Will financial crises change people's consumption and investment mindsets?

Absolutely, and such changes are often profound and lasting. A financial crisis is like a nationwide 'risk education class,' incredibly expensive but immediately effective. We can examine this from two perspectives: consumption and investment.

## 1. Changes in Consumption Habits: From 'Living Paycheck to Paycheck' to 'Thinking Twice'

The most direct impact of a financial crisis is a decrease in income or even job loss for many, which immediately alters their spending habits.

• Cutting Non-Essential Spending: This is the most immediate change. Discretionary expenses, such as the latest smartphone, designer bags, unnecessary social dinners, or frequent overseas travel, are the first to be cut. People re-evaluate their bills, distinguishing between 'needs' and 'wants.'

• Pursuing Value for Money: People lean more towards 'value for money,' repeatedly comparing options before buying and asking themselves, 'Do I really need this?' Discounts, second-hand goods, and affordable alternatives become more popular. Rather than a 'consumption downgrade,' it's more of a 'return to rationality.'

• The 'Lipstick Effect' Becomes Prominent: In economics, there's a term called the 'lipstick effect,' which describes how during an economic downturn, people lack the funds for big-ticket items (like cars or houses) but still need small comforts. Thus, 'non-essential but inexpensive' small goods like lipstick, movie tickets, or games tend to sell well. This is a form of substitute consumption seeking psychological solace.

• Increased Savings Awareness: Those who have experienced a crisis deeply understand the wisdom of 'having reserves brings peace of mind.' They compel themselves to save and build emergency funds to cope with potential future unemployment, illness, or other unforeseen circumstances. Former 'paycheck-to-paycheck' spenders might start budgeting and tracking their expenses.

For example, it's like someone who has once gone hungry; even if they become wealthy later, they will always treat food with a greater sense of reverence and appreciation. A financial crisis leaves such a 'scar' on consumption habits.

## 2. Changes in Investment Habits: From 'Getting Rich Overnight' to 'Safety First'

If changes in consumption are about 'cutting expenses,' then changes in investment are about 'risk aversion.' The dream of 'getting rich overnight' is shattered by the reality of 'losing everything.'

• Drastic Decrease in Risk Appetite: People become extremely 'risk-averse.' Those who previously dared to chase gains and cut losses, use high leverage, or pour all their savings into the stock market might now prefer to put their money into bank fixed deposits, government bonds, or extremely low-risk money market funds. Their primary goal shifts from 'pursuing high returns' to 'preserving principal.'

• 'Cash is King' Becomes Ingrained: During a crisis, asset prices plummet, and only cash holds the most value, allowing one to both buy quality assets at the bottom and secure their livelihood. This leads people to retain a higher proportion of cash in their investment portfolios, rather than investing all their money.

• Shift from 'Speculation' to 'Investment': For those who still dare to invest, their perspective becomes more long-term. Instead of short-term trading or listening to rumors, they focus more on a company's fundamentals, such as its profitability, industry outlook, and the depth of its economic moat. This is a shift from wanting to 'make quick money' to wanting to 'get rich slowly.'

• Loss of Trust in Complex Financial Products: Many people were burned during the crisis by financial derivatives that they didn't understand and that were overly complex and opaque. Consequently, after a crisis, people prefer simple, transparent investment products and remain vigilant about anything they don't fully comprehend.

Simply put, before a financial crisis, the prevailing market sentiment is 'greed,' with everyone afraid of missing out on opportunities to make money (FOMO - Fear of Missing Out); after a crisis, the prevailing market sentiment shifts to 'fear,' with everyone afraid of losing their principal.

Conclusion

Overall, a financial crisis acts as a compulsory 'financial literacy education.' It leaves a 'scarring effect' on a generation, making people more rational in their consumption and more cautious in their investments for a long time to come.

Of course, human memory fades. As the economy recovers and prospers over a long period, a new generation grows up without having experienced that visceral pain, and bold consumption and aggressive investment philosophies gradually resurface. History always oscillates between caution and greed, repeating its cycle.