The Miami Herald - When the dust settles from the current economic upheaval, will the American psyche be forever altered?
"This is the kind of generational event that changes people's fundamental attitudes," said Brett Steenbarger, clinical associate professor of psychiatry and behavioral science at SUNY Upstate Medical University who studies market psychology. "I think the aftershocks will be with us for quite a substantial time."
Beliefs woven into the fabric of American life -- from the idea that a home is a rock-solid retirement asset to the adage that stocks always make money in the long run to the notion that markets should be left unfettered -- all have been thrown into doubt.
Tony Hatcher, 49, a Miami construction contractor nursing a cup of coffee at a Starbucks in Coral Gables one recent morning, said he sold $37,000 in stock at a loss as the market spiraled down. He has no intention of diving back into the stock market any time soon and has tightened his belt for hard times ahead.
"Things are so bleak, especially in my line of work in the construction business. Everything has come to a grinding halt," Hatcher said. "I'm trying not to spend, and I try just to pay cash for whatever I need. I might not have work for the next year and a half."
When the go-go days of the 1920s gave way to the stock market crash of 1929 and the Great Depression of the 1930s, more than a generation of Americans responded by building nest eggs and avoiding waste and excess. Back then, "you always understood the possibility of getting in financial trouble and losing your job," said Elliot A. Rosen, a professor emeritus of history at Rutgers University and author of Roosevelt, the Great Depression and the Economics of Recovery. "But in the last 20 or 25 years, we have a generation that isn't saving but instead is living over its head."
The personal savings rate -- or the percentage of disposable income set aside for savings -- is below 1.0 percent, the lowest level since the Great Depression, according to the U.S. Bureau of Economic Analysis. And debt levels are at record highs.
Will Americans, chastened by the dramatic economic events still unfolding around the world, shift their outlook and behavior? Some say thrift -- which has been viewed largely as a quaint, 19th-century notion lately -- will make a comeback as a survival strategy. But whether it comes into vogue is another question.
' 'Thrift' has faded from our vocabulary. Now it's only used with second-hand clothing stores," said Joshua J. Yates, research assistant professor at the Institute for Advanced Studies in Culture at the University of Virginia. He studies thrift in American society. "We have to see whether it will be just a survival tactic or an animating force in society," he said.
"With this massive financial crisis, people are not only angry and bewildered, but they are forced to go into a severe belt-tightening mode," said Barbara Dafoe Whitehead, lead author of For a New Thrift: Confronting the Debt Culture, a study sponsored by the Institute for American Values, a New York-based think tank. "It's an enforced type of thrift. What choice do we have?"
As for the stock market, some say a whole generation of potential investors may be sidelined. "A lot of people will be keeping their money under the mattress for a few years," said Dr. Richard L. Peterson, a psychiatrist who manages MarketPsy Capital, a hedge fund in Brentwood, Calif.
In the late 1990s, when the stock market soared on wild predictions that even the most ill-conceived dot-coms would supplant brick-and-mortar businesses, many people with only a passing acquaintance with price-earnings ratios or return on equity dived into day trading. Suddenly, anyone could be a market guru.
But after the tech bubble burst, many burned investors stayed away for years. 'I had a lot of investment advisors asking me, 'How can I get my clients to invest in the market?' " Peterson said. Finally, around 2005 or 2006, some of those people waded back in, he said.
Heidi Uliano, a 42-year-old CPR instructor and sales representative from Weston who said she was hard hit in the dot-com bust, has since stuck to secure, guaranteed investments. And the recent collapse in the stock market only vindicates her once-burned, twice-cautious attitude. "I'm glad I didn't invest again," said Uliano. "I don't want a double hit."
While she has lent money to friends and family in the past, Uliano said the current credit crunch has shifted her attitude: "I would never lend money to anyone now because I think it's just too unstable."
Robert Chang, a 41-year-old Coral Gables architect who also works for his family's restaurant chain in Jamaica, said he always wanted to invest in the market but was deterred by the risk. "I look at the stock market as a gamble," said Chang.
Concerned that the economy would further drag down real estate prices, he sold his Coral Gables home in March. Since he bought more than a decade ago, he profited from the sale. First off, he said, he paid off all his credit-card debt.
"I'm being careful of what I purchase," he said. "I try to live within my means -- live comfortably -- but if I had notions of trading in my car or buying a new car or going to the Bahamas with friends or something like that, I no longer think along those lines."
To be sure, the 2008 crash isn't likely to drive many sophisticated investors from the stock market -- at least not for very long. "But those who were only marginally in the market will be incredibly risk-averse, and they'll stay risk-averse," said Linda Nazareth, author of The Leisure Economy. "You saw some of that in the post dot-com era. A lot of people got burned, and now it's a double whammy."
The economic downturn -- coupled with certain demographic shifts such as the aging of the baby boomers -- may steer many people to a less materialistic lifestyle, said Nazareth, an economic analyst for Business News Network in Canada.
'You may find people saying, 'Let's try to live more simply.' You may see a big shift in consumer behavior from wanting to take on debt and wanting to have a big house to a simpler lifestyle." Other big societal shifts are also likely. How much support would the average person give now to the push for privatizing Social Security so U.S. workers could sock some of their retirement money into the stock market?
Financial markets face much tighter regulation ahead. For one thing, Uncle Sam is about to become a big investor in U.S. banks, as are European nations in their institutions. And speculation in derivatives and the burgeoning of hard-to-value securitized investments are at the center of much of the current mess.
Andrea Bardach, a former stock broker who is launching a business with her husband from their Coconut Grove home, thinks the government should oversee the financial markets the way parents do their children.
"You want them to grow and be on their own, but at the same time you can't leave them alone," she said. "You have to watch them."
Bardach, who said she always opposed waste and extravagance, is also trying to cut back and thinks the current crisis will bring Americans to their senses about spending. "Maybe the [downturn] will help us get a better idea of what is really important in trying to be more sensible," she said.
How big the shifts in America's psyche are will depend, of course, on how deep and lasting the recession is.
Hyper-consumerism is deeply entrenched in our culture. Remember President Bush exhorting citizens to go out and shop when hard times hit?
Meir Statman, a professor of finance at Santa Clara University in the Silicon Valley, studies behavioral finance, or how investors make decisions.
He said the shift to conservative finances and investments may not last long: "It's like the way we drive after we've just gotten a ticket for speeding. It slows us down a few days, but pretty soon, we're back to our old ways."
Teaching children the dangers of getting in over their heads may have a longer term impact on society, some suggest.
Just as kids nag their parents to recycle trash and buy green, they could rebel against their parents' spendthrift ways, said Whitehead.
"Will we return to easy credit and spending, or like the Great Depression, will people for generations be careful about the debt they are willing to take on and consumer spending?" asked Whitehead. "The crystal ball where all this leads is murky. But, speculating, I'd say we are going to have longer-term sobriety about personal finances and an emphasis on saving more."