Getting ahead isn’t what it used to be

• Various economic and market indicators suggest the U.S. economy is in a better spot today than a decade ago.

• While some are more well off today, the traditional life playbook for getting ahead has seemingly failed many households.

• Looking ahead, we believe that the key to households getting ahead financially will be for households to customize their own personal financial playbooks.

By many measures the U.S. economy is in a better spot today than it was a decade ago.  In ten short years the size of the U.S. economy has expanded by $4 trillion, unemployment has fallen to a near 50-year low and household wealth is on the rise as stock market prices and home values have surpassed pre-Great Recession levels.

Yet, the improving economic and financial market landscape has left some people behind. In fact, the Great Recession has disrupted traditional financial playbooks and left in its wake many individuals and households who are finding it increasingly difficult to use today’s financial resources to make tomorrow’s important life transitions happen.

A traditional financial playbook and the broken path to success

For some individuals, a traditional financial playbook might have served as a guide to success in finances and life that included going to college, finding a good job, getting married, starting a family, putting some money away in savings and maybe envisioning a few comfortable decades in retirement thanks to a comfortable pension.  Along the way they could buy a house, a car or two and spend modestly on home furnishings, personal luxuries and maybe a vacation once or twice per year.

Yet the reality for many is that college has become more of a financial burden than a ticket to financial security. What’s more, planning for retirement has become complicated by households’ increasing need to simultaneously support both younger and older generations all the while lower investment rates of return and increased financial market distortions have complicated traditional retirement savings strategies.

At the same time, a groundswell of geopolitical uncertainties and rising social unrest globally have generated more economic worries in the near term.  This has led to a rise in job insecurity as business leaders curb discretionary spending and has reduced hiring activity.  Moreover, financial market distortions, debt traps and rising political concerns have challenged the strategies contained in many people’s traditional financial playbooks.

Figure 1: The U.S. economy is $4 trillion larger today than in 2009

The need to redefine a traditional financial playbook

Looking ahead, simple rules-of-thumb and one-size-fits-all strategies that had helped many people get ahead financially decades ago are less likely to cut it in today’s economic and financial market environment.   Indeed, navigating important life transitions in a time of increasing complexity and uncertainty likely means that many households will need to tailor a personal financial playbook to suit their own unique purposes and priorities, selecting strategies and developing plans that accommodate a household’s ever changing wants, needs and goals.

To this point, getting ahead financially will require households to become increasingly financially agile.  Broadly speaking, this means incorporating creative strategies into their personal financial playbook that balance a suitable quality of life today with the need to build long-term savings for tomorrow.

More specifically, we believe that financially successful households will need to take a more functional role in crafting their personal financial playbook.  This includes more actively defining a purpose for their money, prioritizing its use and developing processes used to test, monitor and alternate financial strategies that utilize today’s financial resources in preparation for expected and unexpected life events and to accommodate various life transitions.

In our next post we’ll look at some of the factors that have, in recent years, prevented some households from getting ahead. 

This post is an excerpt from our report, Getting Ahead Financially in 2020.  You can download this report in its entirety by visiting franklinmadisonadvisors.com.

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