The coronavirus could herald a sea change in how Americans spend, save and invest their money — changes that could reverberate for decades.
“Here, you’re dealing with something that in some ways has elements of a natural disaster, which creates a different dynamic,” said Mason B. Williams, a political science professor at Williams College.
Many of today’s monetary policies were created in response to events that exacerbated the Depression: Unemployment insurance, for instance, sustains at least some of the demand that vanishes when joblessness spikes and people have no income to spend. This is not to say a recovery necessarily will be quick. Although former Federal Reserve Chair Janet Yellen expressed hope that the rebound could be rapid or “V-shaped” in a recent, she acknowledged the severity of the plummeting of economic activity and skyrocketing unemployment, calling the shock “a huge, unprecedented, devastating hit.”
And this could fundamentally change the way Americans relate to money for decades to come. “After the Depression, we had a whole generation of people who were more likely to save for a rainy day,” said Joseph Mason, professor of finance at Louisiana State University. Especially with the threat of viral recurrences and subsequent outbreaks, “I can certainly believe people are going to want a little bit more of a nest egg socked away,” he said.
“The wealth effect is a major thing in the U.S., especially after a huge run in equity prices,” said Alon Ozer, chief investment officer at Omnia Family Wealth. “The biggest risk — and we saw it in March — is that the fixed income markets, corporate debt mostly, and equities are going to start to move together. All these 60/40 portfolios you hear about, if they move together, you’re going to get decimated,” he said.
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