Americans are bummed out. Consumer confidence has turned south, with more than half of all Americans believing we're still in a recession, even though economic indicators say otherwise. People are afraid to spend money. Rising numbers of people worry that they won't be able to retire or their kids will end up with a lower standard of living.
Maybe it's about time.
Greedy banks and torpid regulators get most of the blame for the Great Recession, but overconfident consumers with fanciful expectations had a lot to do with it, too. Millions of Americans bet that their homes would rise in value forever, defying historical patterns. People bought stuff they didn't need because it made them feel good for a few minutes, financing the retail therapy with debt they couldn't afford. We learned to assume that money would simply materialize. If banks were willing to lend, why doubt them?
That was the prosperity mentality that grew for 60 years after the end of World War II. Stretch. Overextend. Your income will catch up with your spending. To some, that was the innate optimism that made America great. But it morphed into a sense of entitlement, based more on the hope that somebody else would deliver than the determination to dig ourselves out of a hole.
It has taken several years of pain, but Americans finally seem to be developing realistic expectations about what it will take to succeed in the future. Call it gloom if you want, but a better sense of our fragility and our weaknesses is exactly what it will take to start developing the skills and doing the hard work necessary to refashion America into a vibrant economy once again.
A new survey by the Pew Research Center offers fresh evidence that the smackdown of the last few years is profoundly changing the way Americans view their current and future prospects. Instead of a blithe belief in the power of America, blah, blah, blah, there's widespread anxiety about the future. Sixty-three percent of respondents, for example, say it will take three years or longer for them and their families to recover from the recession. Sixty percent think they'll have to delay their retirement. Only 45 percent think the next generation will have a higher standard of living, down from 61 percent who felt that way in 2002.
What's encouraging about these views is that for once, they're right. For a decade at least, there's been a disconnect between Americans' expectations for their financial future,and their actual ability to fulfill those expectations. People hoped to retire early without saving for it. Parents felt optimistic about their kids' future even as education standards fell compared to other countries. Workers expected regular raises just for showing up, even if their skills atrophied and they had nothing new to offer.
We're learning to stop expecting something for nothing. Nearly half of the Pew respondents, for example, said the value of their home fell during the recession. And of those, 47 percent expect it will take three to five years for their home to recover its value, while 39 percent think it will take six years or longer. That's prudent thinking, more or less in line with what economists project. Chastened homeowners who feel they're facing a long road to recovery may not spend money the way some policymakers want them to, but realistic pessimism is way better for the economy in the long run that the blind optimism of yore, which we now know was unsustainable.
Americans seem to be forming healthier attitudes about debt and spending, too. Forty-one percent of people in the Pew survey say they plan to spend less when the economy improves, with only 11 percent planning to spend more. Responses about saving are consistent with that, with half of the respondents saying they plan to save more. (It would be hard to save less, since the savings rate has plunged over the years to historic lows.) And 30 percent say they plan to borrow less in the future, with only 10 percent saying they plan to borrow more.
It would probably be wise to discount those responses somewhat, since Americans might find frugal living harder when the economy seems more stable and there's a 40 percent-off sale. But as anybody familiar with twelve-step programs knows, you can't solve a problem until you acknowledge that it exists. And Americans finally seem to be acknowledging the problem. That will enable them to reconfigure their finances, shed debt, free themselves from the tentacles of materialism, ruthlessly learn the new skills needed in the future, and work harder to achieve real financial independence. It might make us grumpy, but after that it will make us better off.