Image
Recently, the U.S. has experienced several major financial crises - all of them hard on American families. In 2008, over eight million Americans lost their jobs in the Great Recession. In 2020, unemployment was at 13 percent thanks to the COVID pandemic. By early 2025, the economy had recovered and unemployment had dropped back to the 4 percent range. Then sweeping new tariffs sent the stock market reeling.
Vicki Bogan, who studies household finance, inequality and investment decision making, talks with Manoj Mohanan, Interim Dean of the Sanford School of Public Policy at Duke University, about what this latest financial shock might mean for families.
Conversation Highlights
Responses have been edited for clarity.
ON THE IMPACT OF a STOCK MARKET DOWNTURN ON FAMILY FINANCES
So, if you look, there's only a very small number of households that have a significant amount of direct exposure to the stock market or equity markets through holding an individual stock. There is a much larger number of households that are exposed to the stock market through retirement savings plans like your 401(k) or your 403(b).
And while it may be disconcerting to watch your 401(k) statement show losses for a couple of quarters, since these are retirement funds, they're designed to be held for a longer investment horizon. Only those who are retired or very close to retirement are going to feel an immediate impact.
But with regard to what's happening now as the stock market has increased volatility, people are going to be increasingly more fearful about their financial prospects. And they will start to act in a much more risk averse manner in terms of their spending, in terms of their investment, which also isn't good for the economy.
ON FAMILY FINANCIAL DECISION-MAKING DURING PAST CRISES
The epicenter of (the Great Recession) was not in the stock market at all. The Great Recession really started in the bond markets, the fixed income security markets, specifically the secondary market for residential mortgages. What you saw as a result, credit markets contracted quite a bit, which meant that a lot of people lost their homes but also couldn't get homes in the future. And so it impacted home ownership in a very significant way.
With the pandemic, in light of a lot of the social safety nets that were provided, it's interesting that individual households started saving more. There's evidence to suggest that households took their stimulus checks and used it to pay down credit card debt. Meanwhile, because of some of the restrictions and lock downs households were not spending.
ON THE IMPACT OF TARIFFS ON FAMILIES
From the household perspective, tariffs are going to increase costs for all households across the board. Even if they're not tariffs on a specific good that you're buying, we have a global supply chain and a global economy. That means for the most part, goods and services are going to increase in price for most households.
Another thing that I think it's important to recognize is that the tariffs are going to likely increase inequality. I say that because lower-income households spend a larger share of their income on essential goods. Things like food, things like energy, they're going to rise. These households don't have the choice of curtailing their spending on things like food.
ON FINANCIAL DECISION MAKING AND MENTAL HEALTH
A lot of my research deals with mental health and investment decision-making behavior. My research has shown that various types of mental health issues can significantly affect financial and occupational choice decisions in a way that decreases wealth building and increases financial fragility for households.
I have various projects that have shown that mental health issues are related to a lower probability of holding stocks, risky assets like mutual funds and individual stocks. It's related to a lower probability of even holding a voluntary retirement account like a 401(k) or an IRA or a 403(b).
I think, just as we saw during the pandemic where instances of mental health issues increased, it’s a similarly stressful time for a lot of individuals. There is a lot of uncertainty that can generate more anxiety in individuals. So I think the lessons that we learned in the pandemic, a lot of the lessons that I've learned from my research are going to be even more applicable now.
ON POLICY RESPONSES TO HELP FAMILY FINANCIAL DECISION MAKING
If I'm thinking about the relationship between mental health issues and financial decision making, I would really stress the importance of adequate access to mental health and trauma services (along with) the importance of education and awareness about mental health issues in general. I would also talk about increased support for families with special needs children and individuals with disabilities (and) the need for increased support for services for those who are self-employed.
(In terms of retirement preparedness), I would stress that we need to think about ways to extend financial planning, support and services for lower income households; facilitating more access to financial advice. There are some significant financial advice deserts in this country geographically that mean that certain areas just don't have access to good financial planning services.
Vicki Bogan is Professor of Public Policy at the Sanford School of Public Policy at Duke. She's also a research associate at the National Bureau of Economic Research and is one of the leading experts on financial decision making, inequality, and mental health.
Loading...
About Policy 360
Policy 360 is a series of policy-focused conversations from the Sanford School of Public Policy at Duke University. New episodes premiere throughout the academic year. Guests have included luminaries like Nobel Peace Prize Winner Maria Ressa and former director of the World Bank Jim Yong Kim, as well as researchers from Duke University and other institutions. Conversations are timely and relevant. This episode was hosted by Manoj Mohanan, interim Dean in the Sanford School of Public Policy.