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What has Great Recession taught us about financial survival?

| Thursday, Sept. 27, 2012, 12:02 a.m.

Americans who lived through the Great Depression of the 1930s took a grim pride in it. They proved what they were made of in “bad times.” And those who came out on the other side came out stronger.

We'll never count the numbers of an older generation who learned the value of a dollar in the terrible difficulty of earning it. When better times returned, they cast a wary eye for when the wheel might turn again. Many never again became all-stops-pulled consumers.

Has the Great Recession (as it's come to be known) taught anything comparable to this generation?

One lesson surely pops to mind. Retirement can't be taken for granted anymore. No more than a college diploma as a ticket to a “good job.”

But putting aside the kids — who have youth and flexibility going for them — in the sunshine of a long prosperity, when recessions passed like clouds, an expectation grew that everybody had a “right” to quit producing at age 65. Better yet 62, or even 55 or 50 from certain public jobs. The economy's producers would generate enough surplus to support tens of millions of deserving old consumers.

But then longer life expectancies happened. And smaller families.

It became common to live into one's 80s and 90s, even 100 or more. And hey, no complaints about that. But it does make for unprecedented decades on the shelf.

Meanwhile, fewer young workers (including millions of miseducated young workers) come along to do the producing.

Still, the investments that Great Recessionaires put away (or had put away for them in pension funds) were automatically supposed to grow. There'd be 8, 9 and 10 percent annual increase in assets. And this even though the economy grows at less than half of that on average (and in recessions shrinks). So a hard lesson was learned. Many an employer had to quit promising “defined-benefit” pensions. Government payrolls are being dragged kicking and screaming in that direction as well. The IRAs and 401(k) plans of millions of do-it-yourself investors took a tumble as mutual funds and common stocks fell. But don't ignore this lesson either. In general, 401(k)s have recovered, while typically paying dividends right through the bad times.

Let's underline that. The Great Recession did not teach people not to invest, rather, to be careful not to quit in disgust when markets turn down. They do come back.

A lesson for many retirees was the mistake of depending on Social Security. The government's monthly benefit is no guarantee of the good life (apart from its looming long-term funding problem). At best, it has to be augmented: think thrift, part-time work, and sensible spending.

What mixed signals for thrift are in today's wretched interest rates.

The Federal Reserve is the teacher you loved to hate. It squashed rates down to zero, will sit on them until 2015. To “stimulate” the economy, it says. Or to give Uncle Sam an undeserved break on debt service costs? Either way, living standards of recipients are squeezed, and they're forced into riskier investments to seek higher income.

And what if all this money creation leads to runaway inflation down the road? We're promised that won't happen, but how much stock to put in the promises of politicians is another lesson of the Great Recession.

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