Lessons Learned From The Great Recession

March 5, 2013 at 7:51 am Leave a comment

imagesCAY3UPW9If you just went by press reports, the average person 35 years of age or younger is a multi-tasking, technology obsessed, social media exhibitionist, debt-riddled, pill popping perfectionist who cares little for the big picture, let alone the future.  Reality and statistics, of course, tell a vastly different story and these differences could impact the type of products your credit union offers in the coming decades.

The latest example of how reality differs from caricature is provided in a report produced by Richard Fry, one of the nation’s leading demographers, for the Pew Research Center.  It appears that the younger generation has learned more about the need for saving as a result of the Great Recession than have their parents.  According to Fry, from 2007 to 2010 the median debt of households headed by an adult younger than 35 fell by 29% compared with a decline of just 8% among households headed by adults aged 35 and older.  In addition, the percentage of younger households having debt of any kind fell to 78%, its lowest level since the government started collecting this data in 1983.  What’s so impressive about this drop is that it is occurring while the amount of eduction-related debt is increasing.

Can we draw any conclusions from this research?  First, even though people like me are concerned by a surge of student debt, maybe, just maybe, the debt reflects a reasonable choice in the aggregate on the part of people who are cutting back in other places to maximize their chance of getting a decent job.  Second, just as the spending habits of my parents’ generation were profoundly impacted by the Great Depression, it is possible that a generation coming to age, struggling to find a job in a nation overwhelmed by its debt will be much more wary of taking on too much credit.  For instance, one person quoted in today’s Wall Street Journal pointed out that he rejected student loans to pay for college and resists using credit cards because financial problems broke up his parents’ marriage.  Finally, on a purely practical level, young people are the first to feel the pinch from tighter lending standards.

But there clearly is more going on here than just tighter lending standards.  Younger people seem to be making a conscious decision to avoid the mistakes of their parents.

Combined Fannie-Freddie Operations Proposed

In last Friday’s blog, I posted about a proposal to do away with Fannie and Freddie and replace them with a public guarantor of mortgage-backed securities.  In a speech yesterday, Edward DeMarco, who oversees the bankrupt GSEs, announced that a new corporation will be responsible for taking on some of the overlapping operations undertaken by both Fannie and Freddie.  The new corporation is intended to lay the ground work for policy makers should they decide to merge Fannie and Freddie into a single entity.

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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