A Bankrate survey found that 23% of respondents say they are worse off than before the Great Recession. Another 25% they’re no better off than they were in 2007.
A look at the numbers
I guess the good news here is that more than half of Americans are better off than they were 10 years ago. But that’s still a lot of people struggling to regain — let alone gain — ground financially. Besides, that’s only 52% of respondents who are doing better, whereas 55% reported being negatively impacted in some way by the Great Recession.
And it wasn’t just people impacted who are worse off. While 26% of people affected by the downturn reported being worse off, a full 14% of people not impacted were also doing worse than they were 10 years ago.
Women were more likely to be worse off (26%, compared to 19% of men), and Baby Boomers were the generation most likely to still be struggling (25% vs. 19% for the Silent Generation and Millennials).
Neither of those facts surprises me. The average woman still gets paid less than a man, and Baby Boomers’ portfolios had less time to recover before they had to draw down — assuming they weren’t already doing so at the time of the crash.
What’s going on?
But what about people still in the workforce? Why haven’t they recovered?
Well, wage stagnation is a big part of it. Job loss was prevalent, and once people did get replacement jobs, the salaries were sometimes lower than the workers’ previous positions. And salaries in general just haven’t been growing much. Indeed, 54% of respondents said that their wages hadn’t recovered to pre-recession levels.
Perhaps unsurprisingly, top earners (those bringing in $80,000 or more) reported the biggest gains in salaries. Sixty five percent of that tier reported that their wages were at least somewhat better. Talk about the rich getting richer.
Not terribly surprising (or is it?)
But is this lack of growth really surprising? Not really, because 29% of people said that they haven’t changed their financial approach or mindset since before the recession. If their money habits are the same and they suffered at the hands of the downturn, is it any wonder why so many people still aren’t doing well?
On the other hand, to an extent, yes, I am surprised. Because that 29% could be from the section of respondents not negatively impacted by the Great Recession. If they weren’t negatively impacted, they might not see a need to change.
And even if the whole 29% were composed of people who were impacted by the downturn, that would still leave 19% who have changed and still aren’t seeing financial growth.
So clearly, things are tough for a lot of people, even those who have changed their ways.
But is it really so bad?
It turns out that could be that this struggle is all in their heads.
According to the article, median income levels in 2017 reached pre-recession levels at $61,372. That is, in 2017 the median income was back to where it was before the whole financial debacle began.
So okay, this lends some credence to people who say they’re not doing any better than before the recession. They may just recently have gotten back to where they were before the downturn.
But this does call into question those who say they’re still doing worse. Are they really? Or are they just not where they want to be in general?
Perhaps they’re comparing themselves to other people’s financial situations, and thereby coming away with a negative perception of their own situation — even though those other people could be financing their lifestyles with credit cards. To an extent, perception is reality, so if the respondents are seeing other people ostensibly doing better, they’re going to feel worse about their own financial situations.
Back to normal — but without a net?
Then again, income is only one part of the picture.
A scary number of people (13%) had to drain savings — with 6% of those accessing retirement savings as well. So even if their incomes are back to normal, they may not have finished rebuilding their financial safety net. In that case, yep, they’re definitely worse off than pre-recession.
And of course the median income only tells us so much. The people struggling could be outside the median. Or they may now be the median, whereas at a previous job they earned above it.
Some reason to take heart
While 29% haven’t made any changes, another 29% have made paying down debt a priority as a consequence of the recession. And 23% are saving more for emergencies.
That means that more than half of the respondents learned an important lesson from the recession. That’s more than the number of people who are still struggling to rise above pre-recession levels. That’s good news, right?
And it’s a good thing, with the specter of another recession looming on the periphery. Economists are predicting it will come in 2021. Of course, they could be wrong, but I’d rather people be overprepared rather than underprepared.
If more people are saving and ridding themselves of debt, perhaps more of the country will be able to weather the next recession without depleting savings, let alone taking money out of retirement.
A (potentially) unavoidable issue
Of course, there are some things that you simply can’t avoid during a recession, like house prices dropping.
Two in 10 respondents experienced that during the last recession, though it seems to me a lot more people than that went underwater on their houses. My theory is that respondents could only choose one way they were affected by the recession, in which case people who lost their jobs or savings were bound to choose that rather than lowered house prices.
At any rate, lower home values are likely to happen again the next time around if prices keep rising, and there’s not much to do to guard against that — other than to hope you don’t need to sell during the coming downturn. And maybe try to get your property taxes lowered when the time is right.
A few final thoughts
So there are some hopeful signs coming out of this study, but by and large the results are pretty concerning. Even if people only think they’re not doing as well, it would probably still affect their spending.
On the one hand, this could mean they spend less and save more, which does my frugal heart good. On the other hand, less spending can have an effect on the economy. So people’s perception that they’re still not doing as well — true or not — could be what precipitates the next recession.
Then again, only 29% of respondents said they hadn’t made any changes. Which means 71% have changed and the economy is still going strong. (For a variety of reasons, of course, but the point is that it’s going strong for now.) So maybe we’re safe after all. Or at least safe from practical money management being a recession-trigger, which would be horrendously disheartening.
So what can we take away from this study? While it feels like people didn’t learn their lessons from the last recession, apparently most have and, even better, are taking steps to improve their financial situations.
Although that brings us to another possibility: Those steps may be part of what’s making people feel that they’re not doing as well as they were 10 years ago.
After all, it’s easy to feel as though you’re doing well when you can buy whatever you want, whenever you want it, even if you’re living on credit cards to do it. But when you start being more circumspect with funds — throwing them into savings and at debt — you can’t buy as much, so it can feel as though you’re worse off, even though you’re actually building a more stable future.
But if I had to guess, a lot of the respondents’ concerns about their finances are probably rooted in reality. Whether it’s not making as much money (or making the exact same amount) as they did 10 years ago, or rebuilding savings and digging their way out of debt, clearly a lot of the respondents are struggling with their finances.
I guess all we can do is hope that those who have reformed stay that way — and that these new practices afford people some safety for the next recession.
Are you doing better now than you were 10 years ago?