Rise Of The Supersavers: A Risk-Averse Generation To Reshape The Post-Coronavirus Economy

The coronavirus pandemic ravaging the world could give rise to a generation of supersavers who are averse to risk-taking. Unlike the current generation that has thrived on deficit financing their lavish lifestyles, the new supersavers could be cautious with financial decisions, a personal finance expert says.

The new generation in the time of the global pandemic would be more interested in downside protection than growing their wealth, Morgan Housel, a partner of venture capital firm Collaborative Fund and author of “The Psychology of Money,” said.

“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,” Housel told CNBC. “I think … they won’t mind if they’re leaving an opportunity on the table because they’re just more and more interested in their downside protection than they were before.”

The novel coronavirus that causes the disease known as COVID-19, which originated in the Chinese city of Wuhan, has made nearly 400,000 people sick in the United States and taken about 12,850 lives in the biggest challenge to Donald Trump's presidency. The virus has so far infected about 1.44 million people around the world and killed nearly 83,000 people, according to the dashboard maintained by the John Hopkins University. The outbreak has roiled global stock markets and the lockdowns across continents have led to heavy job losses. The latest unemployment data, released April 2, showed 6.6 million in jobless claims, a doubling from the previous week’s numbers.

A crisis of this magnitude could influence people's approach toward money, Housel said.

The secret of the supersavers

Supersavers are people who have a longterm view on accumulating wealth from an early age and they often are smart in creating a substantial retirement income.

A recent study by retirement account provider Principal showed that “supersavers” saved the maximum possible 90% of their annual $19,000 401(k) plan limit (for 2018), or deferred more than 15% of their salary. Principal’s team says that 48% of supersavers earn less than $100,000, according to an article on the Grow.Acorns. The secret for many supersavers is spending less on big-ticket items like cars and housing, according to Jerry Patterson, Principal’s senior vice president of retirement, "The key part, the hard part, is that they’re making hard decisions and sacrifices to balance what’s best for their future selves.”

Housel said that the speed at which the crisis has taken hold of the economy would have “a profound impact on people’s ability to think” optimistically about the future. “Even if this crisis were to end tomorrow — and to be clear, it’s not going to — what we’ve gone through already has been severe enough to leave a generational impact,” he said.

The fallout of the hoarding behavior would be a decline in the gross domestic product as people spend less. However, he also sees an upside to the likely change in financial behavior. The crisis could give birth to a more financially robust generation. “It might lead to a system where we’re actually more capable of managing and absorbing future shocks than we are today,” he said.

Historically, populations that have suffered deep economic shocks shift away from spending, with consumers preferring to save their cash amid uncertainty.

A 'stark departure' in spending behavior

There is already a precedent to this -- when the proportion of Americans who prefered saving to spending rose after the 2008 financial crisis, data by Gallup show. In its 2019 poll, over 60% of adults still said they would save than spend, which Gallup dubbed a “stark departure” from the years preceding the crisis. The current pandemic could trigger even a starker departure from what was normal American behavior to spend more, before the 2008 meltdown.

Some economists like Mark Hamrick, senior economic analyst at Bankrate, think a radical change in the generation’s financial thinking could be damaging to the economy. However, others like Paul Donovan, chief economist at UBS Global Wealth Management, are skeptical that the crisis would dramatically alter consumer mindsets. “The Great Depression changed behavior in America because it was so devastating for so long,” he told CNBC by phone. “This, of course, we hope is going to be a relatively short incident.”

Donovan felt that there would be some variation in behavior between countries as policy actions by governments in response to the pandemic have varied. Europe’s approach broadly has been to prevent unemployment, according to him. “So when you think about the United Kingom, for example, or Denmark or France, they’ve introduced schemes aimed at keeping people employed, maybe on 80% or 70% wages, but you’ve still got a job.”

The change in saving behavior of communities is already evident, according to some reports. Savers in the U.K. invested £1.4 billion (approximately $1.72 billion) in retail funds in February, according to the latest figures published by the Investment Association (IA), showed a report on MarketsMedia.

Reflecting a more conservative approach to saving, Mixed Asset funds were the best-selling asset class in February, with £711 million in net retail sales, the report said. The increasing risk-averse behavior resulted in Volatility Managed becoming the best selling IA sector in February, with £888 million in net retail sales, the report said.