie has never been bigger. Where he’s either dishonest or deluded is in how it’s being sliced.  For a man who has more pie than he could ever consume in a lifetime, things are always sunny.  But most of us don’t live in his world, and we need to start making choices that protect what we have from forces we can’t control.