Coronavirus Aftermath Bound To Create New Consumer Habits

The new generation that will rise from the Coronavirus aftershock will likely be more inclined to save more and spend less rather than invest in the stock market, financial experts say.

Talking to CNBC via a phone call, Collaborative Fund’s partner, Morgan Housel said that the upcoming generation will take a few lessons from the current financial crisis.

“When you’ve suddenly woken up to the reality that the world is much more fragile than you once believed, you just have a much lower appetite to take risks about the future than you’ve had before.”

This trend will reduce the overall GDP growth rate. But it will reshape the economy and create a more financially robust and stronger society.

“It might lead to a system where we’re more capable of managing and absorbing future shocks than we are today.”

The Coronavirus Aftershock Will Create More Hoarders

Since the first announcement of the outbreak in late December 2019 in China, the new COVID-19 strain has infected more than 1.1 million people globally, causing over 62,000 deaths.

Looking at economic news from around the world, the majority of financial key figures hope that the pandemic will end soon. Still, the extent of infections and the resulting mass panic prompted many to predict a further dive into a global economic recession.

According to investment strategist at Goldman Sachs, Silvia Ardagna, the world should expect a deeper economic recession, which will be followed by a deep recovery.

“The recession is going to be pretty deep in the second quarter of the year.”

Another analyst, Stephen Roach, formerly the chairman of Morgan Stanley Asia, stated that the U.S. will sink into its worst recession since the Second World War.

“This is a sudden stop in the U.S. economy. The hope is we’ll get through this. But it’s at least two-quarters of the sharpest declines we’ve seen since the end of World War II.”

However, the damage already done as a  result of the Coronavirus made people aware of how fragile the financial markets can be. This makes them warier of taking significant financial risks.

Housel added that the crisis is unlikely to end anytime soon. And its impact is already severe enough to leave a deep generation impact on potential investors and especially millennials.

“…and they won’t mind if they are leaving an opportunity on the table. Because they’re just more and more interested in their downside protection than they were before.”

The Measures Taken By Individual Governments to Combat COVID-19 

A report by the U.S. Labor Department on April 2 stated that 6.6 million Americans have filed for unemployment.

Expectations of unemployment increases as the Coronavirus approaches its peak in the U.S. Americans have shown a pattern that inclines toward saving more during times of financial upheaval. This includes the 2008 Great Recession and the Great Depression of the 1930s.

Impact on Savings and Consumer Habits

Three months into the outbreak, according to research conducted by Bankrate, consumerism in the U.S. has decreased as people respond to the pandemic by spending less.

“More than two-thirds of U.S. economic output is tied to consumer spending. And a majority of Americans are actively cutting their spending. This is due to pervasive worries about the COVID-19 impact on the economy and stock market.”

If young people shy away from investments due to their risk-averse nature, the economy will experience more damage. These are sentiments shared by Senior Economist analyst at Bankrate, Mark Hamrick. He also added that millennials might miss opportunities to create wealth and fund their early retirement.

The U.S. government’s focus on the unemployed while fighting the Coronavirus will likely drive more people to precautionary saving. This is because many in the middle-class perceive the government measures as lacking as a safety net.

In European countries, however, many governments, like in Denmark, France, and the U.K., are focusing more on preventing unemployment. Through new schemes, people are able to continue working and getting 70 to 80 percent of their usual wages.

The Chief Economist at UBS Global Wealth Management, Paul Donavan, stated that people that retained their jobs are more secure. Thus, less likely to resort to precautionary savings.

Donavan concluded that while people might save more due to the lockdown, it is not a guarantee that the money will be directed to savings for other purchases.