Thursday, May 1, 2014

Bank Failures Frighten Senior Citizens

The recent bank turmoil, the stock market plunge and escalating home foreclosures have brought about a feeling of deja vu for many Americans that lived through the Great Depression. Some seniors are even pulling money out of banks, shopping for discounts and warning younger relatives about darker days that may lie ahead.

Although, there are no hard figures available, banking officials say more senior citizens are asking to withdraw their savings. Sales of safes are up as much as 50 percent in just the past three weeks at SentrySafe, the nation's top safe manufacturer.

At the beginning of the Depression the federal government was not guarantying bank deposits, so many people in their 80's and 90's recall withdrawing money - or arriving too late only to find out that their savings had evaporated.

That is unlikely to happen today because FDIC insurance covers most individual bank accounts up to $250,000. But for many older seniors that assurance can be a hard sell. Robert Binstock, a Case Western Reserve University professor of aging, health and society, says "If you have lived through the Great Depression, you believe it can happen again. This all evokes the era of bank failures in the Depression, and they think burying money in a glass jar is a safer bet. "

The collapse of some banks and the forced sale of others has contributed to today's financial crisis, even though it is a far cry from the thousands of bank closures during the Depression.

During the three months that ended June 30, 2008, the latest period for which data are available, domestic bank deposits fell by nearly $40 Billion, according to the Federal Reserve. They now stand at about $7 Trillion.

Some people are so shaken by the negative economic news that nothing but cash will do. A 64 year old Connecticut resident withdrew thousands of dollars in cash from his bank a couple of weeks ago. He said his late great uncle used to tell him stories from the Great Depression and warned him to watch out for a crash.

He said, "I think it's a smart thing to do. I'm afraid there's going to be either a bank shut-down or a bank holiday. If it doesn't get that bad, then fine, I go put the money back in the bank. If it does, at least I'm somewhat prepared."

Some People See Things Differently

Not everyone agrees with stashing cash. Michael Spivey, a professor of finance at Clemson University, said that having lots of cash on hand makes seniors more vulnerable to theft, and the FDIC does not insure cash that is lost, stolen or damaged in someone's home.

Other senior citizens are taking the current financial crisis in stride. As one 86 year old Florida resident said, "Taking your deposits out in cash is the worst thing you can do because that will make the banks fail by causing a run on the bank. You just have to trust the system. It's not something that I lay awake at night and worry about."

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