What Lessons Have You Learned from the Great Recession?

August 21, 2009 by  
Filed under Financial Planning

Many personal finance pundits are now referring to recent economic events as the “Great Recession.” I don’t understand why folks want to use “great” to characterize an economic calamity. “Awful Recession” would be more appropriate. But I digress.

Fed Chair Bernanke this week stated that the decline of the U.S. economy appears to be leveling off. So maybe the Great Recession is coming to an end. If so, it’s not too soon to reflect and determine if we have learned anything useful from this experience.

Mr. ToughMoneyLove has learned a few things and confirmed a few other previously held beliefs. Here they are in no particular order:

1. When it comes to managing the economy, there are no real experts. If there are any experts, we don’t know and can’t predict who they are. If we could, we should have put them in charge years ago. Instead, we got big spender Bush and even bigger spender Obama. Even Warren Buffet’s weaknesses have been exposed. He’s no genius in bad economic times either. He just has a multi-billion dollar safety net to fall back on. Our government’s safety net? The taxpayers.

2. Do not act on the judgments of others as to what you can afford. Banks, mortgage brokers, car companies, FICO, real estate agents, the government – they are all about encouraging you to borrow and spend. If that means pushing you over the limit of what you can actually afford – well they don’t care. They may care a little more now, but that will change. You’ll see.

3. The stock market has too much risk for most people. This has been a game-changing realization for me.  The investment industry – financial planners included – are in the business of pushing you into equities because that’s what they know and what they sell. It’s how they make money, often at your expense. Unless and until you have positioned yourself for a secure financial future, taking on substantial risk in the stock market can easily backfire. Just ask the millions of scorched baby boomers. I am completely re-vamping our investment strategy – never again will this happen to us.

4. Asset allocation models don’t always work.  A lot of us had carefully studied asset allocation and invested accordingly. Yet, when the market tanked, asset categories that were supposed to be non-correlated fell in unison. That wasn’t supposed to happen. When fear is driving investment decisions, as it did in 2008 -2009, you can throw the computer models and historical analysis out the window.

5. Be prepared for anything. This means building levels of redundancy and resiliency into your budget and spending. Being able to cut back on short notice is essential. If you are counting on anyone other than yourself to protect your financial future, stop counting. Debt is your enemy. Don’t listen to the “good debt, bad debt” nonsense. No debt is good if your cash flow takes a hit. This I knew. Recent events confirmed it.

6. Working for the man never looked so bad. I tell our sons that it doesn’t matter as much what you do for a living if you can work for yourself. Own your business and control your destiny or you too can be a layoff victim. Yep – figured that out in my first full-time job 35 years ago when I witnessed the older engineers being regularly culled from our ranks.

Those are some of the lessons I’ve learned – how about you?

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14 Responses to “What Lessons Have You Learned from the Great Recession?”
  1. PW says:

    I don’t see the economy getting better, but I believe that if/when it does most will fall right back into the spend and spend more habits. I think this economy and layoffs have been a good lesson about how vulnerable everyone is, young or old, professional or not. Always good to have $ in the bank.

  2. Lurker Carl says:

    Spend far less than you earn. Sit on your money when times are good, buy strategically when times are bad. No one cares more about my finances than me. I didn’t learn these tidbits from this recession but from the many recessions that preceeded this one.

    I don’t think we are out of the recession, this is the “dead cat bounce.” Massive debts are still waiting in the shadows to unwind. A jobless recovery is not possible – that means many companies are moving away for good or dying and nothing is coming up to fill those voids. There are more bubbles to burst than just residental real estate and voodoo mortgages.

  3. PT Money says:

    The main lesson I learned is to have a ton of cash on hand for the next round of this.

    I’m surprised to see you so negative on the stock market. All I’ve ever heard about it is how risky it is and how it only works over a long period of time. Statements which I still believe to be true.

    Sure, everyone’s stocks are worth less. But don’t we still own the same number of shares? Those companies aren’t dead (99% of them aren’t). They’re just down in value.

    And you mean to tell me those shares will never return to their pre-recession values? We’ll all be sitting pretty back at our old levels soon enough. That is, unless you sold on the way down.

    What in history has shown we won’t return to higher levels than ever before? And what’s so special about this economy that makes you think it’s different now?

    No offense, but I think some boomers had too much of their assets in stock and are all walking around with their heads hanging simply because there same number of shares is worth less. It’s arrogant to think the American business can’t rise to those levels again. Just give it time.

  4. PT Money says:

    I realize my comment may come across as a bit insensitive (and possibly ignorant). I don’t mean to offend anyone. Just trying to stay positive. This coming from a 30 something guy who’s got plenty of earning years left.

  5. MasterPo says:

    #3 has merit. But by the same point, historically speaking, people aren’t going to accumulate wealth or retirement funds on 2% bank CDs. The stock market still gives the average-Joe the best chance of accumulating wealth (how evil!) over time than anything else.

    ps- When a Democrat is elected buy GOLD! :)

  6. Terry Pratt says:

    Oh MasterPo, you didn’t quite answer my question back there earlier…you say if he didn’t buy a house it’s a missed opportunity, that’s life.

    I’m asking, since YOU were saying that people like him shouldn’t be buying houses, what do YOU say to HIM after he didn’t buy a house because HE LISTENED TO YOU, and now he’s living in rental destitution in old age..got it now?

  7. Terry Pratt says:

    Lurker Carl says:

    “Spend less than you earn.”

    And how exactrly would one with a poverty-level income spend less than they earn?

  8. kitty says:

    “The main lesson I learned is to have a ton of cash on hand for the next round of this.”

    Right, me too. I could just kick myself for not having enough cash on hand back last September when you could get Johnson and Johnson bonds for 70 cents on a dollar…. I did buy some bonds last October with yield-to-maturity of over 8% in companies like Goldman Sachs as well as some tax free AA and AAA munis with 5.5% YTM, but I could’ve bought so much more. Plus having more cash in March would’ve helped. OK, in March I had a little bit of cash, but maybe not enough courage.

    So, here is my other lessons:
    Have courage to jump in when everyone is panicking. Be it buying good quality bonds where nobody is lending money or stocks when everyone is selling.

    Have courage to sell when everyone is super-optimistic and/or when some stock you have went too far up for no apparent reason and have stop loss to protect yourself. Don’t use “oh I’ll have to pay so much capital gains” as an excuse — better pay taxes on capital gains than take off losses.

    Pay attention to what is happening with the economy. Buy and hold isn’t the same as buy and forget. I saw the housing bubble forming, I even warned a friend not to buy real estate in 2006 but wait. I just haven’t connected it to the economy because I didn’t know much about what was happening with mortgages and had no idea about CDOs or CDS or the importance of credit for the economy. I should’ve learned about it. Stocks are risky. If we invest in stocks we should at least make a minimum effort to learn a bit about economy.

    I also plan to learn more about options especially about how they can be used as insurance to limit losses. I don’t plan to use them for speculation, only for hedging.

    “people aren’t going to accumulate wealth or retirement funds on 2% bank CDs”
    My parents saved for retirement only on bank CDs. OK, maybe it wouldn’t be enough for many of us, but it’s enough for my parents to live the same modest lifestyle they always have. And they haven’t even had that much time to save: my father was 48 when we came to the US from the Soviet Union and my mother 43. Their salaries in the US weren’t that high either. The thing about CDs – they pay more interest when interest rates are higher…. Now, I don’t keep all of my money in CDs, but I consider CDs just as good a part of asset allocation as stocks or bonds.

  9. Lurker Carl says:

    “And how exactrly would one with a poverty-level income spend less than they earn?”

    Work multiple jobs. Rent a room rather than an apartment or take on roommates to reduce your housing expenses. Get rid of cell phones, cable TV, fast food meals, etc. Take advantage of the social programs available to low income earners. Become proficient at skills and trades that pay at rates higher than minimum wage.

  10. Terry Pratt says:

    Sure, working multiuple jobs is a great idea, IF you can get multiple jobs. Unemployment is close to 15 percent here. College graduates are earning minimum wage in convenience stores here, and they should consider themselves fortunate to even have a job.

    I’m an unskilled worker over 50. In the unskilled labor market, that is over the hill.

    Why would you want me to get rid of cell phones? I got rid of my landline and use a prepaid $5/mo cell phone. How else would people (esp potential employers) reach me?

  11. Terry Pratt says:

    What social programs available to low income earners?

    As a childless adult, I have found a greaty paucity of social programs available to low income earners without children.

    I get $25/mo food stamps, that’s it. I’m eligible for subsidized housing and on waiting lists a mile long. Can’t even get on the Section 8 waiting list, every umpteen years a lottery is held to add names to the waiting list. I lost the last lottery in 2007 and the next lottery is nowhere in sight.

  12. MasterPo says:


    I don’t know where you think I said someone shouldn’t buy a house – ever.

    Buy all the houses you want IF you can afford to do it w/o needing public assistance. But if you can’t afford to buy the house w/o some kind of public credit or allowance or tax break or other government program chances are very good IMO you’re over reaching.

    To put it another way, if you can’t afford a house now but an annual (or even just one-time) tax credit or grant or allowance etc of X-dollars makes the difference between buying and not buying then you’re walking too close to the financial edge.

  13. kitty says:

    Terry – I don’t know about social programs to help with day-to-day expenses, but if you get sick and cannot afford co-insurance, there are a number of charitable organizations out there. Such as Healthwell foundation, for example. There are others as well.

    In terms of multiple jobs — home improvement/contracting is one area where your age wouldn’t matter that much. If you could learn plumbing or become an electrician – there must be some courses out there – you could make quite a lot of money. Painting is an easier job that doesn’t require a license. Some years ago there was a teacher here supplementing his income by washing people’s windows on weekends.

    If you were a woman – house cleaning or child care. The salaries are higher in more expensive areas, though, as is demand. Around here, even an illegal immigrant cleaning lady wouldn’t work for less that $19 an hour. I heard there is a Russian girl who is OK with $16 an hour, but she lives in Brooklyn, so whoever hires her for a job in the suburbs has to pay for transportation. American cleaning ladies ask for $25 an hour or more.

    Many recent legal immigrants that I know – of different ages, mostly over 45, one woman over 50 – took home health care courses to take care of the elderly. The courses aren’t expensive, some are free if you agree to work for the government agencies for a few years or something like this. The salary isn’t that hot, but you get medical insurance. My second cousin did it for a while until she went to a community college and became a radiology technician. She was in late 40s when she started. Another woman I know – also over 50, first generation immigrant – became a dental assistant.

    You can also try amazon’s mechanical turk, but the pay is low. At least it doesn’t require physical strength.

    But do check out programs in community colleges. There are some 2-year programs that aren’t that expensive, and you could learn some job that will pay better than what you do now. In some jobs e.g. in healthcare the demand is such that you can get hired even if you are over 50.

  14. Terry Pratt says:

    Yes, I have tried Amazon Mechanical Turk. The stuff I’ve done there worked out to apx $1.50 per hour. Welcome to the virtual sweatshop!

    I’m trying to do some housecleaning gigs with a female friend, but that’s really hard to get these days.

    Neither of us has a car, which pretty much rules out the local housecleaning services. (They all require you to have a car so you can quickly get to wherever you’re needed, esp multiple jobs the same day.)

    We’ve tried posting on Craigslist (services –> household) but it’s pretty much impossible to get noticed these days because thousands of locals who can’t find jobs are posting similar ads there – with 300-500 new ads daily, you have a window of maybe a few hours for people to actually read your ad.

    I spend a LOT of time on Craigslist looking for ways to earn money. I think not having a car/license is my biggest obstacle right now.

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