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Potential Benefits Of Going Through The “Great Recession” While Young

22 February 2010 5 Comments

It’s a pointless exercise to attempt to shine a positive light on somebody struggling big time due to unemployment or other economic realities.  For older individuals near retirement age, this great recession might be disastrous.  For us young people, I hope we can learn from this era and hopefully, it will impact us in a positive manner for the future.

Here are some potentail lessons or benefits for the younger readers who are going through what I call the Great Recession:

Lesson #1 – Back to reality with regards to consumption

Consumption levels by Americans were completely unsustainable for a while during the last decade.  Houses were used as ATM machines and the savings rate actually went negative.  Obviously, this could not continue.  I think we will see the savings rate move towards a normal, more healthy level somewhere in the range of 5-10%.  Many young people viewed these insane consumption levels as “normal”.  Learning that these are, in fact, not normal is a good thing.  Hopefully, saving will be a major focus of young people moving forward.

Lesson #2 – Leveraged speculation can get nasty

The real estate boom provided an excellent example of how borrowing money to speculate can turn very ugly.  Individuals who have never speculated on anything thought they could get rich by cashing out home equity and buying up homes left and right.  We all know how it ended.  Borrowing money to get rich quick or to speculate on anything, whether it is a piece of real estate, a stock, or a business is a bad idea.

Lesson #3 – Guaranteed returns are not guaranteed

As I just mentioned, the housing bubble/bust also shattered an idea of real estate always going up in value.  Additionally, the lost decade in stocks has compromised the notion that stocks will always go up, even over the long haul.  I would caution any young person from believing that anything is guaranteed, even over the long haul.

Lesson #4 – The economy is not always a tailwind, but can be a headwind

For decades, Americans saw prosperity and growth continue and increase while the economy was a tail wind.  Simply put, it was fairly easy for many people to do well, make money, and increase their standard of living.  Many of these people would simply not have had the same level of success in a bad economy.  The reality is that the economy is not always a tailwind that pushes us to greater levels of prosperity.  It can be a headwind meaning it is difficult to get ahead.  It can take grit and determination to be successful.  Young people should not assume that the economy will always create opportunity for them.  You have to find it yourself and work for it.

Lesson #5 – The American Dream / Middle Class that we are accustomed to might go away

Some very credible people believe the idea of the American middle class is going to be changed forever.  Unfortunately, most of the middle class in America is broke.  The idea of having a huge suburban house, with two BMWs in the drive way and expensive vacations every year as a standard way of life is most likely over for many people.  What we have witnessed over the last years or even the last decade or two is a bubble middle class.  Don’t assume that our futures will look like the middle class of recent years.

Do you have any lessons that you can add to this list?  Are there any potential benefits that you see as a result of going through this terrible economy at a young age?  Add your comments below.

5 Comments »

  • 20smoney (author) said:

    Ryan, I agree with you! Good point.

  • Evolution Of Wealth said:

    The biggest thing for the young people is probably time. Time to take chances and recover. Someone nearing retirement that makes a mistake doesn't get a do over and the mistake is probably a lot bigger because of their larger nest egg. It is a great opportunity for younger people to learn the fundamentals and see what survives this down economy.

  • 20smoney said:

    Couldn't have said it better myself. This recession might really change the game forever and by game I mean investing, careers, etc. and young people have the opportunity to adapt to these changes and make progress in the "new normal"

  • J @ MyMoneyMinute said:

    Not sure if it changes the game forever, since history appears to repeat itself. But all we can do is our part, in THIS generation, to redefine the rules and hope our legacy is passed down. I'm very excited to be living in this world at such an awesome time!

  • Pete said:

    I though like beyond post …. "very excited to be living at such an awesome time!"