NEW YORK (MainStreet) – Following a new survey of consumer finances by the Federal Reserve, one of the organization’s board members has suggested that spending will be slow to recover.
This week’s Survey of Consumer Finances uses an analysis of Americans’ balance sheets during and after the Great Recession to find that about two-thirds of American families saw their net worth drop between 2007 and 2009. A good chunk of those households were particularly hard-hit, with the Fed finding that 43% saw a decline equivalent to six-months’ total household income.
As expected, the belt-tightening and increasing debt brought about by the recession is responsible for increased savings and decreased spending, as one would expect. Americans also moved toward safer portfolios and pushed their average retirement age back by about a year.
But somewhat surprisingly, this newfound thriftiness prevailed even among those who hadn’t been substantially impacted by the recession.
“Overall, the data suggest a shift toward caution,” found the authors of the study. “Most families – especially those whose position in the wealth distribution improved – reported a desire for less risk and for higher reserve savings.”
In a speech delivered to the Virginia Association of Economists, Fed Governor Elizabeth A. Duke suggested that the scale of the recession had led to a widespread shift toward risk aversion and frugality.
“The varied change in wealth for pre-retirement families, taken together with the changes in retirement plans, risk attitudes and willingness to spend in response to changes in wealth imply that some of the effects of recent economic turmoil may result in a longer period of economic adjustment than has been the case in past recessions, as fundamental attitudes appear to have shifted,” she said.
In other words, Americans are so spooked by the recession that it will be awhile before they’re comfortable spending again – which will make the eventual economic recovery slower than expected.
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