December 30, 2009 in Business

Growing up in a downturn

Recession takes toll on latest generation’s views and behaviors
Gail Marksjarvis Chicago Tribune
 
McClatchy Tribune file photo photo

Youth Job Center counselor Pamela Kaul, left, assists Ariel Ausmer, 17, a junior, with job leads at the Youth Job Center at Evanston Township High School in Evanston, Ill. McClatchy Tribune file photo
(Full-size photo)(All photos)

CHICAGO – After living through one of the most brutal recessions in U.S. history, many late teens and young adults could be scarred for life, adopting behaviors that could skew everything from their own careers to politics, corporate profits and the stock market.

Academics are beginning to study the implications of the recent recession on the current generation of Americans that age, suggesting it may have much the same effect as how the Great Depression changed so many of the youth of the 1930s into conservative spenders and investors.

Experts said people between 18 and 25 are the most likely to be affected for life as they internalize the struggles they’ve seen in family and friends and contemplate the power they will have over their own destiny.

Researchers Paola Giuliano of UCLA and Antonio Spilimbergo of the International Monetary Fund, in a National Bureau of Economic Research paper looking at recessions from 1963 to 2006, found that young people who live through downturns tend to doubt their control over their careers. Unlike people who have lived through sweeter economic circumstances, the youth of recessions tend to look at career success as luck rather than a result of personal action.

Long-term attitudes are soured most dramatically if individuals go through the stress of losing their own job, rather than simply taking in the broader angst amid a recession.

The current young generation has been hit hard directly and indirectly. In their homes, teens have likely seen parents worry about home values. In the workplace, there’s the threat to jobs as the unemployment rate remains stuck at 10 percent, one of the highest levels in three decades.

In addition, households are trying to replenish savings after a huge decline in stocks savaged 401(k) plans, and banks are forcing credit card holders to pay off debt and are reluctant to provide high levels of new credit.

Beyond family pressures, unemployment among 16-to-19-year-olds is at an extraordinarily high level of more than 26 percent. Students finishing college face difficult job prospects, with hiring of this year’s graduates down 22 percent, according to the National Association of Colleges and Employers.

The political discontent noted by researchers is showing up in a 25 percent approval rating for Congress and slippage in President Barack Obama’s numbers, according to Gallup polls. The public’s demand for action is fueling debate on how much business regulation is needed to protect people and how much would stymie profits, the economy and stock markets.

Meanwhile, investors pulled billions of dollars out of the stock market last year and this year have put a record amount, more than $300 billion, into bond mutual funds despite recent warnings that rising interest rates could cause bond values to fall.

If investors stay on the sidelines, the stock market won’t receive the boost individual buyers provide. And if bond values fall, the individuals who fled stocks and think they are safe in bonds could get hurt again.

It is possible that a generation of preretirees, and possibly their children, have been scarred permanently by stock market losses. Research by University of California-Berkeley professor Ulrike Malmendier and Stanford University’s Stefan Nagel shows that when individuals have had low stock market returns for many years, they don’t want to take risks in stocks. And bad experiences with stocks early in life “have significant influence even several decades later,” they said in a research paper.

Fidelity Investments research shows that Americans 22 to 33 years old have shifted toward more conservative financial behavior too. It’s influencing everything from investing to job choices: More are seeking job security and strong benefits rather than opting to jump from job to job to further their careers.


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