Why This Isn't Your Grandparents' Economy
Why can’t we save the way our parents and grandparents saved? Is it just us, or have other factors changed our economic realities to such a degree that saving has been marginalized, or in some cases precluded altogether? It’s no revelation that over the past 50 years, the American economic landscape has shifted drastically — rewriting our personal histories and resetting our goals. But what can we label with relative certainty as the true "game changers?" Looking back at the lives of my own parents and grandparents, I’ve identified five categories of economic influencers that are significantly different today than in the 1950s and 60s. (See also: The Recession Glossary)
The Prevalence of Marketing
Marketing has always been a part of American life. In the early and middle parts of the last century, it danced on the margins of our realities, gently suggesting products and services that might make our lives easier or better. Today, the gentle dancer has traded ballet slippers for steel-toed work boots and tromps through nearly every visual and auditory landscape we once called our own. Marketing and advertising have morphed from an art into a science. In the process, it’s conflated a product’s value with our own personal worth. We no longer buy a car solely because of its safety features or fuel economy. Now we give just as much credence to what the car "says" about us. We buy into a family, a cohort, an identity. This is the genius and the madness of marketing — and it swirls around us in ways our grandparents could have never imagined.
Walk into any given grocery store and the process begins immediately: The shopping cart has an advertising placard, and the handle of the cart is an ad as well. The floors lay advertising at our feet, the freezer doors carry ads, the aisles have coupon-spitting machines, the plastic order divider in the checkout lane has a strip of advertising, "cause marketing" asks for our spare change as we pay for our items, and even the back of our receipts have become one last attempt to market to us. It’s amazing we can even find our car after such a staggering commercial onslaught.
All of this marketing effort must pay off to some degree; otherwise, budgets would shift to more lucrative avenues. How does this approach and the resulting pay-off affect a person’s ability to separate the valuable message from the garbage, be rational with money, and save?
I’m nearly 41. My mother and father worked for the same employer for 28 and 32 years, respectively. So far in my own work life, I’m at job number nine. Granted, calculated inconsistency in the pursuit of larger goals is not a bad thing, and some of that inconsistency is born from a better education and more choices. But another piece of that inconsistency comes from the new reality of employment: Companies are sold, off-shored, closed down, and consolidated at an alarming rate. Employer flux creates employee flux. According the U.S. Bureau of Labor Statistics, the median employee tenure as of January, 2010 was a mere 4.4 years. It seems as if the only consistent thing we do now is update our resumes. New jobs and the economic challenges in-between jobs create disruptions in our financial lives that can, over time, affect our bottom lines.
Normalization of Credit
Credit used to be a line of last resort for our grandparents’ generation. The normalization of credit without any education on the dangers of its unbridled use has arguably been the largest factor in Americans’ declining personal wealth. Our parents and grandparents may have used credit from time-to-time to take advantage of an unusually good deal, or to secure the purchase of item that would appreciate in value. Now, short-term or long-term credit is used to buy everything from cheeseburgers to cars, from jeans to haircuts. Combined with unstable employment and a boom-and-bust economy, undisciplined credit use has gone from an outlaying danger to a potential catastrophe.
Loan payments, interest rate hikes, late fees, and bruised credit ratings are like death by a thousand cuts, threatening our personal wealth and future security. Whether born of real need or simple temptation, credit has become a national addiction spawning new predatory industries and personal hardships.
America’s Shifting Industry
Decades ago, America was a manufacturing powerhouse. The goods made here were marketed and shipped all over the world. Somewhere along the line, the target for our products shifted away from the global stage and began to focus more narrowly on the domestic stage. The burden of consumption (and, thereby the majority of our economic health) fell on Americans. Consumption of domestic goods became conflated with patriotism and over-consumption was encouraged in large part because of the relatively limited domestic market. The demand for a higher volume of cheaper goods forced offshore what little manufacturing jobs remained in America and further reduced labor opportunities at home. The broad and deep markets of American goods that our parents and grandparents took for granted shrank and so did our savings.
Homes are typically our largest investment, and they carry with them the opportunity to make or break our financial success. Gradually our expectations of what constitutes a suitable home have changed. We now embrace the concept of "starter homes" without question and once our children have grown and left the nest, we’re expected to "downsize." That creates three occasions to buy or sell a home over a person’s lifetime (not counting other circumstances like job transfers, divorce, etc). The purchase of a new or different home creates an opportunity to cash out some of our equity, refurnish, upgrade countertops, or move into the newest designer ZIP code. But how did our grandparents approach home ownership? Wasn’t their starter home typically their "finisher" home too? What is lost in our constant pursuit of a new (and temporary) satisfaction? How has the notion of upgrading everything from cars to closets only downgraded our leisure time and threatened our real financial independence?
These are just some of the broad stripes that have repainted our financial lives. Simplicity and frugality are personal efforts that don’t happen in isolation. Society, marketing, personal history, and wider economic realities all make the road more challenging. Our grandparents lived in a time that was harder in many ways, but easier in others. As we pursue our highly individual definitions of independence and financial wisdom, it helps to understand where we’ve been as a nation and where we’re going in order to decide how to navigate where we are right now.