Why This Isn't Your Grandparents' Economy
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DanielleScott 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?
Employment Instability
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.
Starter Homes
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.
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I think your article explains the paradigm shift of our economy! Thanks for some good insights into our changing economic scene.
I agree with everything you've said for the most part. I would take exception to the home ownership comment, however. While it was a dream of many people, the home ownership surge following WWII was unprecedented. Even from the 50s to the 70s, home ownership took off. There's real pressure on people to own a home (your marketing pressure maybe?) I'm in my 50s and things have really changed from when I was a kid to what I see younger people dealing with. My father, who is in his 80s, attributes many of today's problems to a 'lack of discipline' and being able to delay gratification (he would use the house example--people used to save for the down payment; save for the new chair, or car; etc). People not being able to say 'no' if they don't have the money in hand. You're right, everywhere we go there's images of happy, beautiful people using products that companies are trying to sell. However, aside from the want versus need question you could ask yourself as you stand in front of the display case, there's the acceptance that I don't make the kind of money to afford this so this is not for me. End of story. I'd no more expect I was entitled (by virtue of simply wanting this toy) to own the latest iPad (possible only using credit) than expecting I should buy a 150' yacht. Because I want one (as if haha!).
You're right though. Things *have* changed. But we are also very different people from those who came of age during a time of austerity and without the sense of entitlement.
It sure would be nice to get back to the basics. We don't need that expensive car or other "thing." Our society is largely a debtor's society, and our futures suffer because of it. Wouldn't it be nice to be able to get out of debt and save for future purchases?
Insightful post---except I think the title is inaccurate.
It's not the "economy" that has changed since Grandma's time---it's people. As you describe, many people want and expect more now without having to sacrifice or save or work hard.
You say this change is because of cultural factors such as advertising, but it's still totally under control of the individual person, and there are many people today who resist our marketing and consumer culture and do very well financially as a result.
Perhaps you should have titled your post instead, "Why you expect more than your grandparents and why it's sinking your financial ship".
To some extent I agree with the previous anonymous comment. It is under the control of the individual. If you aren't mired in a paycheck-to-paycheck life, then you can avoid falling into that state.
However, the measures that you have to take to avoid it vary greatly from region to region, and jobs in the US today pay less and less value to workers where value is measured in their ability to feed, clothe, shelter, and educate themselves and their dependents and save for emergencies and times when they can't work. Add in the meteoric rise in health care costs over the last 30-40 years, and no one's, absolutely no one's financial future is safe in the US.
Slowly but surely we're regressing back to the robber-baron age. To mitigate that you have to be willing to step away from a lot of the things that define our material-rich lifestyle and pull the rug out from under the plunderers by simply not needing them all that much. Alas, that course is a death sentence if you manage to come down with an expensive life-threatening illness or permanent disability.
So while there is some personal responsibility involved, the greater balance of fault lies in our economy and its ultimate objective to make some people as rich as possible and bleed the rest rather than further a healthy and sustainable environment for all.
Fantastic article. Being in my late 20s, I have been brought up in the present style of economy. Your article provided a new prospective to me. I think the thing that struck me most was the "normalization of debt." We have indeed started taking loans for everything under the sun. This habit has forced us to live beyond our means and create an economy which is rotting hollow from inside.
I think this article is exactly right, and I think it actually presents an encouraging thought for those of us with decent career prospects: most of what has changed is consumer attitudes, something a consumer can change back through sheer will if they are aware of it.
Of the 5 major points, 3 of them amount to people getting away from basics. Marketing, normalization of credit, and starter homes are all things that we as consumers can fix individually without any help: buy only what you need, use credit sparingly, and buy only what you need (important enough to be the solution twice).
The change from a stable, secure economy to a dynamic, unsettled economy (points 2 and 4) is problematic if you are an American who traditionally would have made a living via labor intensive work. That's been a pretty dependable way to get a job for most of human history until right now. There is no easy fix here other than adapting to the new reality if you are young enough to do something about it with education and choosing a career path that is harder to outsource or part of the new economy. If you are late career and this happened to you now, I wish you luck because I know that stinks. As a country, I think we should do something to take care of these folks, but beyond direct employment programs or direct benefit programs, I don't know that there is an easy fix.
One thing not mentioned is the educatIon effect. Nowadays, the vast majority of jobs "require" a college education, regardless of whether the degree is actually necessary to do the job or not. And the cost of education is absurd. Tuition is spiraling, even at many public institutions - not because the colleges are greedy, but because public funding for education has gone down so much. In the 1970s, my NY-based institution received nearly 80% of it's operating costs from government. Now, it's barely 30%, and declining. Do we no longer care about educating anyone but the children of the rich? Now, parents are supposed to foot an ever-growing bill, or supposedly condemn their children to poverty - which is overblown, but still, it is all so unbalanced.
I believe a new generation of savers may be birthing right now. Due to the recession, job losses and economic woes we have experienced since 2008, many young people are recognizing that the free use of credit is not necessarily a good thing for their personal finances.
We do get a mixed message - on the one hand we get chided for not saving, but on the other, we are chided for not spending. Savers are punished here with low interest rates, having to fund bailouts through taxes and etc.
As with all generalizations, there are many exceptions to the rule. I personally know of many people of all ages that do a terrific job of saving.