ONE YEAR AFTER FINANCIAL CRISIS, AMERICANS REFLECT ON ‘LESSONS LEARNED’; MOST ADOPT MODERATION MINDSET, SOME SIDELINED BY LACK OF CASH, APATHY
MetLife Study Suggests New Period of Financial Preparedness: Consumers Pay Down Debt, Re-set Expectations and Re-calculate Risk Tolerance
New York, NY, October 22, 2009 – According to research released today from MetLife, as a result of the economic downturn, Americans are hitting the financial “reset button” – vowing to take more responsibility for their finances by putting a cash cushion in place, reducing spending on non-essentials, and focusing more on protecting their assets than seeking market gains. MetLife’s Lessons Learned Poll, conducted between September 23, and September 25, 2009, revealed that consumers have indeed learned from their mistakes and have already adopted significant financial behavioral changes. One in five (20%) Americans has increased retirement savings (compared with 24 months earlier), and 20% report that they are more disciplined and conservative when it comes to their retirement savings/investments as a result of the recession.
“Americans are entering a new period of preparedness,” said Robert E. Sollmann, senior vice president, Retirement Products. “Just like patients who survive a near-fatal illness, today’s consumers are opting for a strong dose of preventive medicine. Despite rising equity prices, they are ushering in a new era of fiscal responsibility by building up rainy day funds, reducing debt and opting for guaranteed and/or very low-risk investments.”
Back to Basics – Saving More, Spending Less
The financial crisis led half (50%) of Americans to lose faith in traditional retirement safety nets—e.g. defined benefit pensions, Social Security and Medicare – and lose trust in financial institutions in general (54%). Because of this, a strong majority (68%) are placing a much greater importance on protecting their portfolios against market losses, ahead of participating in gains – choosing to grow their savings in more traditional ways. Surprisingly, and despite the recession, 60% of Americans who have taken action over the past year have managed to pay down credit card or other debt, and 35% have made regular 401(k) contributions, with 13% increasing contributions. Americans who plan to take steps to protect themselves from another financial crisis said they plan to:
- Reduce spending on non-essential purchases (65%)
- Build a cash cushion (57%)
- Allocate a portion of investments to guaranteed income or very low-risk products (17%)
- Consult a financial advisor (15%)
- Diversify their portfolio (15%)
Crisis Leads to Revised Retirement Mindset
As a result of the severe market downturn, the retirement mindset of many Americans is shifting. Most Americans with retirement savings feel that the events of the past year have had at least some influence on the way they plan for retirement (64%), with 29% saying the influence has been strong to very strong. The majority (55%) believes the events of the past year will have a lasting impact of ten years or more, and a quarter believes that influence will be permanent.
“The economic crisis has created a pendulum effect when it comes to Americans’ attitudes and behaviors around retirement savings. For some, the pendulum has swung towards a more conservative, less-risky approach to retirement planning. But for others, the pendulum has swung so far that they’re out of the retirement savings game completely,” said Julia M. Lennox, vice president, Retirement Products. “Going forward, it will be critical for Americans to find the middle ground, where they are maximizing their savings and investments and protecting themselves against future downturns. As a result, we may see an uptick in the use of certain products that can help consumers find this middle ground, including fixed and variable annuities, and certain bank products like CDs and money market accounts.”
Factors leading to a revised mindset include significant regrets about their financial behavior pre-crisis. Of those Americans with regrets about their financial behavior, 62% regret not building up a cash cushion, and 45% regret amassing too much credit card or other debt – this is felt most acutely among Generation X (54%). Other significant regrets – felt most acutely by Boomers – include: insufficient diversification of assets (17% for all Americans vs. 22% for Boomers) and failing to allocate a portion of their portfolio to guaranteed products—e.g. annuities and CDs (17% and 20% respectively). Across all generations, 13% regretted not seeking the advice of a financial advisor. However, 17% have remedied this regret by consulting with a financial advisor or retirement specialist in the past year, and 15% plan to do so in the near future.
Along with these regrets comes apprehension about the future and increased sensitivities to their own risk tolerance for certain retirement savings products. One-third of Americans fear that the economy will take five years or more to recover, and 31% of those affected by the financial crisis believe that their own personal recovery will take at least 5 years – with 15% believing their personal recovery will take 10 years or more, and 8% believing they will never recover from the financial downturn. Older Boomers (ages 55-65) are feeling particularly pessimistic about their personal financial recovery, with 13% believing their financial situation will never recover.
Signs of Optimism
However, some Americans, especially the younger generations, are optimistic about their personal recovery and the recovery of the economy in general – possibly because they possess fewer assets than older generations and have time on their side to try to recoup any assets lost. Nearly three in ten (29%) in Generation Y believe that economic recovery will happen in two years or less, but almost half (49%) of Generation Ys affected by the financial crisis believe their personal recovery will happen in two years or less. Among GenXers, 32% say that economic recovery will take fewer than two years, and 41% say their personal recovery will happen by then as well. Older generations affected by the financial crisis are more likely to believe that their personal recovery will take much longer – 38% of Younger Baby Boomers believe that personal recovery will take at least ten years or more.
This optimism among younger generations extends to their attitudes about retirement savings and investments. While they’re not jumping head-first into the market, younger Americans are more amenable to risk – 47% of Generation Y say that it’s more important for them to participate in market gains rather than protect against losses, versus 30% of Younger Boomers and 23% of Older Boomers. Younger Americans are also less likely to say that their trust in financial institutions has decreased as a result of the crisis.
Some Americans Left on the Sidelines
Despite the strong influence of the financial crisis, some Americans still haven’t made any change to their retirement/investment approach. While 20% say they’re more disciplined about their retirement/investment approach as a result of the economic crisis, and 20% are more conservative, the remaining 44% still have not taken action. This number is even higher for Generation Y, where 54% have made no changes and 45% say the financial crisis had little or no impact on them.
The financial crisis has made it difficult, if not impossible, for certain groups to implement the lessons they’ve learned. For nearly one in five (19%), saving for retirement has been put on hold completely, as they no longer have the funds to save or invest at all. This is particularly acute among Generation X, where a surprising one in four are not saving for retirement. Similarly, 27% of Younger Boomers (ages 46-54) say they no longer have the funds to save for retirement at all.
While the financial crisis has spurred 20% of Americans to save more for retirement than they were two years ago, one third have no retirement savings.
Harris Interactive® fielded the study on behalf of MetLife from September 23-25, 2009 via its QuickQuerySM online omnibus service, interviewing a nationwide sample of 2,191 U.S. adults aged 18 years and older. For complete survey methodology, including weighting variables, please contact Pat Connor at MetLife, (212) 578-7039, email: firstname.lastname@example.org.
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