A Quiet Fortune: Who said ‘What goes up must come down?’
During the years preceding 2007, an interesting phenomenon was taking place in the U.S. This was not a one-time, neon-lights event, but rather a quiet creep through the country. By 2007, for every $100 that they were earning, households were, on average, spending $133.
Let’s see. We made $100 but we spent $133. How …?
It was easy, really. Credit was readily available so we could charge virtually anything. We lived in houses that were often larger than we needed, or more expensive, or in more upscale neighborhoods than we could really afford. Many mortgage companies were willing to lend us more than the value of our homes, so plenty of people took advantage of the chance to “tap into the equity” they had built.
And, of course, our jobs were secure. We would surely be getting a raise sometime soon. Spending more money than we made was only temporary, we told ourselves. We’d start saving someday; we had plenty of time for that.
But while we enjoyed our good fortune, many of us were forgetting something: The economy (meaning our jobs, our retirements and the value of our investments) is not controlled by us. And those things are most definitely not guaranteed. As became all too evident by the end of 2007, which was the beginning of the single worst economic period since the Great Depression, the nation’s economy can be volatile.
Big banks had made risky investments. Housing markets nationwide began to collapse because of derivatives and other instruments that these firms had devised. The financial crisis in Europe kept world markets in a state of unrest. The stock market plummeted.
In hindsight, we can see hints of the impending Great Recession, as the next few years would be called. Hundreds of analysts have examined its causes. But we regular folks can seldom predict what only a few experts might be able to foresee. Immediately before millions of people lost their jobs and their futures, things had seemed good. We were on the brink of financial collapse and most of us never saw it coming.
According to a 2016 Transamerica Center for Retirement study, 61 percent of workers say they have not yet fully recovered from the Great Recession. Seven percent say they may never recover. However, much of the economy has improved and that has pushed some of our past woes to the backs of our minds. But events like this (maybe smaller, maybe more significant) will probably happen again. Our economy’s stability is dependent upon complicated external influences; things can change fast.
So how do we gain some protection from uncertainty? We might be able to take a lesson from a character in fiction. James Michener describes this 26-year-old Colorado man in his book “Centennial”:
He had considerable powers of thought, could plan ahead, could devise tactics for hunting … he knew a good deal about animals, the nature of differences between women and men, how to rear children, how to lay by enough food in good periods so that he would have something to eat in time of famine.
The man Michener is describing lived about 11,000 years ago. Our fictional hero knew even in 9268 B.C. that plentiful times might not always be around, and that he needed to “lay by enough food in good periods so that he would have something to eat in time of famine.” Hmm … things haven’t changed all that much, I guess.
What if, in 2007, instead of spending $133 for every $100 we earned, we had been spending $90 and investing the other $10? It’s true that the investors lost also. But their losses were regained and then surpassed when the economy and the U.S. stock market finally rose again, as it has done after every single downfall.
Perhaps it’s because of the Great Recession or maybe it’s because of volatile situations in the world and the U.S. today, but people seem to be more wary of overspending than they were in the early 2000s. The majority of baby boomers (1946-1964), Generation Xers (1965-1978), and millennials (1979-2000) say they are making wiser financial decisions these days.
Apparently that saying, “What goes up must (eventually) come down,” has stood the test of time.
Terrie Drake is the author of the book “A Quiet Fortune,” and a retired teacher and librarian. She and her husband have lived in Glenwood Springs since 1974. She is not a financial adviser; consult a competent professional for your personal financial solutions. She can be reached at firstname.lastname@example.org.