How things have changed. Remember the days when you didn't worry about your job, your portfolio or your house? These three factors impacted our thinking in demonstrable ways, and with all three now at risk people are worried. While the psyches of the most affluent and those just getting started in their careers may not be affected by the loss of the safety net, the mainstream may face an uncertain future for some time.
In the previous cycle, few people placed much risk on the fear of losing a job. While no one likes to lose a job and changing jobs is an inconvenience, the demand for talent largely outstripped the supply. If you lost your job or decided to make a change, chances are you had two or three highly attractive options to fall back on; and in some cases they represented a step up. In any event, prior to experiencing the reset associated with this recession, people simply associated little to no risk regarding their income levels. This fueled confidence and consumer spending and drove compensation levels higher and higher.
Of course, highly predictable income also helped to fuel the real estate bubble. We all know the story of how mortgage bankers and loan officers didn't feel the need to even confirm income levels or employment, but buyers also believed their incomes would continue to rise. And for good reason, the next offer was right around the corner and everybody was making more, year after year after year. Why not buy an expensive house and "grow into the payments"? Well, the game is over and whether you believe home values have bottomed out or not, you certainly don't want to sell right now. Perhaps even more importantly, the ATM machine of home equity loans is out of order, so we've not only lost a piece of the safety net but also a key source of money to spend.
And finally, the conventional wisdom that investments in the stock market will always go up is giving way to saving money. While we definitely needed to raise the saving rate in this country, the lack of confidence in the stock market strips away a major part of the safety net. How long will it take to recover from the erosion of 50% or more of our retirement and investment accounts? While we will most certainly see some upward spikes on returns over the next several years, many will miss out because they never had the confidence to get back in. And when will the confidence return to the levels we've enjoyed in the past? Five years? Ten years? Ever?
Regardless of your own personal view on these issues, the consequences to the market as a whole will be significant for a long time. The safety net as we've known it is gone and the assessment of risk will likely never be the same.
Will these factors cause you to change jobs more or less frequently in the future? Will you seek alternative investment vehicles or take greater entrepreneurial risks in the future? Let us know what you think.