- The Great Recession “made us aware of financial fragility,” Martin Wolf, chief economics commentator for the Financial Times, told Business Insider.
- Research shows that recession-era students had less regard for wealth and more regard for other people compared to pre-recession students.
- The crisis inspired aspiring inventors to pursue their creations, leading to start-up companies like Uber and Groupon.
- Financial regulation was tightened in a bid to prevent another similar crisis, and agencies such as the Consumer Financial Protection Bureau formed.
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For many Americans, the 2007 to 2009 Great Recession was a difficult time. Lasting 18 months, the GDP fell 4.3% and unemployment reached 10%. But sometimes there is a silver lining to tragedy and struggle.
Martin Wolf, chief economics commentator for the Financial Times and author of “The Shifts and the Shocks: What we’ve learned – and have still to learn – from the financial crisis,” told Business Insider that the crisis “taught us to behave more sensibly. It has probably made the financial sector more resilient and that has made it possible to survive the current crisis with less damage.”
Here are eight positive things that came out of the Great Recession and financial crisis.
The financial crisis helped teach the average American about the economy and financial literacy …
According to Fortune, most Americans didn’t realise the country was in deep debt before the Great Recession. The recession helped people understand the negative impact a bad loan can have on the entire economy if left unchecked.
While Wolf said while he can’t speak to everyday finances, he believes the crisis taught countries a valuable lesson.
“It made us aware of financial fragility,” he said. “It made us aware of the risks of taking financial stability for granted. It made us somewhat more alert to financial malpractice, and the sources of financial instability. In that sense it was a very painful, very costly but necessary lesson.”
… and how to manage their personal debt.
According to Fortune, the percentage of household debt to gross domestic product reached nearly 100% before the financial crisis. After the recession, household debt dropped back to around 80%.
“One thing it certainly did in quite a number of countries is persuade a lot of people to reduce their debt, and to some extent they had to,” Wolf said. “In quite a number of countries, the immediate impact of the financial crisis was quite a sizable paying down of households of debt, and that was a pretty productive outcome for households from the crisis.”
The recession may have influenced younger generations from pursuing status symbols like gigantic houses or expensive cars …
The Russell Sage Foundation examined data of half a million high school seniors collected by Monitoring the Future since 1976. The Foundation found a correlation between the financial crisis and a change in a high school students’ views of wealth.
Recession-era high schoolers were less likely to put value in status symbols like a brand new car or owning a vacation house, even if they believed it was important to have a job to make a lot of money. The Foundation found that previous recessions may have had a similar effect on younger generations.
The recession negatively impacted younger generations by making both the job market more competitive and harder to purchase houses, Wolf said. Though he hasn’t seen the research, he said it was possible it made them more financially cautious as well.
“We do know from past episodes, which are much bigger, that becoming an adult during the time of a big financial crisis tends to make people more cautious through the rest of their lives,” he said.
… and potentially led to an increased concern for other people and for the environment.
According to the Russell Sage Foundation, among young people, there appeared to be a connection between the recession and an increased concern for others.
According to the research, 30% of students “said they thought about social problems quite often, up from 26% before the recession, and 43% of recession-era students said they thought it was important to ‘correct social and economic inequalities,’ compared to 38% before the recession.”
It appears this consideration extended to energy consumption and the environment, as well. More than a third of the students said they were willing to take a bike or public transport to work rather than driving, compared to 28% of student before the crisis.
The Consumer Financial Protection Bureau was created to oversee financial reform.
The Dodd-Frank Wall Street Reform and the Consumer Protection Act was passed to help prevent a similar financial crisis. The Consumer Financial Protection Bureau and Financial Stability Oversight Council were formed as watchdogs over the banking industry and Wall Street.
“As a general proposition, financial regulation after the global financial crisis was very significantly tightened in all major countries,” Wolf said. “A lot of the supervision was tightened. Supervision was made more comprehensive and more systematic. Global rules were tightened.”
“Overall, I would see the Consumer Financial Protection Bureau and the Financial Oversight Council as part of those efforts,” he said. “My impression in both cases is the quality of overall regulation and supervision of the American financial system and consumer protection has improved considerably from before the crisis.”
The financial crisis made bank stress tests an annual occurrence …
Through stress tests, the government evaluates a bank and its practices. According to Fortune, the federal government’s stress tests have played a crucial role in eliminating banks’ worst lending habits and risky behaviours.
… and Wall Street became a less dominant part of the economy.
According to Fortune, the crisis bolstered the technology sector and Silicon Valley’s roles in the economy while downplaying Wall Street’s dominant presence. Studies have shown that economies dominated by the financial sectors ultimately suffer long term.
The financial crisis sparked creativity among inventors, leading to some of today’s best-known companies.
According to the LA Times, the recession inspired aspiring inventors to pursue their creations, in part because they were unemployed and tired of endless job fairs.
An economic downturn can provide an opportunity for companies to launch and be successful because there’s less competition for talent and office space, according to VentureBeat. During times of economic growth, the market can become oversaturated with businesses going after the same resources.
Uber, Airbnb, and mobile payment companies Square and Venmo launched during the recession. Some new companies were geared towards helping cash-strapped consumers, such as Groupon, which made couponing cool again. According to Time magazine, Groupon started to become popular with consumers toward the end of the recession in 2009.
- Read more:
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- This chart shows every recession the US has gone through since 1960, and how they compare to the economic meltdowns of other countries
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