Post-Stay at Home Behavior may have a Dramatic Impact on Investing

What is the saving rate your money earns at your bank?

What would you imagine are the lasting effects of an abrupt end to what you accepted as normalcy? Each day we arise and begin our day, very similar to the prior day. We begin our routine, our cup of coffee, a fast review of the news, checking in on those still sleeping, and getting ready for work. Future actions enter our mind, bills to be paid, matters awaiting us at our job, relationship joys and challenges, salary raise hopes, car servicing, food needs of the house, that lunch planned for today, the meeting(s) to be had, and so much more. Our mind fills with the hundred other things that our day will encounter. And so, another day has begun.

But today none of the above feels normal. There is no work today. There is no need to hold to a schedule. There is no paycheck. The bank account is shrinking or may already be empty. There are worries about health, about paying the bills, about access to food, about our children’s educational needs, and even about going out for a walk.

A week goes by, and then two, and then a month goes by. Uncertainty is the operative word in a world that denies us what we knew and believed to be normal. Our future is clouded and our worries build.

The word pandemic becomes the topic of the day, a word we rarely heard prior to the year 2020. Headlines, big and bold, carry words of Depression era unemployment, of a daily death count, of a daily infection rate, of the lack of basic supplies and equipment to protect the health of all, and attacks on government leaders for perceived failures to protect society.

There will be fallout from this change in life. A shock to the system that we took for granted shakes the grounding of our beliefs and expectations. There must be consequences, outcomes, new choices, that are driven by our inability to clearly see the future. The impacts of the Covid-19 virus will make us hesitate, make us rethink what is important.

How much money do we really need for that rainy day? More or less than we previously kept in reserve? Will we ever take a vacation again? And to where? On a cruise ship? On an airplane? How much money should we allocate to vacations vs building that reserve fund? Enough to cover necessities like food, toilet paper, antiseptics, medicines? And what about the elderly, the most vulnerable, that need the younger generations to provide care and safety?

The lessons we are learning will change behavior. It is unlikely that we will live and interact in the same manner we did prior to this pandemic. Yes, I believe there may be that initial feeling of high emotion, to believe we are beating this thing and that our lives may quickly return to what we knew, but that impulse will fade as jobs fail to come back, as unemployment remains high due to reconfiguration of the normal work day, as companies adopt more technology to make them less reliant on people to make, distribute, and sell their products. Healthcare will change, education will change, transportation will change, supply chains will change, global trade will change, and politics will get even more difficult as the matters that divide us are blared by politicians in search of votes to keep their roles in place.

I foresee a world where we save more, spend less, reassess our values, focus on security versus adventure, as we move away from embracing the experiences of life as a priority to one where we focus on safety and a return of predictability.

If I am right about saving more, then the everyday person will become much more aware of interest rate differentials.

Savings grow based on the interest rate that depositors are paid for keeping their money with a bank or financial institution. In a world with money only earning 0.25% interest per year, which on a $1,000 deposit earns the saver only $2.50 per year, the saver has no incentive to keep their money with a bank. Yet, the focus on saving, on being prepared for rainy days, demands a safe place to keep our money. Will people accept such low returns on their savings even though the bank is lending out the depositor’s cash at rates from 3% to 25%? The bank is keeping all of the profits, and in fact in some instances is even charging service fees that exceed the interest being earned. I think we will see a much more active and discerning saver. Comparison shopping for higher interest rates will become important to all depositors, and there are significantly higher alternatives in the market.

It will be the alternative financial institutions that will attract more capital as depositors select these newly formed enterprises for their saving needs. If that is the case, then investing in those new enterprises, enterprises that will provide better saving rates and greater incentives to save, will be the wise choice.