It’s been a decade since the financial crisis shook the American economy, but those cracks have run deep. They’ve shuttered businesses and homes, slashed savings and retirement accounts, and cast shadows on the national trust we have for banking and governmental institutions. By a numbers standpoint, a recent story in the Harvard Business Review found that the financial crisis cost each American about $70,000, and required the government to cough up $2 trillion, which is more than double the cost of the ongoing war in Afghanistan.
But the financial crisis wasn’t purely experienced by the numbers. Since money often carries the weight of hopes and expectations—just as it readily underlies pain and anger—this crisis was felt socially and emotionally, too. Just ask the millennials who lived through it.
“I think it hurt millennials in three ways,” says Priya Malani, Founding Partner at Stash Wealth, a financial planning firm for high-earning millennials. “First and foremost, it set them back financially, because many of them were graduating from school right into the recession and couldn’t find jobs, which means it took us longer to start earning money. Second, it caused them to lose trust in Wall Street, which has historically been associated with helping people to build and grow wealth. Third, it’s left them with totally mixed emotions about taking on investment risk, which could have major repercussions on their ability to achieve financial goals.”
As millennials get labeled as a generation riddled with problems—of young adults who can’t afford to buy homes, or get married, or pay off student loans, or save for retirement—they will often point to the Great Recession as one of the reasons why their wallets are thinner than previous generations’. But this position, as precarious as it seems, isn’t necessarily an entirely bad place to be. Because even if millennials have debt, seven roommates, and a ready rant or two about this topic, they do also have one thing mastered: the internet.
“While the damage done by the Great Recession was certainly massive, I don’t think the effects are as prevalent today as they would have been had we not had access to the internet,” Malani continues.
We chatted with Malani about the ways in which millennials are bouncing back from the Great Recession, and how this generation is likely poised to avoid another crisis because of the skills they’ve learned in the last 10 years. Read on for our interview, and get some tips for how to protect yourself, too.
Why has the internet been such a positive force on millennials’ finances after the Great Recession?
“Many millennials have taken their finances into their own hands,” Malani says. “Maybe they don’t want to trust Wall Street, but they do trust technology and are turning to Google as a teacher. They are reading blogs, watching videos, and finding ways to educate themselves so that they don’t get left behind.”
“That being said, others certainly feel paralyzed and don’t know where to begin,” she says. “Many are finally reaching a point in their careers when, for the first time, they are making more than they are spending. This position has them wondering how to make that extra money work harder for them. But despite being in a spot to start investing, they don’t know who to trust and are delaying making financial decisions because of it.”
How has the Great Recession influenced millennials' emotional relationship to money?
“It’s hard to generalize because we see lots of different effects that the crisis has had on millennials’ emotional relationship to money,” Malani says. She gives these four examples:
Some are over-saving. “Many media outlets say that millennials aren’t saving enough for retirement. Interestingly, at Stash, we often find the opposite. When clients come to us, many are over-saving for retirement,” she says. “I think millennials have been scared into thinking that they will never be ready for retirement, therefore many are stashing money away without even thinking about if they are saving too much.”
Some aren’t sure where to prioritize. “Millennials are torn between wanting to live their best lives and wanting to be financially responsible,” she notes. “Social media makes us want to do more and see more now, but watching our parents or friends go through the financial crisis makes us also crave a solid financial foundation.”
Some aren’t doing anything. “Millennials like their money where they can see it—in their bank accounts,” Malani continues. “Unfortunately, that means they are setting themselves up for failure when it comes to being on track for larger financial goals like retirement.”
Some think of investing more like gambling. “The financial crisis left many millennials with the assumption that investing means that you can lose all your money and it is therefore super risky,” she says. “Often clients come to Stash with a lack of understanding about what risk actually is and how to properly apply risk to investments. This leads them to make short-sighted investment decisions that rarely have them on track for their short, mid, and long-term financial goals. For example, we often see clients in their 20s or 30s with their savings sitting at a brick and mortar bank, or worse, in CDs—that’s not good! These sorts of decisions are detrimental to their financial success.”
Given all of this, do you think millennials are poised to withstand another financial crisis? Why?
“I do believe millennials are poised to withstand another financial crisis,” Malani says. “As I mentioned earlier, millennials have access to endless information, tools, and resources via the internet. You don’t have to go solely by the word of your financial advisor anymore. You can search for second, third, and even fourth opinions.”
“But it’s important to note, too, that if you’re in your 20s and 30s, it’s likely that the goals you have for investing are for 10 or so years away—and that’s not enough,” she continues. “Remember that investing is a vehicle to help your money grow over the long-term, not the short-term. Temporary setbacks or market corrections will only impact those who are trying to gamble with their money for their short-term goals. You should never invest money that you may need to use in the next few years.”
Which habits can hurt millennials ahead of a financial crisis?
“In the financial world we remind clients that investing and emotions don’t mix,” she says. “That said, refraining from getting emotional about your hard-earned money is easier said than done. Here’s an example. During the Great Recession, the market fell over 40 percent and some people freaked out and sold out of the market, losing up to 50 percent of their money. Investors who stayed the course and remained unemotional are up more than 300 percent today. Opt to use an automated investing platform, since it’s easier (but still not foolproof) to keep emotions out of the equation.”
What advice do you have for millennials to help prepare them for a financial crisis?
“Ignore it, but not completely,” she says. “A temporary financial crisis should not change your long-term investing strategy. In fact, for a long-term investor, a financial crisis is a blessing in disguise, because it’s kind of like everything’s on sale. When you walk into a store and everything’s on sale, you end up getting a lot more for your money. The same thing would apply here!”