What We Need to Learn From the Great Recession

aaronA couple months ago, I read an article called, “What the Great Depression Did That This Recession Won't“. It's a fascinating article comparing two of the biggest economic crisis's of the last 100 years: the Great Depression and the recent Great Recession.

While the author, Morgan Housel, was right to point out it's still too early to see the lasting ramifications of the recent recession, we can already see what effect it's had on our behaviors. And according to Housel, little has changed. Savings rates are still low and personal bankruptcies are climbing.

It was virtually unheard of for people to go bankrupt in the 1930s. Rather than file, people would sell off all they owned, deplete their savings, ask relatives for help and/or find more work. Today, there is fare less stigma attached to bankruptcy. Go to bankruptcy court and suffer a few years with poor credit and then you're good to go.

personal bankrupticies
The article illustrated that the increase in personal bankruptcies has skyrocketed since the 80s (as shown, per 1000 people)

During the Great Depression, there was much more ownership for ones well-being and for ones success. Today – that thinking has shifted to blaming institutions (banks, etc) and has become more of an “I deserve this” mentality.

I also think there is something else at play in all this too: the slide toward greater and greater individualism.

Now, I'm all for individual freedom – and discovering our innermost desires and pursuing these (in the pursuit of happiness). But, something important has gone lost through the generations: family and interdependence. Note that during the years preceding up to and shortly after the Great Depression – divorce was still uncommon. Families were sticking together. Faith was also an important factor in daily life. People were a part of a smaller community that helped and looked after one another.

During the Great Depression – most everyone was in the struggle together and they helped one another through it. (Charlie has written about these important factors in a previous post called, “How People Survived the Great Depression“)

While the difference in severity of the two crisis' is of note – let's hope to learn from these times and grow more financially independent and personally, interdependent.

Why do you think we continue to go back to our “old ways” OR do you see a change in behavior as a result of the Great Recession?

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  1. Hello!

    My name is Marianna and I live in Singapore. I’m a student at the Singapore American School and take a Personal Finance class with Mr. Andrew Hallam (He wrote on your blog!). I think it is really interesting how bankruptcy has increased so much over the years. In my class, we learned about this Chinese belief that wealth only lasts three generations. This is because that by the third generation, the family is used to comfort and spending lots of money. They spend more than they earn so the family becomes bankrupt. Then, the cycle continues. I personally think that the graph will eventually go back down after a few generations, then skyrocket back up.

    Also, I wanted to talk about how people are blaming things on institutions. If the stock market crashes, people will be angry no matter what you do. They most likely put all of their money into stocks rather than diversifying their assets classes and also buying bonds. This means that they just lost a large percentage of their money. Now, if they were financially smart, they could have diversified their assets and rebalanced their asset classes. Mr. Hallam said he was practically vibrating with excitement when the stock market crashed because then he could rebalance his assets and buy lots of stocks. Then, the stock price would increase and he would make lots of money. However, since most people don’t take a finance class or read books about finance, they are too ignorant to know to do this. It’s just that our culture makes personal finance seem boring when it is actually quite fun!

    • Thanks for your thoughtful comment Marianna. I’m sure it’s quite entertaining and enlightening to have Mr. Hallam as a teacher!

  2. Yes, I agree that the student loan issue is a biggie and may lead to another “burst” down the road. Let’s hope not though.

  3. That bankruptcy chart is quite amazing. I think going bankrupt has just become more acceptable and common. In the past people were much more proud about taking care of themselves and their family. Now people are just too babied. If they can’t handle things on their own, they expect someone to help them out.

    I think another thing that played a big role is that the previous generation had it pretty easy in that they had plenty of opportunities to get ahead and housing prices hadn’t skyrocketed. So they didn’t feel the importance with passing on good financial habits.

    I’m a little pessimistic that people in general will improve their financial habits. Too many people are just lacking in financial common sense. Considering that the average student is graduating with about $25k in student loan debt, things might just get worse.

  4. I bet if that graph were extended to 2010, bankruptcies per 1,000 would increase to 10 or 12. I agree that in previous generations people took responsibility for their situations and owned up to their debts. Today we too often take the path of least resistance in life. I’m not sure that we blame institutions such as banks and government for our troubles any more than previous generations, but I do know that we would benefit greatly if we lived within our means.

    • I would think so Ryan (about bankruptcies being at 10-12). Good thoughts.

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