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Another Inconvenient Truth:

Are Consumers Prepared for Their Financial Futures?

Full Report

Ingrid R. Goodenow, FLMI


Distribution Research
860-285-7835
igoodenow@limra.com

Polly Painter-Eggers
Distribution Research
860-298-3988
ppaintereggers@limra.com

HARTFORD MIAMI TORONTO LONDON MELBOURNE SHANGHAI

300 Day Hill Road, Windsor, CT 06095-4761, U.S.A. P.O.Box 208, Hartford, CT 06141-0208, U.S.A.
Phone: 860-688-3358 • Fax: 860-298-9555 • Web: www.limra.com
©2007, LIMRA International, Inc.
This publication is a benefit of LIMRA International membership. No part may be shared with
other organizations or reproduced in any form without LIMRA’s written permission.
007511-0307-250-LRN0
A 2007 Report

ANOTHER INCONVENIENT TRUTH


ARE CONSUMERS PREPARED FOR THEIR FINANCIAL FUTURES?

© 2007, LIMRA International, Inc.


300 Day Hill Road, Windsor, Connecticut 06095-4761, U.S.A.
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This publication is a benefit of LIMRA International membership. No part may be shared with other
organizations or reproduced in any form without LIMRA’s written permission.
007511-0307-250-LRN0 Printed in U.S.A.
CONTENTS

Page

METHODOLOGY............................................................................................................. 5

ANOTHER INCONVENIENT TRUTH................................................................................. 6


How Ready Are We? .................................................................................................... 6

Managing the Money at Home ..................................................................................... 7

Consumers’ Top Priorities ............................................................................................ 8

Consumers’ Secondary Priorities.................................................................................. 9

Age Impacts Priorities................................................................................................... 9

WHAT ARE CONSUMERS THINKING? .......................................................................... 11


Taking Action — or Just Thinking About it? ............................................................. 12

THE ROLE OF THE FINANCIAL ADVISOR .................................................................... 15


Who Do Consumers Look to the Most for Financial Advice?.................................... 15

How Advisors Are Helping ........................................................................................ 17

Opportunities for Financial Advice ............................................................................ 18

Seeking Professional Advice ...................................................................................... 20

The Confidence Gap ................................................................................................... 21

Bridging the Divide between Knowledge and Action ................................................ 22

Targeting Levels of Financial Awareness................................................................... 22

Conclusion .................................................................................................................. 24

RELATED LINKS .......................................................................................................... 25


FIGURES

Page
Figure 1 — Among Couples Who Manages Finances ........................................................7

Figure 2 — What issues are most important to you? ........................................................10

Figure 3 — Consumers Knowledge of Financial Objectives ............................................12

Figure 4 — Steps Consumers are Taking..........................................................................14

Figure 5 — Consumers Who Seek Regular Financial Advice ..........................................15

Figure 6 — Financial Advisors Used on a Regular Basis .................................................16

Figure 7 — How Primary Advisors Help..........................................................................18

Figure 8 — When Consumers Plan to Call Advisors........................................................19

Figure 9 — Financial Triggers: Differences between Men and Women...........................20

Figure 10 — Who Consumers Plan to Seek Out ...............................................................21

Figure 11 — Matching Literacy Levels with Needs .........................................................23


Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

METHODOLOGY

LIMRA electronically surveyed more than 1,000 members of a national consumer panel
in order to gauge consumers’ financial literacy and their own assessments of their
financial preparedness for the future. All participants were at least 25 years of age with a
minimum household income of $75,000. Research shows that households with incomes
at this level or more are far more likely to rely on a financial advisor than those whose
household incomes are less than $75,000 per year. They are also more likely to be
presented with a myriad of solutions by financial services organizations. Data has been
weighted by gender, age, household income, level of education, and marital status.

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

ANOTHER INCONVENIENT TRUTH

With retirement looming for an estimated 75 million baby-boomers, the nation faces the daunting
task of planning for its financial future. Social security dangles by a tenuous thread as boomers
prepare for their twilight years. People are living longer; all-the-while health care costs are going up.
Health insurance and prescription drug costs are the two largest health care expenses for the average
household. The average household spent $374 for prescription drugs and $1,168 for health insurance
payments1. Add to the mix the increasing numbers of companies who are scaling back on pensions
and other retirement benefits and one can not help but wonder — how is this all going to work?
For consumers, the writing is on the wall. With fewer government resources to support the elderly in
their retirement years, people will be asked to bear more and more of the financial responsibility for
themselves whether they’re ready or not. Are they aware of the many choices they may have to face?
Do they have the knowledge to make those choices? In an effort to gauge the country’s level of
financial literacy, LIMRA asked upper and middle-income consumers how prepared they think they
are to address these challenges. Results show that, for most, financial planning is at best an
unpleasant chore often put off or too daunting, which often leads to inaction. So, are consumers
seeking professional advice? The answer is yes — and no.
The complexities of the economic future pose a different kind of challenge to financial planners.
Finding innovative and efficient ways of attracting and maintaining clients is becoming even
more elusive as the complexities grow. While advisors may be able to identify potential clients,
the strategies they employ to secure those relationships will ultimately determine how successful
they are.

HOW READY ARE WE?


Middle to upper-middle income consumers (households with income of $75,000K or more) are
inundated with offers from financial services companies and a broad spectrum of financial advisors
wanting to help them set and meet their financial goals — to the point of saturation. With television,
radio, telephone, print media and Internet marketing campaigns all competing for attention,
consumers may be overwhelmed with their options. Most ads, however, have common themes: it’s
time to look at your spending and saving habits, net worth, and whether or not you’re saving enough
for retirement.
How are today’s consumers responding to the call? It appears they are hearing the messages, but not
necessarily translating their awareness into action.

_____
1
Who’s Buying Health Care, New Strategist Publications, Inc., 2005

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

MANAGING THE MONEY AT HOME


Working on household finances appears to be a job for one person. Sixty-three percent of consumers
managing their money at home say they have the sole responsibility for getting the job done. Among
couples a similar pattern emerges. In nearly two out of three couple households, finances are
managed by only one of the couple. This figure is equally distributed among men and women. Only
39 percent of couples report that managing money is something they do together. One characteristic
that most money managers have in common, however, is that they tend to be better educated. In fact,
72 percent of those who handle the finances have college or post-graduate degrees versus those who
don’t handle the finances with less education.

Figure 1 —
Among Couples Who Manages Finances

Wife,
31%

As a couple,
39%

Husband,
30%

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

CONSUMERS’ TOP PRIORITIES


Regardless of age, life stage, or affluence, there are some recurring themes among all consumers
when identifying their key financial goals for the future. Rising healthcare costs are a major concern
for all, so that having adequate hospital and medical insurance coverage is first and foremost on their
minds. People are also concerned about paying down their debts so that they will be able to save for
retirement (See Figure 2). Understandably, younger consumers are looking ahead, more concerned
about how they are going to make it financially until retirement. Older consumers are concerned
about maintaining their health and lifestyle through retirement. Additionally, the subject of debt
remains a key factor across all age groups. Younger people fear accruing it and older people face the
challenge of dealing with it.
Other key findings cross over different demographics depending on the financial topic:

• People of all ages regardless of marital status are most worried about
three issues:
• Their ability to pay for hospital and medical coverage

• Their ability to maintain current lifestyle in retirement


(this result excludes Mature Couples)
• Being debt-free

• Young Couples and Young Households believe that having enough savings in
case of job loss was of utmost importance to them. This may be due to their lack of experience
in the job market. They may see themselves as a target for any potential lay-offs or downsizing
situations. It’s also possible they may not yet have built up enough savings to fall back on. Not
surprisingly, Young Households also reported that funding their children’s’ college education
was a critical issue for them.

• Singles with No Children and Mature Couples are most concerned about
having enough money to live on throughout their life spans. Singles without children do not
typically have an additional income source to rely on if they are suddenly unable to work due to
illness or an accident. The older group, however, may be uneasy about the rate at which their
financial resources are dwindling while their life expectancy remains uncertain.

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

CONSUMERS’ SECONDARY PRIORITIES


Aside from Singles with no Children and Mature Couples, all other groups
reported that having an adequate income stream was only a moderate concern.
• Most people see protecting family income in case of a wage-earner’s death as being moderately
important. Single parents, however, see this possibility as a major concern.
• Most everyone believes that it is somewhat important to have adequate savings in place in case a
wage-earner becomes disabled. Established Couples rated this slightly higher.

AGE IMPACTS PRIORITIES


While consumers shared many concerns across different demographics, Age stood out as a critical
driver when gauging financial plans for the future.
• Older Households and Singles with No Children are more concerned about
having enough money to last throughout their lifetimes as well as having adequate hospital and
medical coverage. Younger households focus more on maintaining their lifestyles and
planning for retirement.
• Single Parents, on the other hand, are more concerned with protecting their income in
case of death.
• Young Households are more interested in college savings plans than other groups.

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

Figure 2 —
What issues are most important to you?
Top three objectives per life stage

1 2 3 4 5 6 7

Single Single Young Young Established Mature All


No Children Parent Couple Household Couple Couple Stages
Having hospital/medical coverage

Being debt free

Having hospital/medical coverage


(in retirement)*

Having adequate savings in case


of job loss

Maintain current lifestyle (in retirement)*

Having an adequate income stream


I cannot outlive

Protecting family income in case


of death

Protecting family income in case


of disability

Funding long-term care expenses

Funding (grand)children’s' college


education

Paying my or my spouse/
partner’s burial expenses

*Responses based on Household Incomes of $75,000 or more

*These questions were asked only of consumers under age 65 White = Least Important Range Purple = Most Important Range

Life stages:
1 — Not married with no children under 18 living in household
2 — Not married with 1 or more children under 18 living in household
3 — Married, under age 35 with no children under 18 living in household
4 — Married with 1 or more children under 18 living in household
5 — Married, aged 35 to 55 with no children under 18 living in household
6 — Married, age 56 and older with no children under 18 living in household
7 — All Stages

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

WHAT ARE CONSUMERS THINKING?

With mounting economic and environmental challenges facing consumers today, the need for people
to understand the reality of their financial futures is greater than ever. Do people believe they are
knowledgeable about the financial options they have in order to prepare for a lifetime of financial
security?
In our study, we didn’t go as far as to test their knowledge, but we did ask how knowledgeable
people think they are when it comes to making financial decisions. We also asked what steps they
have taken to prepare themselves for their future financial stability. In general, there are not many
financial topics that people feel “very knowledgeable” about. Whether it’s managing savings and
investments or purchasing life and long-term care insurance, it appears that consumers still have
some things to learn (See Figure 3).

Consumers think they know the most about…

Saving. Just over half (54 percent) feel they are “very knowledgeable” about saving. Among
this group, wealthier and more elderly people believe they’re even smarter about saving.
Filing income taxes. Only 45 percent feel they are very knowledgeable about filing taxes.
And while 43 percent say they are somewhat knowledgeable, that leaves 12 percent of the
population feeling very uneasy every April 15th. The confidence some people have about
taxes may be due in part to the popularity and availability of software packages for
consumers to manage their own tax returns.

Consumers think they know something about…


Planning for retirement. Fifty-one percent believe they are “somewhat knowledgeable”
about preparing for the later stages of their lives.
Life insurance. Like retirement, 51 percent feel that they have some knowledge about this
topic.
Health insurance. Ninety-one percent believe they are at least “somewhat knowledgeable”
about health insurance today.
Investing. Just 48 percent feel somewhat knowledgeable, while 31 percent report they
know little or nothing about investing. Males (by an almost two to one margin) feel more
knowledgeable about investing than females. College-educated people always felt more
knowledgeable than those with less education.

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

Consumers say they don’t know much about…


Long-Term Care insurance. Forty-seven percent say they know very little or nothing at all
about LTC insurance, although 40 percent report being “somewhat knowledgeable” about it.
Disability Insurance. Forty-seven percent say they know something about this insurance
while 36 percent say they know little or nothing about it.

Figure 3 —
Consumers Knowledge of Financial Objectives

Saving 54% 42% 4% 0%

Filing your income taxes 45% 43% 9% 3%

Health insurance 41% 50% 8% 1%

Planning for retirement 30% 51% 17% 3%

Life insurance 26% 51% 21% 3%

Social Security 24% 50% 22% 3%

Investing 22% 48% 25% 6%

Disability insurance 17% 47% 30% 6%

M edicare 16% 36% 36% 12%

Long-term care insurance 14% 40% 38% 9%

Very Somewhat Not very Not at all

*Responses based on Household Incomes of $75,000 or more

TAKING ACTION — OR JUST THINKING ABOUT IT?


Most people have at least considered the options available to them when it comes to ensuring their
future financial stability. Many consumers have made plans for savings and retirement. They’ve even
covered their life insurance needs. However, there are a few holes in their plans, particularly when it
comes to long-term care and disability insurance needs (See Figure 3). This makes sense when you
compare how poorly informed consumers believe they are about those options. Whether it’s due to
the fact that people are avoiding the issue or they just don’t have enough information, these
specialized types of insurance continue to elude consumer attention.

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

Consumers have done this:


• 76 percent have developed a plan to pay down debt, though that leaves 24 percent
of people who are not dealing with their financial futures. Eighty-two percent of consumers
between the ages of 25 and 34 are taking steps toward managing their debt, which is more
than any other group.
• A majority have decided how they’re going to invest their savings in addition to
establishing an emergency fund.
• Well over half have determined their life insurance needs, though that leaves 33 percent
of people who have done nothing to address this need. As might be expected, younger consumers
(between the ages of 25 and 34) make up the majority of those who haven’t thought about it.
Once people reach 35, however, their interest in life insurance continues to rise with age.
• 58 percent of people have calculated their retirement needs, though 36 percent have
only considered what they should do.

Consumers have only considered — or never even thought about…


• Long Term Care Insurance. Of the 79 percent of people who haven’t purchased LTC
insurance, just about half have considered it. But, it has never even occurred to almost one
quarter.
• Disability Insurance. Fifty-five percent of consumers have thought about it, but almost
one quarter have never even considered it.
• College expenses. Even though 40 percent of consumers have made plans to pay for their
children’s (or grandchildren’s) college education that leaves 60 percent without plans.
(These results may be somewhat biased in that parents and grandparents were given equal
weight. Also, households without children have understandably not considered this as strongly.)
Results for married couples with children under 18 (still at home) are somewhat higher.
Forty-nine percent have already set up a college fund, 45 percent have considered it, and only
6 percent have no plans.

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

Figure 4 —
Steps Consumers are Taking

Developed a plan to pay down debt 76% 16% 8%

Determined how to invest my savings 69% 28% 2%

Established an emergency fund 69% 28% 3%

Determined my life insurance needs 67% 24% 9%

Created a monthly budget 60% 33% 6%

Calculated how much I need to save for retirement 58% 36% 6%

Determined my disability insurance needs 45% 40% 15%

Calculated (grand)child's college expenses 40% 33% 27%

Determined my long-term care insurance needs 29% 49% 22%

Have done this Have considered but not done it Have not thought about it

*Responses based on Household Incomes of $75,000 or more

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

THE ROLE OF THE FINANCIAL ADVISOR

While many consumers say they have not taken any steps themselves to prepare for their future
financial stability, others have turned to outside advice. Sixty-one percent of consumers earning
$75K or more seek professional financial advice on a regular basis. Not surprisingly, of those
seekers, many more have either seriously considered taking action or actually taken steps necessary
to prepare for their future financial security. Whether or not they are satisfied with the course of their
decision-making is another matter.

Figure 5 —
Consumers* Who Seek Regular Financial Advice

Seekers,
61%

Non-seekers,
39%

*Responses based on Household Incomes of $75,000 or more

WHO DO CONSUMERS LOOK TO THE MOST FOR FINANCIAL ADVICE?


Among the sixty-one percent of advice-seekers, people rely on different professional advisors for
different reasons (See Figure 4). There are ten different sources of financial advice consumers choose
from, but there are a few that stand out among the crowd. In some cases, there are demographic
cohorts that make certain advisors well-suited to certain customers. For example:
• Accountants are the top choice among all consumers, no doubt driven by tax-filing needs.
Thirty-six percent of people rely on them.
• Financial Planners are the second choice with 29 percent of consumers. Not
surprisingly, there are some significant cohorts among this group who are more likely to have
an advisor:
• Households with income at $150K or more (particularly $200K+). Estate planning
figures prominently in this group.
• 32 percent have college or post-graduate degrees.

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

• Lawyers are the advisor of choice by people over the age of 65 as well as people in the
highest income brackets ($150K or more).
• Investment Managers and Stockbrokers are each utilized by only 8 percent
of consumers, most frequently by the highest income earners of $200K or more.
• Only 8 percent of middle class consumers rely on their Employers the most for financial
advice, mainly by people under the age of 55.

Figure 6 —
Financial Advisors Used on a Regular Basis

Accountant 36%

Financial planner or advisor 29%

Life insurance agent/broker 16%

Lawyer 13%

Banker/loan officer 11%

Investment manager 10%

Stockbroker 8%

Employer 8%

M utual fund broker 7%

Other 2%

*Responses based on Household Incomes of $75,000 or more

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

HOW ADVISORS ARE HELPING


Of those people who currently rely on a financial advisor, particular situations call for different kinds
of advice. People tend to go to their primary advisors when making investment decisions and
shopping for financial products (See Figure 7). Likewise, there are situations that stand out where
people don’t talk to their financial advisors. Interestingly, financial advisors aren’t widely viewed as
“counselors”, despite the fact that many advisors may see themselves in that role. It also may come
as a surprise that people don’t go to their financial advisors for their insurance needs. This may be
driven by the age old concept of insurance being sold, not bought.

Advisors help the most when it comes to…


• Getting impartial advice.
• Choosing appropriate investments.
• Matching products with individual consumers’ needs’.

Advisors help somewhat when it comes to…


• Identifying how much people need to save.
• Providing encouragement on financial goals.
• Helping people monitor their financial progress toward their goals.

Advisors don’t help at all when it comes to…


• Serving as a financial “counselor”
• Identifying insurance needs.

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

Figure 7 —
How Primary Advisors Help*

Providing impartial advice 44% 44% 12%

Selecting appropriate investments 43% 33% 24%

Identifying what products are best


42% 36% 22%
for my situation
Providing encouragement to maintain
36% 42% 22%
my financial plan or strategy
Helping me monitor progress toward
33% 41% 26%
my goals
Recommending a specific company's
32% 37% 31%
product or service

Identifying how much I need in savings 24% 43% 33%

Identifying my insurance needs 19% 38% 43%

Serving as a "financial counselor" 18% 34% 48%

A great deal Somewhat Not at all

*Responses based on Household Incomes of $75,000 or more

OPPORTUNITIES FOR FINANCIAL ADVICE


People who aren’t seeking advice are under the impression that something dramatic must happen that
will push them into it. Among the 39 percent of consumers who are not actively seeking financial
advice, there are two occasions that would prompt them to do so (See Figure 8):
• Being on the receiving end of a financial windfall and/or
• Managing the family estate after a death in the family

Not to minimize the impact of a financial windfall or a death in the family, but consumers who would
seek advice only under these circumstances obviously don’t see the benefits an advisor could have on
a daily basis. These consumers don’t seem to appreciate the small ways in which their income stream
could be managed more efficiently over the long-term. For whatever reason, they are fixed in short-
term thinking.

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

Figure 8 —
When Consumers Plan to Call Advisors

Receipt of inheritance or other


54%
large sum of money
Dealing with death of spouse or
47%
other family member

Starting or selling a business 36%

Purchase or sale of primary or


35%
second home

Dealing with a serious illness 26%

Filing income taxes 24%

Saving for retirement 22%

Preparation for marriage or divorce 17%

Paying for college expenses 11%

Career change or loss of job 11%

Birth or adoption of a child 8%

*Responses based on Household Incomes of $75,000 or more

Different Financial Triggers for Men and Women


Not surprisingly, men and women don’t always agree when it is the best time to call on an advisor.
For example, even though a mere 8 percent of the population would consult an advisor before the
arrival of a child, 80 percent of those are women. Similar differences, though not quite as sizable, are
observed when it comes to purchasing a home, dealing with a death in the family, and starting or
selling a business. Most notably, however, women are far more likely to consult a financial advisor
before getting married or divorced (See Figure 9). Our results support the age old notion that men are
more likely to “go it alone” during a crisis or major life change than women are.

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

Figure 9 —
Financial Triggers: Differences between Men and Women

None 70% 30%

Career change or loss of job 48% 52%

Paying for college expenses 43% 57%

Saving for retirement 43% 57%

Filing your income taxes 42% 58%

Dealing with a serious illness 42% 58%

Receipt of inheritance or other


42% 58%
large sum of money

Starting or selling a business 40% 60%

Dealing with death of spouse or


39% 61%
other family member
Purchase or sale of primary
38% 62%
or second home

Preparation for marriage or divorce 33% 67%

Birth or adoption of a child 20% 80%

M ale Female

*Responses based on Household Incomes of $75,000 or more

SEEKING PROFESSIONAL ADVICE


Who are non-seekers likely to consult on that occasion when they may need advice? Financial
planners or advisors were the first choice for 51 percent of non-seekers, followed by lawyers
(45 percent) and accountants (34 percent). This paints a somewhat different picture from those who
are currently seeking advice. Accountants and financial planners are currently the advisor of choice
among active seekers. This may be driven by the triggers that would make these individuals seek out
advice, such as a financial windfall or death in the family. Under these circumstances, consumers
may feel that financial advisors typically offer a more diversified approach to financial planning than
an accountant would.

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

Figure 10 —
Who Consumers Plan to Seek Out
60%
Financial planner or advisor
51%
50% Lawyer
45%
Accountant
40% Investment manager
34%
Life insurance agent/broker
30%
Banker/loan officer
20% 17% Other
Mutual fund broker
10% 8% Employer
6%
3% 3% 2%
1% Stockbroker
0%

*Responses based on Household Incomes of $75,000 or more

THE CONFIDENCE GAP


On the surface, it appears that many upper and middle-class consumers have made some admirable
plans when it comes to managing their financial portfolios. But, somewhere along the line a
disconnect developed between the actions people are taking and their opinions about those actions.
People recognize the importance of making financial plans, but they are not sure whether or not they
have done the right thing. Consider the following:
• 69 percent of consumers have determined how they’re going to invest their savings, but only
54 percent think they know a lot about saving.
• 67 percent feel they have determined their life insurance needs, but only 26 percent feel “very
knowledgeable” about the subject. In fact, 68 percent of people report having some or not very
much knowledge at all when it comes to life insurance.
• 58 percent feel they have established their retirement needs, but only 30 percent of people feel
very knowledgeable about the subject.

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

BRIDGING THE DIVIDE BETWEEN KNOWLEDGE AND ACTION


Most people (with household incomes of $75K or more) have made at least some plans to ensure the
future of their financial security. They have been inundated with information from the financial
services industry that has elicited a general awareness among people about the importance of making
financial plans. Most have some ideas about their options and have even taken steps toward
establishing a plan for the future.
So, why don’t they feel more knowledgeable about their finances?
Keep in mind that most people are going it alone when it comes to managing the household finances.
They may feel isolated in their decision-making, creating unease. Furthermore, whether consumers
themselves are responsible for their financial planning or their financial advisors, people do not
appear to be comfortable with the decisions that have been made. Unfortunately, this is not an
endorsement for the financial advisors of the world, considering that almost two-thirds of middle-
class consumers seek professional advice outside their family on a regular basis. One could argue
that most of those people leave everything up to their financial advisors and let them worry about it.
But, that doesn’t really get to the heart of the matter.
When it comes to financial literacy, people need to have certain skills: they need to be informed; be
able to distinguish between a good financial decision and a bad one; and, feel confident in those
decisions once they’ve made them. The question ultimately lies in who is responsible for the
financial literacy of the country — consumers, the people advising them — or both?

TARGETING LEVELS OF FINANCIAL AWARENESS


Based on our findings, middle to upper-income consumers typically fall into one of three categories
when it comes to financial literacy. Among these categories, there appears be a built-in progression
regarding levels of expertise. For consumers who are basically oblivious about their financial futures,
an education in the basics of financial literacy would be the most logical starting place to get them
involved. Other research, particularly when it comes to life insurance needs, supports the necessity to
educate consumers before selling products to them2. Procrastinators, who have the knowledge but not
the desire to act, need encouragement and a call to action. Lastly, those who do have an education in
financial literacy and have begun to take steps need more specific guidance in how to make the right
choices for their individual needs (See Figure 11). Financial advisors and financial services
companies should consider these different levels in order to target their markets more effectively.

_____
2
Every Excuse in the Book, LIMRA International, 2005.

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

Figure 11 —
Matching Literacy Levels with Needs

Suggestions for Advisors and Financial Services Companies:


• Market products and services targeted to consumers needs based on a client’s needs’ assessment.
In other words, don’t try to sell products to an uneducated consumer; rather, try to educate first.
A procrastinator doesn't need educating, but encouragement to take action. An educated
consumer already has knowledge and has taken action. Working with him on the finer details of
his financial plan would benefit him the most.
• Match needs with products, particularly when it comes to insurance. Consumers don’t typically
think of how insurance plays a role in their financial futures. This is an opportunity for advisors
to educate as well as fine-tune their customer plans. Whether insurance needs are short-term or
long-term, advisors should address insurance concerns when looking at the overall picture.
• Emphasize how consumers can help themselves, rather than focusing on selling people more
products than they can handle. Educating people also helps to build relationships.
• Clarify the scope of your business to consumers. If you are able to manage a broad specter
of financial needs, market yourselves as such.
• Consider offering workshops and/or courses to consumers so they can become more active in
their own decision-making. In turn, advisors can benefit by working with educated consumers
so that the focus of discussions can be on what choices to make, rather than clarifying what the
choices are.
• Take initiatives to raise participation rates of employers who sponsor 401(K) plans, making
enrollment automatic. Employees should opt out rather than opt in.
• Consider offering educational workshops directly on-site at the workplace that are tailored to
diverse consumer needs.
• Target the specific needs of end consumers when building partnerships with employers to build
in more efficiency. As with financial advisors, it is important to know your audience so that
you’re not trying to sell products to people they don’t need or want.

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Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

CONCLUSION
Preparing for the future financial needs of the population has become a great challenge facing
consumers and financial service providers alike. Consumers feel uneasy about their situations
regardless of whether or not they’ve prepared themselves. Financial advisors should take note and
heed the call to action. The key to success will be matching needs with the particular financial
services that best meet those needs. Understanding whether or not individual consumers require
educating, encouragement to act, or specific advice should be the driving force behind any plan to
target new or existing markets. Clearly, consumers and advisors both have some responsibility in
achieving the overall goal: a financially prepared and literate population that can approach the future
with confidence.

24
Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

RELATED LINKS

The following links are valid as of 01/22/07.

LIMRA
Every Excuse in the Book (2006)
Last year, LIMRA identified the potential for new life sales among 48 million U.S. households who
say they don't have enough life insurance. New insights into why they don't buy the coverage they
say they need and what it will take to convert them into buyers is the focus of LIMRA's latest study
of the underinsured life market. This report highlights what consumers desire when going through the
life insurance buying process, and points out the changes the industry will need to make if they want
to reach these potential customers.
http://www.limra.com/members/abPdf/5370.pdf

Triggers and Thresholds for Financial Advice (2004)


Financial advice is a staple of the financial services industry, but people do not seem to make much
use of financial professionals in their financial decision making. This report summarizes the evidence
on use of financial advice by consumers. A model is presented that captures what must happen for
consumers to make use of a financial advisor.
http://www.limra.com/members/abstracts/4741.aspx

Generations X and Y — The Financial Attitudes of Tomorrow’s Market Today (2003)


Generations X and Y have the potential to impact the financial services industry in the U.S. With
close to 46 million persons born between 1965 and 1976, Generation X makes up 16 percent of the
U.S. population. The 31 million adult members of Generation Y, born between 1977 and 1984,
represent 11 percent of the population. Together these two generations comprise more than one
quarter of the U.S. population. In the next 20 years, as the majority of baby boomers enter retirement,
the financial services companies will face at least two challenges: to retain the money they have
already accumulated from their clients and to get new money invested in their products. As
Generations X and Y will greatly impact the success of the latter, it is important for the life insurance
and financial services industry to understand the financial attitudes and behaviors of these two
generations. This report examines how Generations X and Y feel about today's financial
environment.
http://www.limra.com/members/abPdf/4252.pdf

25
Another Inconvenient Truth: Are Consumers Prepared for Their Financial Futures?

Issues Surrounding the Use of Financial Advisors (2001)


To better understand what factors consumers weigh when deciding whether to seek assistance from a
financial advisor, the kinds of help they desire, and the attributes they consider important in the
selection of a financial advisor, LIMRA International conducted a series of eight consumer focus
groups in one Canadian and three U.S. cities. The groups were segmented by life stage to capture
differences in opinions and attitudes among young couples, young families, older families, and
empty nesters. Within each of these categories, participants in one group were more upscale than
those in the other. Discussions in the groups centered on what participants perceive to be their current
financial needs, who in the household is involved in financial decision making, and what issues are
apt to surround the selection and use of an outside advisor.
http://www.limra.com/members/abPdf/3430.pdf

26
Another Inconvenient Truth:
Are Consumers Prepared for Their Financial Futures?

Full Report

Ingrid R. Goodenow, FLMI


Distribution Research
860-285-7835
igoodenow@limra.com

Polly Painter-Eggers
Distribution Research
860-298-3988
ppaintereggers@limra.com

HARTFORD MIAMI TORONTO LONDON MELBOURNE SHANGHAI

300 Day Hill Road, Windsor, CT 06095-4761, U.S.A. P.O.Box 208, Hartford, CT 06141-0208, U.S.A.
Phone: 860-688-3358 • Fax: 860-298-9555 • Web: www.limra.com
©2007, LIMRA International, Inc.
This publication is a benefit of LIMRA International membership. No part may be shared with
other organizations or reproduced in any form without LIMRA’s written permission.
007511-0307-250-LRN0

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