With the 2008 Financial Crisis ten years behind us, have Americans moved on or does that event still cast a large shadow? Despite US equities near record highs, many years of positive economic growth, and low unemployment rates, a new study by robo advisor Betterment shows most people are still dealing with the fallout.
After recently polling 2,000 participants 18 years or older, here were some major takeaways from Betterment’s survey:
- The majority of respondents (65%) who said they were affected by the crisis have still not fully recovered. While most (59%) had a retirement strategy in place during 2008, 27% said they either stopped saving for retirement or contributing to their 401(k), 15% said their employer stopped sponsoring or stopped matching their 401(k), and 14% said they continued to save but only in cash. That still leaves 41% of people who did not have a retirement strategy in place even before the market crashed.
- Almost one third (29%) of participants said they were making a concerted effort to save more now than in 2008. That said, just 10% said they invest more currently than in 2008, while 66% said they invest less.
- Even though the S&P 500 is up +200% since 2008, almost half (48%) of those surveyed did not think the index had gone up at all in the last 10 years. As much as 18% actually thought the market had fallen since. Moreover, 79% of those who were at least 18 in 2008 admit they don’t fully understand what caused or happened during the financial crisis; 25% said they don’t understand at all.
Higher income earners (those making +$100k a year) mostly blamed big banks and mortgage lenders for the crisis, while lower income earners ($50k or less) mostly blamed political leaders. Just 8% believed “borrowers who overextended themselves were the primary culprits of the financial crisis”. Both Republicans (38%) and Democrats (42%) also largely think the government did not take enough action to protect consumers.
- Of the respondents that said they do fully understand what caused the financial crisis: only 22% trust Wall Street institutions more than they did in 2008, 21% invest more now than they did in 2008, and they are 5 times “more likely to have increased stock investments than those that don’t understand the crisis”.
- Most people who took the survey don’t trust Wall Street: 83% said they don’t believe Wall Street is more ethical today than it was in 2008 and 22% said they think it is less ethical than it was 10 years ago.
Surprisingly, younger adults are “twice as likely than those 55+ to think banks are more ethical now than before” as a quarter (28%) “of those aged 18-27 say that Wall Street banks are more ethical now than they were in 2008”. Even though they were kids during the crash, “it’s not necessarily pure naiveté: 57% believe they understand what caused the financial crisis”.
Seventy percent chose themselves above all else, however, when asked “who or what they trust most with keeping their investments and retirement savings safe for the next 10 years”. Just 18% said they’d trust their financial advisor above all else.
- Of the respondents who were investing in 2008 (47%), 80% lost money but “people investing in the stock market feel more recovered than those who never invested in the stock market.” Additionally, of those who were investing at the time of the financial crisis: 41% feel fully recovered financially and 27% feel partially recovered, half are “investing as much or more than they did 10 years ago”, over a third (35%) have the same investment risk tolerance they did in 2008, and 17% consider themselves even more risk tolerant today.
Bottom line, many Americans are still deeply distrustful of financial institutions, reluctant to invest, and fearful of another crash (a quarter of which think will happen soon). A majority of people are so disenfranchised by the last financial crisis that they’re unaware of the market’s significant gains since. Therefore, this leaves some big opportunities for financial advisors. First, there’s a huge educational gap for advisors to better inform individuals to get them invested and explain that cash is not enough for long-term growth or retirement needs.
Second, we were surprised that young individuals were more trusting of Wall Street than their older counterparts and that most think they understand what caused the crisis. Given that those in the survey who said they understood the crisis were also more likely to invest, it provides an opening for advisors to attract the next generation of clients. The trick will be convincing millennials to do it with them, however, rather than online with robos like Betterment or on their own with options like Robinhood.