Perceived Danger

After watching two market meltdowns, Generation X and Y are confused and see themselves as savers, not investors.

 

Looking beyond the nation’s stubbornly high jobless rate, the worst effects of the Great Recession may be slowly receding in the rearview mirror. But advisors are waking up to the fact that the shockingly steep drop in equities and Americans’ retirement savings in 2008 has left a profound—and possibly permanent—psychological impact on younger investors.

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One financial counselor with a front-row seat on the impact of the Great Recession on the newest generation of adults is Deena Katz, who is chairman of Evensky & Katz in Coral Gables, Fla., and an associate professor teaching personal financial planning at Texas Tech. “This generation,” she observes, “is seeing what’s happening to their parents’ retirement plans, and how that’s become a real problem for most of them and how they need to change their expectations.

“A lot of the boomers today came through the ’90s when you could invest in anything and it made money,” Katz says, laughing. “But these kids have seen first-hand what deflation can do, particularly in real estate. They’ve watched their parents’ homes diminish in value, and they’ve seen the lack of financial literacy in this country. They have seen firsthand what mistakes [our generation has] made, and they’re not going to make those mistakes.”

Consequently, Katz notes, “this generation is starting early to save. They want some control over what happens to them. But I think they’re a lot more realistic about investing and how much control they have over their own future.”

Katz says her students are also becoming “a little more realistic about their capabilities as an employee. They expected to graduate making $60,000, $70,000 a year, and they recognize that’s not going to happen right away,” she says.

Read the rest of the story at Financial Advisor Magazine