As strange as it may seem, today’s twenty somethings and our senior citizens share a common denominator; one that is probably overlooked.Many of our seniors lived through The Great Depression as youth and a few of them as parents.Our twenty somethings today are going to live through a massive global recession.There are some significant differences between the two events but the more important shared commonality is that of credit availability.
Let’s remember that it wasn’t until later in the 1950’s and 60’s that the credit “industry” really took off.Prior to that, people lived within their means; they had to.The younger generation of today is seeing withdrawn credit from the marketplace and is sure to be forced to live within their means for some time to come.
This won’t mean that zero credit will be available, but rather what will be available will have strings of qualification attached.Those qualifiers will have been significantly strengthened due to lessons from past abuses.Mortgage qualification will have stringent minimum owner equity requirements with shorter repayment terms.The same will hold true for other loans.The unsecured loan will likely disappear and credit costs to the consumer will likely increase.These are lessons our seniors had to learn as well.They may seem a bit harsh but there is also a bright side to all of this.
First, people will become financially responsible and ensure their money is protected as much as possible.They aren’t likely to put it under a mattress, but investment will be less risky with longer growth realization.The bond markets are sure to be the beneficiaries.This is a very prudent approach.While the temptation to play the stock markets is great due to the bargains available, any investor in this realm needs to realize that it is also a gamble.This writer would say that if you can afford to take that money to a casino, then you can afford to play the markets.Certainly there is some good money to be made down the road, but equally, if you can't afford to lose it, you can't afford to play.This is an arena for corporate Canada not the individual.
The losers in much of the current financial crisis are the Baby Boomers who have seen their savings shrink as much as 30% over a short period of months.They don’t have the luxury of waiting 15 years for their savings to recover to where they were, let alone complete their intended growth targets before retirement.Significantly reduced pensions, and lifestyles they had saved for, will be either reduced accordingly, or lost.They have a right to be angry at those who gambled with their money on the markets.Equally, they are responsible for much of the greed that fueled the current crisis.The baby boomers were the managers directing the Gen-Xer’s to carry out the many systemic abuses that led to the current economic crisis.
The beneficiaries of this are today’s youth who can learn the lessons of prudence and investment risk.These are the generations that will carry the world forward and the decisions they make will impact their world of the future.If they learn these lessons well, and the boomers correct the situation as much as possible, the world finances can turnaround relatively quickly; perhaps within a generation.This will place them in a good position to plan for their own retirement.
The young adults of today have 2 things going for them, time, and more importantly; history.The question to be answered is: Will they learn from the latter?
If they do, prudent spending and investment habits formed now will very likely give them a good standard of living one that will likely exceed that of their parents.There are many challenges facing them but they have the time and ability to overcome them.