Financial health in the United States

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1 Financial health in the United States Table of contents Overview 1 Key findings 2 Background and methodology 7 The contents of this report are for information purposes only. They should not be construed as professional, legal, or tax advice or opinions. These can be properly rendered only in the context of specific facts. In all cases, you should consult your professional, legal, or tax advisors if you have questions about your individual situation. Neither Wells Fargo, nor any of its representatives, may give legal or tax advice. Overview A study conducted in November 2013 to assess the overall financial health of Americans revealed an overwhelming reluctance to discuss personal finances. In fact, most Americans would be more comfortable discussing generally considered taboo subjects of death, politics, and religion over personal finances. While Americans are reluctant to talk about finances, the topic is a major source of worry and regret. A significant percentage of respondents said money was the biggest source of stress in their life and worrying about money was causing them to lose sleep. For many married or partnered adults, financial concerns negatively impacted these relationships. One third reported difficulty discussing money matters and a quarter said they often had heated arguments about money and household finances. Not surprisingly, investor confidence and stress levels are directly correlated to self-reported perceptions of financial health. The study made comparisons between physical health and financial health. Overall, nearly three-in-five reported being in good or great physical shape but less than half described themselves as being in good or great financial shape. Unlike getting in good physical shape and exercising where the top barriers are getting motivated to start and sticking to a plan, the hardest part about achieving financial health was knowing the best approach and sticking to a plan. Less than ten percent said motivation was the biggest barrier to improving financial health. In addition, about a third reported being more concerned about their financial health than their physical health. Despite stress, regret, and recognizing the need to improve their financial health, most Americans are not taking action to do so. They are more likely to have their car serviced, have an annual physical, or take a vacation than they are to conduct an annual review of their finances. Additionally, nearly half of all adults spend 15 minutes or fewer each day thinking about their finances but two-thirds spend at least two hours watching television. The majority are open to advice and guidance to improve their financial health. The sources of advice/ guidance most often considered were a professional investment advisor followed by a retirement plan provider and online financial tools and calculators. Approximately one quarter would seek financial guidance from their banker.

2 Key findings Good physical shape trumps good financial shape Overall, Americans report being in better shape physically than they are financially. While nearly six-in-ten (59%) describe themselves as being in good or great shape physically, only 45% describe themselves as being in good or great financial health (see chart 1). Financial health improves with age with 61% of those age reporting they are in good/great shape versus 39% for those under age 60. Chart 1: Self-reported financial health versus physical health 41% Poor/Average 59% Good/Great Physical health 7% 34% 45% 14% 55% Poor/Average 45% Good/Great Financial health 15% 40% 36% 9% Poor Average Good Great Not saving for a rainy day The majority of adults feel financially healthy with respect to addressing their basic day-to-day expenses, including covering their monthly bills and providing for their family (see chart 2). However, only 40% feel good or great financially with respect to the amount of their discretionary spending and their rainy day savings. Additionally, only a third (33%) described themselves as feeling good or great about their ability to retire comfortably. Chart 2: Self-assessment of financial health in specific areas Able to pay monthly bills Able to provide for family Able to live within your means Overall standard of living Understanding how to best manage your finances Amount of life insurance you/spouse has Children s education expenses* Amount of debt Amount of discretionary spending Enough rainy day savings for emergencies Ability to retire comfortably 33% 67% 44% 56% 44% 56% 47% 53% 50% 50% 52% 48% 53% 47% 53% 47% 60% 40% 60% 40% 67% 33% Feel financially poor/average in this area Feel financially good/great in this area *Asked only of those with children (n=690) 2

3 Only one-third of Americans have set aside six or more months worth of income for emergencies Chart 3: Reaction to statements about financial stress and worry Money is biggest stress in my life More stressed about finances now than last year More worried about financial health than physical health 61% 39% 61% 39% 66% 34% Conversations about money Sometimes lose sleep worrying about money 67% 33% Many Americans overall expressed difficulty in talking about personal finances (44%). Religion and politics, generally considered difficult or off-limits topics, were said to be easier to discuss than finances. Agree Disagree Most adults (71%) reported that they learned about the importance of saving from their parents. Despite this emphasis, only about one-third (36%) say they discuss the importance of saving money with their children on a frequent basis. While the most affluent adults recall more lessons about savings when growing up, they are less likely to have frequent conversations with their own children about the importance of saving money. Money worries similarly impact relationships. A third (33%) of married or partnered adults have difficulty discussing money with their spouse or partner and a quarter (25%) often have heated discussions with their partner about money and household finances. Money as a source of stress Reluctance to talk about money doesn t mean that many Americans are not concerned about it. Two-in-five (39%) report that money is the biggest source of stress in their life. Additionally, 39% say they are more worried this year than they were last year, and a third (34%) are more worried about their financial health than their physical health (see chart 3). Not surprisingly, those who feel in financially average or poor health tend to report even higher stress levels related to money and finances with more than half (56%) indicating that money is their biggest source of stress. 3

4 One-third of Americans (33%) report losing sleep worrying about money Road to financial health Continuing the parallels to improving physical health versus financial health, Americans reported the biggest barrier to improving their physical health is finding the motivation, followed by sticking with a plan. In contrast, motivation is seldom the biggest barrier to improving one s financial health (cited by less than one in ten), and instead the top barriers are understanding the best approach to get started (35%) and sticking to the plan (35%) (see chart 4). While most recognize they need to improve their financial health, they are not taking action. When asked if they could go back five years and do something differently, nearly half (49%) say they would have saved more/spent less (see chart 5). This compares to 42% who wish they had taken better care of themselves physically. Chart 4: Barriers/challenges to improvement: Financial health versus physical health 9% 21% 35% 35% Barriers to financial health 40% 9% 15% 36% Barriers to physical health Motivating to get started Setting goal/target Knowing best approach Sticking to plan/program Chart 5: If you could go back five years, what would you do differently? Saved more/spent less Taken better care of health/diet/fitness Pursued different personal relationships Continued my education Worked more to improve career Worked less, spend more time with family/friends Nothing different/no regrets 12% 16% 21% 20% 19% 49% 42% 4

5 Reinforcing the notion that they do not know the best approach to get started towards improving their personal finances, most Americans grade their financial literacy a B or C with 40% grading themselves C or below. Women see themselves as less financially literate with nearly half (45%) grading their financial literacy at a C or below. Additionally, 42% of Americans report having no type of detailed investment or financial plan or budget to help manage their spending and even fewer have plans or strategies in place around debt reduction or retirement savings. People are more likely to take their car to be serviced (83%), visit the dentist (74%), or take a vacation (69%) than they are to have an annual review of their overall finances (43%) (see chart 6). More than 40% of Americans spend 15 minutes or less thinking about their finances each day but two-thirds (65%) spend at least two hours watching TV. Chart 6: Actions accomplished in the past year Took car in for scheduled service Annual physical/check-up Went to dentist Took a vacation (U.S.) Reviewed 401(k)/IRA investments* Backed up my hard drive Updated Facebook profile** Annual financial review/check-up Vacation to foreign country *Of those with a 401(k) or IRA account **Of those with a Facebook account 24% Implications: Clearly, money is a source of stress, regret, and conflict for a significant portion of Americans. While many express the desire to improve their financial health, they are unclear how to accomplish this and seem stuck in unhealthy patterns or overspending and regret. This presents an opportunity for financial service providers who are able to appeal to this vast audience and provide an approach to financial health that resonates with them. 43% 43% 56% 65% 69% 76% 74% 83% 5

6 Looking for advice While most Americans say they are confident about their basic money management (83%), only about one-third (36%) are confident about where or how to invest in today s market. Half of all Americans (49%) feel they would benefit from professional financial advice or guidance, especially younger investors (55%) and those with greater income (54%) (see chart 7). While investors will consider many sources for financial advice, most prefer professional advisors (56%) followed by retirement plan providers (40%) (see chart 8). Additionally, nearly a third (31%) would seek advice via online tools and calculators and one-in-four (26%) would seek advice or guidance from their bank. Chart 7: Interest in professional Financial Advisor Overall 49% years old 55% years old 42% >50K HH income 54% <50K HH income 44% Chart 8: Sources considered for financial guidance/advice Professional investment advisor 56% Implications: While investors admit they lack the knowledge they need to make sound financial decisions, the good news is that they appear to be open to advice and guidance from a variety of sources. In particular, professional financial advisors and retirement plan sponsors are the preferred sources, followed by banks. This provides an opportunity for financial advisors, retirement plan sponsors, and banks to offer access to advice, online tools, and resources to help investors create plans to improve their financial health. Retirement plan (DC, IRA) provider Family Online tools, calculators Accountant Bank/Banker Online sources (Morningstar, Motley Fool, etc.) Friends Employer (HR/Benefits) Social Media (Twitter, Facebook, blogs, etc.) 2% 12% 32% 31% 27% 26% 25% 23% 40% 6

7 Background and methodology About the Survey These survey findings are based on an online survey conducted November 12 November 17, 2013, among adults nationwide (N=1,004). Qualified respondents were non-students, ages 25 75, who are the primary or joint financial decision-maker in the household with household investable assets of at least $10,000. Survey results are weighted to reflect Census data for gender, age, race/ethnicity, region, and household income to ensure representativeness. Assuming no sample bias, the maximum margin of error for the National sample is ± 3.1% (at the 95% confidence level). About Market Probe Market Probe is a full-service market research firm, headquartered in Milwaukee, Wisconsin, with offices in Evanston, Illinois, specializing in behavioral and opinion research among hard-to-reach populations and professional communities. For more information, visit marketprobe.com. About Wells Fargo Wealth, Brokerage and Retirement Wells Fargo Wealth, Brokerage and Retirement (WBR) is one of the largest wealth managers in the United States, with $1.3 trillion under management. WBR includes Wells Fargo Advisors, the third-largest brokerage in the United States; Wells Fargo Private Bank, serving high-net-worth individuals and families; Wells Fargo Family Wealth, serving ultra-high-net-worth families; and Wells Fargo Retirement, which manages $231 billion in 401(k) assets for 3.5 million Americans. Wells Fargo Advisors is the trade name used by two separate registered broker-dealers: Wells Fargo Advisors, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, non-bank affiliates of Wells Fargo & Company. About Wells Fargo WellsFargo) Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified, communitybased financial services company with $1.5 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs, and the Internet (wellsfargo.com), and has offices in more than 35 countries to support the bank s customers who conduct business in the global economy. With more than 270,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 25 on Fortune s 2013 rankings of America s largest corporations. Wells Fargo s vision is to satisfy all our customers financial needs and help them succeed financially. Wells Fargo perspectives are also available at blogs.wellsfargo.com. 7

8 Please note: This material has been prepared for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Investors need to make their own decisions based on their investment objectives, financial circumstances, and tolerance for risk. Investing involves risk including the possible loss of principal. Past performance is not a guarantee of future results. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. Please contact your financial, tax, and legal advisors regarding your specific situation and for information on planning for retirement. INVESTMENT AND INSURANCE PRODUCTS: NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE Investment products and services are offered through Wells Fargo Advisors. Wells Fargo Advisors is the trade name used by two separate registered broker-dealers: Wells Fargo Advisors, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, non-bank affiliates of Wells Fargo & Company. Insurance products are offered through our affiliated non-bank insurance agencies. Wells Fargo Bank, N.A., is a banking affiliate of Wells Fargo & Company Wells Fargo Bank, N.A. All rights reserved. ECG (1 ea) 8