NEW YORK — Five years after U.S. investment bank Lehman Brothers collapsed, triggering a global financial crisis and shattering confidence worldwide, families in major countries around the world are still hunkered down, too spooked and distrustful to take chances with their money.
An Associated Press analysis of households in the 10 biggest economies shows that families continue to spend cautiously and have pulled hundreds of billions of dollars out of stocks, cut borrowing for the first time in decades and poured money into savings and bonds that offer puny interest payments, often too low to keep up with inflation.
“It doesn't take very much to destroy confidence, but it takes an awful lot to build it back,” says Ian Bright, senior economist at ING, a global bank based in Amsterdam. “The attitude toward risk is permanently reset.”
The implications are huge: Shunning debt and spending less can be good for one family's finances. When hundreds of millions do it together, it can starve the global economy.
Some of the retrenchment is not surprising: High unemployment in many countries means fewer people with paychecks to spend. But even people with good jobs and little fear of losing them remain cautious.
“Lehman changed everything,” says Arne Holzhausen, a senior economist at global insurer Allianz, based in Munich. “It's safety, safety, safety.”
The AP analyzed data showing what consumers did with their money in the five years before the Great Recession began in December 2007 and in the five years that followed, through the end of 2012. The focus was on the world's 10 biggest economies, which have half the world's population and 65 percent of global gross domestic product.
Retreat from stocks: A desire for safety drove people to dump stocks, even as prices rocketed from crisis lows in early 2009. Investors in the top 10 countries pulled $1.1 trillion from stock mutual funds in the five years after the crisis, or 10 percent of their holdings at the start of that period, according to Lipper Inc., which tracks funds.
They put more even money into bond mutual funds — $1.3 trillion — even as interest payments on bonds plunged to record lows.
Shunning debt: In the five years before the crisis, household debt in the 10 countries jumped 34 percent, according to Credit Suisse. Then the financial crisis hit, and people slammed the brakes on borrowing. Debt per adult in the 10 countries fell 1 percent in the 4½ years after 2007.
People chose to shed debt even as lenders slashed rates on loans to record lows. In normal times, that would have triggered an avalanche of borrowing.
Hoarding cash: Looking for safety for their money, households in the six biggest developed economies added $3.3 trillion, or 15 percent, to their cash holdings in the five years after the crisis, slightly more than they did in the five years before, according to the Organization for Economic Cooperation and Development.
The growth of cash is remarkable because millions more were unemployed, wages grew slowly and people diverted billions to pay down their debts.
Spending slump: To cut debt and save more, people have reined in their spending. Adjusting for inflation, global consumer spending rose 1.6 percent a year during the five years after the crisis, according to PricewaterhouseCoopers, an accounting and consulting firm. That was about half the growth rate before the crisis and only slightly more than the annual growth in population during those years.
Consumer spending is critically important because it accounts for more than 60 percent of GDP.
Consumers around the world eventually will shake their fears, of course, and loosen the hold on their money. But few economists expect them to snap back to their old ways.
One reason is that the boom years that preceded the financial crisis were fueled by families taking on enormous debt, experts now realize, not by healthy wage gains. No one expects a repeat of those excesses.
More importantly, economists cite psychological “scarring,” a fear of losing money that grips people during a period of collapsing jobs, incomes and wealth, then doesn't let go, even when better times return.
Think of Americans who suffered through the Great Depression and stayed frugal for decades.
Although not on a level with the Depression, some economists think the psychological blow of the financial crisis was severe enough that households won't increase their borrowing and spending to what would be considered normal levels for another five years or longer.
To better understand why people remain so cautious five years after the crisis, AP interviewed consumers. Rick Stonecipher of Muncie, Ind., doesn't like stocks anymore, for the same reason that millions of investors have turned against them — the stock market crash that began in October 2008 and didn't end until the following March.
“My brokers said they were really safe, but they weren't,” says Stonecipher, 59, a substitute schoolteacher.
After the crisis hit, Jerry and Madeleine Bosco of Tujunga, Calif., found themselves facing $30,000 in credit card bills with no easy way to pay the debt off. So they sold stocks, threw most of their cards in the trash, and stopped eating out and taking vacations.
Today, most of the debt is gone, but the lusher life of the boom years is a distant memory. “We had credit cards and we didn't worry about a thing,” says Madeleine, 55.