4 Major Changes in a Post-Recession World

iStock_000017046890XSmallIt’s been almost 5 years since the economy tanked in 2008 and the “fiscal cliff” was very real at that time, and was not merely a game of chicken played by our political parties. From the depths of an economy that almost spun out of control, we have moved forward though not nearly as dramatically nor as quickly as we all had hoped. Then again, we were literally staring into the economic abyss a few years ago, so forward progress is still a very good thing. I am not an economist (nor do I play one on TV) but I some perspectives about the economy and life after the Recession is “over”, which for many isn’t nearly over yet.

I know economists state that we moved out of the Recession years ago. They base that claim on economic growth data which supports their analysis that the “Great Recession” ended 3 years ago. Alas those same economists are insensitive to the real world of high unemployment, higher underemployment, virtually no interest on any savings, and home values that have plummeted. Those issues have changed very little in the past 5 years. To a large portion of Americans the Recession continues. Nonetheless, we are moving forward and the severity of the economic malaise has lessened. So whether it’s now, or in years to come, the question this Struming poses is how has the consumer changed/or will change in a Post-Recession Economy?

The sad truth is that consumer behavior often does not change much when a crises is gone. Didn’t we forget the oil crises in the 70s and their 5-hour gas lines when we wanted that shiny new SUV? Nonetheless, in this case the impact of the economic crises, combined with technological changes during the past 5 years, has yielded some significant changes. Here are 4 obvious, but substantial, changes:

1. Consumers seek value to an even greater extent.

Consumers have the ability to determine competitive pricing at their fingertips and more and more use that power. Fruality is no longer merely for the needy. It never really was. But there is no stigma in wanting to save a buck. In fact is it has become a badge of intelligence.  Technology has changed dramatically since 2008. Nowhere is that more obvious than in our pockets. The majority of Americans carry a “mini-computer” (which they call a cell phone using the terminology of the last decade). When the economy plummeted in 2008 the majority of cell phones were flip phones and we lived in a desktop world. We are migrating to a post desk top world where mobile devices—smartphones and tablets have major impact. Information is available at our fingertips to an even greater extent. And we are all, affluent or not,  proud to use that information to save money.

2. Real estate

As time goes on, this lesson may be forgotten but the consumer now clearly sees that real estate appreciation is not a given. Many homeowners are faced with the situation where they are “under water”, their mortgage is greater than their home’s value.  Also, in an era of flat or declining home values, the American dream of home ownership has become a nightmare to many. At a minimum, many are sharpening their pencils and doing the math and seeing that of cost of home ownership, with its associated tax write offs for real estate taxes and interest, may still in fact be greater than renting the same property. However, for first time buyers, which are now required to put 20% down to get a mortgage (bringing back a smart requirement from the past), there may never be a better time to buy–reduced home prices and all time low interest rates make home ownership more affordable.

3. Job security

Unemployment is still high (7.9%) and underemployment (twice as high) is still a big issue. Those levels may recede a bit more, but the days of 4% unemployment may never be seen again. There’s a growing reality that job security is a slippery slope and one is wise to manage one’s own career more proactively, lest it get “managed” for them. The idea of employment for life at a company is an idea of yesteryear. There is a deeper appreciation of the necessity of proactively creating an employment path for oneself.

4. The increasing cost of higher education

The data of the lifetime value of a college education is still overwhelming. But the short term cost and the debt one incurs is overwhelming. The average debt a student graduates with is now $26,000 and increasing annually. This is nuts. As a result students are flocking to community colleges in increasing numbers as an option for the first two years. Additionally, public universities, no bargain but less expensive than private universities, are also seeing increased demand. Academia is feeling real business pressures and I suspect we will see the failure of several private universities in the coming years. The day of reckoning is straight ahead for many institutions.

As the Recession fades and the world moves forward, things will never go back to the “way they were”. In many ways that’s OK. Change is constant and is the one thing we all can count on. How we each adapt to change is paramount.

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  1. Kel Smith says:

    Spot on, Lonny, especially #2. My wife and I considered an upgrade from what we purchased in 2001, but we’re locked in at such a favorable rate that it makes little sense — unless we decide to leave the area outright. Those who bought into a falsely escalating market (at subprime rates that ballooned after five years) weren’t so fortunate.

    I’m truly worried about #4. Our educational infrastructure just isn’t built to sustain any sort of competitive advantage in today’s global landscape — financially or academically.

    Great insights as always.

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