Financial Meltdown Effects

Jun 25, 2013 by

financial meltdown anxiety

Remember the financial meltdown that began in 2008? I do. I vividly recall the feeling of helplessness as a sizable chunk of our nest egg went “poof,” seemingly overnight. Like those who lived through The Great Depression, I think the meltdown, exposure of Wall Street hijnks, and swift collapse of many financial companies previously considered unshakable has altered permanently my views on investing and risk. I know I manage our finances differently now because of the meltdown, and so apparently do many Americans.

Effects of the Financial Crisis on Investors

Fidelity Investments researched investor behavior and attitudes since the meltdown (see “Five Years Later“). Fidelity’s study concludes that

Despite significant personal financial losses and hardship, the [financial meltdown] event helped boost investor confidence by spurring both positive and permanent behaviors – from increasing retirement savings rates to decreasing debt and building emergency funds.

I point out that Fidelity’s research focused on investors, not consumers. You may be surprised to learn that only about half of Americans own stock (which may or may not be Fidelity’s definition of “investor”), a 15-year low.

Some interesting tidbits from Fidelity’s study of the effects of the financial crisis:

  • 17 percent of respondents said a head of their household lost a job
  • 35 percent of households experienced a large drop in income
  • 47 percent said their household lost significant assets as a result of the crisis

On the bright side, the crisis’ hardships do appear to have had a positive impact on how the study’s subjects handle their personal finances. made a nice infographic summarizing some of the results of Fidelity’s research.

investor behavior change after financial crisis

How I’ve Changed Because of the Meltdown

The 2008-09 crisis has certainly caused changes in my approach and thoughts. For example:

  • I feel a lot more protective of our nest egg now. Due to my perception that the likelihood of another meltdown is greater today than in 2008, we’ve slashed our risk exposure. The U.S. government has shown it will use taxpayer funds to backstop Wall Street risk-taking. The inevitable consequence will be more risk-taking and recklessness.
  • Today I would not buy anything—annuities and long-term care insurance, for example—with benefits dependent on the long-term prosperity of any financial firm. Yes, I know various guarantors allegedly back these sorts of products in case of failure. In my view, a crisis that actually progresses to the fully melted down point will swamp guarantors. They’ll be bust before you can say AIG. The guarantors are designed to handle the occasional company failure here and there, not the wholesale meltdown of the financial industry.
  • I don’t trust Wall Street or financial advisers. I do my own research and rely on my own advice, in consult with Ms. Money Counselor. No one puts our interests first except us.
  • Partly because of the meltdown, I started this blog. I think the middle class—”people who work for a living”—is being taken advantage of and in some cases robbed blind by the financial industry. I don’t mean just money managers (though they surely qualify) but also many banks, lenders, insurance companies, etc. Part of my aim here is to help readers make better money choices through exposing bad financial products and services and proposing ideas for a better way to financial success.

Has the Financial Crisis Changed You?

Are you thinking or doing things differently because of the 2008 meltdown? Do you feel like the crisis was a one-time event, or do you fear a repeat?

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