The financial crisis has made a permanent impression on American consumers, who are likely to save 6% or more of their income over the next decade, translating to as much as $800 billion stashed away each year, according to a new study by Allianz Group.
Along with this mentality, investors will be looking for guaranteed and safe savings solutions.
Between 2007 and early 2009, the fall in share prices and home values destroyed $17.5 trillion in household wealth. Since then, the stock market and housing market recovery have restored some of these losses, but losses are still around $12 trillion, Allianz said. The ratio of wealth to income is in the mid-1990s level.
"We have witnessed a surge in the saving rate since early 2008, up to an average of 4.6% in 2009," said Allianz Chief Economist Michael Heise. "We anticipate that products such as mutual funds, annuities and equities will benefit from this change."
Allianz economists believe that although the appetite for investment products was restrained last year, the appetite for financial assets is set to pick up again in the range of $700 billion to $800 billion a year. That said, it will still be below the average of nearly $900 billion that was invested annually in the five boom years of 2003 to 2007. Overall, accumulation of financial assets as a ratio of disposable income is two percentage points lower than in the period between 1997 and 2008.
"One learning from the financial crisis is that it's not just about asset allocation but asset location," said Gary C. Bhojwani, president and chief executive officer of Allianz Life Insurance Company of North America. "There is a definite need for financial products that offer guaranteed lifetime income, and which we view as the emerging fifth asset class. It goes beyond saving for retirement. It's about planning how we want to live once we do retire."
The report also noted that cash holdings by U.S. households are still high compared to pre-crisis levels. Checkable deposits stood at $332 billion at the end of the third quarter of 2009, compared to only $104 billion in the first quarter of 2008.
"This wait-and-see strategy reflects the new cautiousness of U.S. consumers in financial matters," Heise added. "The days of free spending are gone for good."
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