How the 2008 Crisis Changed How We Save and Invest

Ten years after the giant financial crash, "the scars of 2008 are still very raw for millions of people today," said a 2018 survey report from online investment firm Betterment. Nearly half (47%) of the survey's 2,000 respondents—1,602 of whom were at least 18 in 2008—were invested in the market when the crash hit and it hit hard: 93% were affected and 80% said they lost money in the market. Even though the S&P 500 had grown 80% since March 2013, 65% of those who were affected by the crash and the Great Recession that followed said that they have not fully recovered even in 2018.

The key findings:

Consumers Are 'Gun-Shy' About Investing

Though the markets have since recovered, its effects have significantly damaged retirement savings. Here's what the 2,000, all living in the U.S., reported.

  • 15% report that their employer stopped sponsoring or matching their 401(k). 
  • 27% of respondents said that they either stopped saving for retirement or adding to their 401(k)  
  • 14% continued to save for retirement, but in cash – which, at today's rates, pretty much guarantees they will not even be able to keep up with inflation.

And most are investing less money than they did in 2008, which may show a deep-rooted fear of returning to the investment landscape.

  • 66% invest less than before.
  • Only 10% are investing more.

People Still Don't Understand What Happened

Many consumers do not understand the cause of the crash or know where the market currently stands. With the S&P 500 being up nearly 50% since 2008, you’d think the sentiment of investors would have skewed back towards positivity. In fact, surprisingly few people know about this recovery.

  • 48% of respondents thought the markets had not gone up since 2008  
  • 18% had the impression that it had gone down.

Given this lack of background, very few comprehend what happened back then – even if they lived through it. Of those who were at least 18 in 2008, 79% say they "don't fully understand what caused or happened during the financial crisis" and nearly a quarter report that they don't understand the crisis at all.

Who is primarily responsible for what happened? A plurality say big banks and mortgage lenders (30%) or political leaders and policies (21%). Only 8% blame borrowers who overextended themselves. Income makes a difference in where people think the responsibility falls: 

  • 54% of those making $100,000 or more a year blame big banks, while 15% of the same group blame the government and political leaders.
  • 42% of those who make $50,000 or less blame banks; 22% think it was the government's doing.

Interestingly, Republicans (38%) and Democrats (42%) show remarkable agreement that "the government did not take enough action to protect consumers."

They Don't Trust Wall Street – Except, Maybe, Young Adults 

The Great Recession did not do a lot for the image of Wall Street, and most people still have very negative views of the market.

  • 83% "don’t think Wall Street is more ethical today than it was in 2008."
  • 22% think it’s even worse.

Actually, there may not have been that much trust to begin with. The majority of survey respondents who were old enough to invest in 2008 (53% of the group) didn't invest before the crash – and 87% of them are still not investing today.

But one crucial demographic is taking a more positive view. Young adults (18-27) are twice as likely than those aged 55 and up to think banks are more ethical than before. In fact, 46% of this youngest group – people too young to invest in the market in 2008 – are investors today.

Those Who Invested (and Lost) Feel More Optimistic

Joining those young investors: the subset of the survey that were investors at the time of the crash. Though nearly half of participants who were already investing at the time of the market crash lost money, the investors who stayed in the market are more than twice as likely to feel as if they’ve recovered today. The investors who stayed invested are also twice as likely to still be invested now and saving more than their non-investing peers.

The statistics show that it is better to have invested and lost than to have never invested at all. Of those who invested in the market during the crisis, 41% feel fully recovered, 27% feel partially recovered, 17% feel more risk tolerant today, and half are investing equally or even more than they had ten years ago. 

The Bottom Line

The 2008 collapse created potentially permanent scars and negative attitudes towards Wall Street. This mistrust undermined trust in the markets and people's willingness to invest in them – especially among observers who weren't investors when the crisis struck. Needless to say, many non-investors lost jobs and homes and other assets even if they had no money in the stock market.

Overwhelmingly (85%) and equally, investors and non-investors worry that the next 10 years will bring another financial crisis. But for the moment, there are some bright spots: Young adults who are new to the market seem to be more open to investing than other groups – as the group that must begin to build wealth, this is crucial. Those who were investing in 2008 and stuck with it despite their losses recovered, while those who were not invested then are still shying away and continue to be distrustful of the market.

Article Sources
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