By Steven K. Beckner
(MNI) – Federal Reserve Governor Elizabeth Duke Tuesday morning
bemoaned the lingering pain of the financial crisis and recession for
Americans.
Duke did not talk about monetary policy, but her comments about
high unemployment, lost wealth and lower incomes seemed to point to a
continued concern about the sluggish nature of a recovery which the Fed
has been trying to nurture with near zero short-term interest rates and
asset purchases to hold down long-term rates.
Duke, in remarks prepared for a conference on financial education
at the Federal Reserve Bank of Boston, devoted most of her speech to
that topic. But she prefaced her call for greater financial education by
citing a litany of adverse developments that necessitate it.
“Today’s consumers are making decisions among increasingly complex
financial products and in the context of uncertain economic times,”
she said.
“The financial crisis and the slow recovery from it has obviously
had a dramatic impact on the financial decisions made by American
families,” Duke lamented. “Many now have fewer financial resources and
limited options.”
“The pace and timing of their saving and investing life cycle has
also been disrupted,” she continued. “For example, high unemployment
levels among recent high school and college graduates, especially among
young African Americans, means that this demographic likely won’t be
able to start saving and investing as early in life as previous
generations.”
“In addition, starting salaries for recent college graduates have
also declined, which means that young Americans who are employed will
have fewer resources for saving and investing than their predecessors,”
she went on. “Young people are living with their parents longer, which
helps conserve their limited resources but likely places a strain on
their parents’ budgets.”
Duke also said it is “troubling” that “many consumers who should be
saving for retirement instead have been forced to take hardship
withdrawals from their 401(k) plans … . The increasing use of
retirement savings for other purposes is particularly troubling given
that the responsibility for saving for retirement has shifted away from
employers to individual employees.”
She observed that “individuals who are approaching retirement age,
in particular, are being forced to make changes to their plans for
retirement” and that “workers have either chosen to leave the work force
early in the last few years or, more likely, have applied for social
security benefits as early as possible because of the weak job market.”
“Opting to receive a smaller Social Security annuity earlier in
life is just one of many hard decisions Americans have had to make in
order to balance their short-term and long-term financial needs,” she
said.
“The recession has clearly disrupted the future expectations and
financial plans of millions of Americans,” Duke added.
What’s more, Duke said “the financial crisis has changed all of our
assumptions about the future. Naturally, consumer behavior is changing
as a result, though it is unclear whether these changes represent
temporary or more permanent shifts in thinking and planning for the
future.”
“For example, the collapse of housing prices and resulting worker
immobility has changed consumers’ appetite for homeownership,” she
said.
“Similarly, the recent increase in gasoline prices has affected
consumer choices in housing and other purchases, big and small,” she
continued. “Family incomes have not kept pace with rising costs and many
families, particularly those with low-to-moderate incomes, are actually
facing the decision between buying gas to drive long distances to work
and paying their mortgage.”
And she noted that “foreclosures remain high in these areas where
the cost of driving to work has become so great.”
Altogether it was a gloomy picture for a Fed policymaker to paint.
** Market News International **
[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$$BR$]
