When stocks crashed in 2008, I knew people who were relatively near retirement age and had inexplicably left nearly all their savings in the markets. So they resigned themselves to working a few more years — or as long as it took for stocks to recover.
I sure hope they thought about jumping out of the market sometime earlier this year.
Large stock declines affect major financial decisions by individuals in ways that damage the broader economy. Some of those workers who delayed retirement held onto positions that would have gone to younger workers that employers would pay less.
Large stock declines also play on confidence. I think it is very easy to overestimate the role of confidence in our current economic drear. Our problems are pretty well explained by the fundamentals.
An interesting and relatively short piece in the AJC today explores how individual caution arises both from fundamental economic factors and from confidence. From Georgians think twice about major decisions:
James Gentner was going to return to college this fall to realize a 24-year-old dream: becoming a weather forecaster.
Instead, the Kennesaw 28-year-old will hold his tuition costs down by taking just a single class, deferring his plans in response to the economic instability underlined by the Dow’s 634-point plunge on Monday.
“I want to be a good role model for my 3-year-old — show her that you can go out and do things,” he said. Over and above that, though, he said, “there are financial considerations.”[. . .]
As for Gentner, he and his wife have decided not to have another baby just yet.
They go back and forth on his college plans. She wants him to pursue the dream that had him watching the Weather Channel as a 4-year-old and chasing tornadoes as a teen across his home state of Ohio.
But he’d have to go into debt, and that worries him in the current climate. Plus, he was counting on a small stock market fund to help pay for fees and school supplies.
“That’s not looking too good now,” he said. “It’s extremely disappointing.”
There is much more in the piece.