The "great recession" has forced Americans to take a hard look at their spending and savings plans. Many didn't like what they saw.
Flabby spending. Overly risky investing. When the recession hit, it revealed just how exposed many families were. In 2008 alone, median household incomes fell 3.6 percent after adjusting for inflation, a record for at least the last four decades.
Even now, with the stock market back up and an emerging consensus that the recession is over, individuals are wary.
"People clearly are saying to us: 'No, this crisis isn't done and gone for me. It's still going to influence the way I'm behaving. And I value a less risky approach,' " says Julia Lennox, vice president of retirement products for MetLife. The New York-based insurance and financial-services company surveyed nearly 2,200 adults about their new fiscal habits last month. Here are the Top 5 steps Americans said they were taking as a result of the great recession:
1. Reducing spending on nonessential purchases. Two-thirds of those surveyed (65 percent) were cutting spending, often as their first response when problems hit. A favorite target: credit-card debt. Of those who took action, 60 percent said they'd paid down their consumer debt in the past year.
2. Building a cash cushion. Having insufficient cash was the biggest regret that consumers had during the recession, according to the survey. Now, 57 percent plan to build up their liquid reserves.
3. Shifting into low-risk investments. Nearly 1 in 5 (17 percent) said they planned to move into guaranteed-income or other relatively safe financial products. "We're definitely seeing more interest from people about protecting themselves from downside risk," Ms. Lennox says. They're looking into hedging their bets with such products as Treasury Inflation-Protected Securities (known as TIPS) and variable annuities with a portion of the annual payout guaranteed no matter how the value fluctuates. There's also growing interest in longevity insurance, where the newly retired buy annuities to insure they receive a fixed income starting at age 75 or 85, she adds.
4. Consulting a financial adviser. Some 15 percent overall – and 28 percent of older baby boomers (55-plus) – said they would seek professional help for their portfolios. That age difference may reflect not only proximity to retirement age but also a marked generational split in Americans' response to the recession. Almost half of Generation Y Americans affected by the financial crisis believe their personal recovery will happen in two years or less; 22 percent of older boomers said five to nine years and 13 percent said "never."
5. Diversifying portfolios. Some 15 percent are taking the step. Sadly, the recession has hit so hard that another 19 percent say they no longer have the funds to save for retirement. Among younger boomers (ages 46-54), it's worse: 27 percent.
The first two steps are the initial areas families addressed when recession hit. The next three are suggestive of what many Americans should do, but it depends on their individual situation, Lennox says. "If you're not saving, or you don't have very much in saving, probably job No. 1 is: 'How do I find a way to save more?' "
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