Concerned about threats to financial success outside of their control, 46% of affluent Americans have been getting their financial lives in order during the last year, according to a recent study from Bank of America. The research also found that, despite challenges imposed by the pandemic, most survey respondents believe they are on track to reach several financial milestones earlier in life than their parents.
The Bank of America Preferred Insights: Hindsight is 20/20 Personal Finance Report explores more than 2,000 affluent(1) Americans' financial decisions and reflections over the last two decades, and changes in financial behaviors and priorities over the last year. The research is based on a survey of adults aged 25 and above with investable assets between $100,000 and $1 million and 18- to 24-year-olds with investable assets between $50,000 and $1 million.
Looking back over the last two decades, the study found that 89% of Gen X, baby boomer and senior respondents are satisfied with the financial decisions they have made. However, in hindsight, one-third of these respondents (34%) would have done things differently, wishing they had saved more (66%), and started saving (59%) and investing earlier (61%).
"The health crisis has caused many people to take stock of their life priorities and to control what they can during a period of uncertainty," said Aron Levine, President, Preferred and Consumer Banking & Investments at Bank of America. "In addition to getting their finances in order, people are looking ahead at new possibilities, plotting a course for their future and engaging with educational resources and advice that will help them make informed financial decisions and pursue new and exciting goals for themselves and their families."
When asked about the most prominent threats to their future financial success, respondents across generations cited concern about factors outside of their control, including economic recession (62%), market volatility (55%), rising cost of healthcare (50%), and the continuation of the global health crisis (44%).
Not Your Parents' Definition of Success
The survey found that the vast majority of affluent Americans are prioritizing many traditional milestones in life, including owning a car (98%), owning a home (97%), saving their goal amount for retirement (95%) and paying off credit card debt (94%). In fact, 84% of respondents indicated they plan to achieve or have already achieved one or more financial milestones earlier than their parents - including opening an investing account (54%) and starting to save for retirement (53%). More than half of this group (53%) say they have already achieved or plan to achieve five or more financial milestones earlier than their parents.
However, when asked about the most important measures of personal success today, respondents choose those less financially focused, including good health (63%) and supportive family and friends (59%), over such options as having a stable source of income (51%) or the money to maintain a desired lifestyle (47%).
Pandemic Shifts Financial Behaviors and Conversations
The pandemic has caused many affluent Americans to re-evaluate the way they save, spend and invest.
Nearly half (48%) say they have made no changes to their investment risk tolerance during this period. Among the 44% of investors who have made changes to their investment risk tolerance, they are split in terms of how they have responded to market volatility - with 23% indicating they have been more aggressive and 21% indicating they have been more cautious. More than half of millennials (52%) say they are taking a more aggressive approach to their investing (vs. 23% of the national sample), and many younger investors are managing their portfolios more frequently than they did prior to the pandemic (55% vs. 32% nationally). During this period, four out of five respondents (81%) have taken money normally spent on entertainment, travel and dining and set it aside - namely toward savings accounts (52%) and emergency funds (25%). When life returns to "normal" after the pandemic, affluent Americans plan to spend more on grocery delivery (30%), food prep/meal-kits (27%), restaurant delivery (26%), house cleaning (25%) and laundry services (22%).
The survey also found that people are opening up more about certain financial topics today than they did 20 years ago. Approximately three out of four affluent Gen X, baby boomer and senior respondents have long been comfortable talking to friends about real estate decisions, healthcare costs, and their approach to saving for retirement. However, they have become increasingly comfortable talking about changes to life plans due to financial concerns (72% today vs. 66% 20 years ago) and how market volatility impacts their personal investments (71% today vs. 63% 20 years ago). Compared to other generations today, millennials are even more comfortable talking with friends about all types of financial topics.
The Modern Investor: Getting Educated and Socially Conscious
Respondents are turning to a range of resources to learn about the market and manage their investments in light of recent events, including financial advisors (45%), online investment management platforms (37%), informational websites (32%), and their friends or family (30%). The survey also revealed the following about affluent investors today:
More than half (56%) of affluent Americans are taking a self-directed approach to investing or using self-directed investing in combination with a financial advisor for guidance. Among those surveyed: 40% conduct their own research and fully manage their investments using online platforms; 28% consult only a financial advisor for investment advice; 16% use a combination of self-directed and a financial advisor for guidance; and 9% only consult a robo advisor. When it comes to choosing a financial advisor or online brokerage, Americans take into consideration credible reputation (63%) and fees (53%), as well as personal recommendations (42%) and accessibility (41%). One out of five (20%) respondents prioritize socially responsible investing, with top considerations including environmental impact/conservation (50%), personal interest/use of the company's products (43%), and equity for racial minorities (41%). Additionally, 40% of respondents would be more likely to consider investing in a company that provides pay equity for all employees and supports charitable efforts aligned with their own.
"No matter where our clients are on their investment journey, we're seeing high levels of engagement with educational resources, the latest insights from our Chief Investment Office, and personalized guidance aligned to their life goals," said Levine. "In doing so, our clients are redefining what it means to be an informed investor."
For more information about the financial behaviors and priorities of affluent Americans, read the Bank of America Personal Finance Insights: Hindsight is 20/20 Personal Finance Report and an infographic spotlighting millennial findings.
(1) Hindsight is 20/20 Survey Methodology
Concentrix (an independent market research company) conducted a panel-sample online survey on behalf of Bank of America / Merrill from Oct. 28 - Nov. 5, 2020. The survey consisted of 2,000 affluent respondents throughout the U.S. Respondents in the study were defined as aged 18 to 24 (Gen Z) with investable assets between $50,000 and $1,000,000 or aged 25-plus with investable assets between $100,000 and $1,000,000. For this purpose, investable assets consist of the value of all cash, savings, mutual funds, CDs, IRAs, stocks, bonds and all other types of investments such as a 401(k), 403(B), and Roth IRA, but excluding primary home and other real estate investments. Concentrix also conducted an oversampling of 300 affluent respondents in each of the following six regions: Atlanta, Chicago, Houston, North Carolina's Triangle, Phoenix and Seattle. Regional oversampling took place from Nov. 9 - Nov. 30, 2020. The margin of error is +/- 2.2 percent for the national sample and about +/- 5.6 percent for each of the oversample markets, reported at a 95 percent confidence level.
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