Here's How COVID-19 Will Reshape How We See Personal Finance

• Author: Monica Jackson
• Posted: 2024-07-24

Personal Finance has never been a more accessible field, with nearly infinite available information on the topic available for free online. Before COVID-19, we were in a "bull market" and a "bear market", which essentially means that stocks were artificially inflated. This created more consumer confidence, which sparked more bold investments and crashed some fortunes overnight.

However, there are some important takeaways from the COVID-19 that those who were alive during the crisis are unlikely to forget. While the field has never been considered irrelevant or unimportant by most, it's likely to be much further sought after than ever before. Especially those who lost a good amount of money will likely go the extra mile to ensure that everything is down before just "setting it and leaving it" as many had done with 401(k) programs.

Financial Literacy Will Skyrocket

Although there are so many resources available, very few Americans and others around the world take advantage of them. This is partially due to how busy everyone was. However, the COVID-19 pandemic has given many an opportunity to sit back for the first time and prioritize their lives. As a result, many have turned to free financial resources and realized that they know fairly little about the field in general.

According to CNBC, this is the "top lesson" that will be taken from this pandemic. The article details how Americans have failed themselves financially by failing to understand the risks that come with the stock market. Naturally, humans are averse to risk, so they tend to ignore them rather than simply face them head-on and determine what a comfortable level is for them.

Post-Depression Economics May Come Back

The last time such a drop in employment was seen was the Great Depression. This event sparked the Silent and Greatest Generations to be some of the best savers known in history. This group formed generous social programs for their offspring, known as Baby Boomers, after WWII was over. There's a great chance that our markets will come back surging, and manufacturing will be coming back to the United States. Especially since China had been the manufacturing center for decades, this should be a huge economic boom for the country.

As the CNBC article illustrates, lack of financial literacy isn't confined to one generation. Every generation alive today seems to largely not understand just how risky the stock market is. While all were affected, Baby Boomers were affected the most by this sudden tanking down of traditionally stable stocks, especially those in the tourism and hospitality sectors. Millennials, on average, still have a healthy 401(k) balance and also took a hit. However, the issue for Baby Boomers is that most of them still had almost all stocks in their portfolios. Both Millennials and Baby Boomers had mostly stocks; however, many Baby Boomers are very close to retirement.

In general, it's a poor idea to keep all stocks in a portfolio when one is within a decade of retirement. Especially when one is five years from retirement, any financial expert would tell you that almost all money should be "secured", or in FDIC-insured funds that are guaranteed to not lose money. Many Baby Boomers had never experienced an economic crisis of this magnitude before, so this was not their first thought. More than 70% of them relied on the stock market within a decade of desired retirement, only to be let down for the first time in a far worse manner than the Great Recession just over a decade did.

It's very likely that these stocks will come back up, perhaps even surpassing their original values. However, the key is that all generations need to learn "hands-on" finance and not be afraid to look at the nature and risk of their portfolios when everything is going well so that they're prepared for when things aren't going as well. Thankfully, generous Coronavirus relief bills have been passed to ameliorate the crisis, but there are some fortunes that will never fully recover.

Wrapping Up

It's an unfortunate reality that stock stability is a complete illusion. Stocks are based on speculation rather than raw value, making them all the more important to get professional advice on before putting your hard-earned 401(k) money in them. Even if you've lost money due to this economic crisis, chances are you can still come out ahead!