In Profile

A Conversation with Matthew Bryan

Financial Confidence

by PE Kelley

Mr. Kelley is managing editor of this magazine. Connect with him by e-mail: [email protected]

According to The Guardian Study of Financial and Emotional Confidence nearly 60 percent of Americans identify having at least some guaranteed income in retirement, apart from Social Security, as a major priority, but less than one in four feel very confident in any aspect of their retirement finances.

The survey participants ranked highest in financial confidence exhibited four specific financial behaviors, which include having a written financial plan and owning appropriate financial products that incorporate both growth and protection.

Based on the study findings, Guardian developed a Financial Confidence Quiz that enables Americans to assess how confident they may be about their financial future and that offers insights into how they can make improvements. We spoke with Matthew Bryan, Guardian’s Head of Distribution Marketing, about the impact that the study had on consumer perception, and understanding, of the interplay between money and overall satisfaction with their lives.

PEK: How did you arrive at the initial premise: that emotional and financial well-being might be linked?
MB: Our working theory heading into the research suggested that our financial and emotional lives are interconnected in seen and unseen ways. From the research, respondents were asked to think about their life priorities and to allocate 100 points of importance across several categories to indicate their highest and lowest priorities. Here were the top 6 priorities:

  • Being happy
  • Having a great marriage
  • Having enough money to enjoy life
  • Raising your children (if any well)
  • Staying fit and healthy (tied for 4th)
  • Retiring with a secure and adequate income

At first glance, 2 of the top 6 priorities appear to be about money (#3: having enough money to enjoy life, and #6, retiring with a secure and adequate income). However, as you dig deeper into the other priorities, you see money plays a role. A leading cause of divorce in this country is money-related, so having a great marriage is influenced by financial matters. Raising children is expensive (saving for college, daycare, etc.). Staying fit and healthy takes work (gym membership, eating organic/healthy foods). These priorities are either directly and/or indirectly linked to your financial situation or vice-versa whether.

Additionally, we learned that Americans who tend to have confidence from a financial standpoint (not just in terms of income, but in terms of retirement readiness, long-term plan, etc.) tended to have a better handle on other stresses that life presents.

PEK: The research identifies ’stress-based concerns’ of consumers in an 80/20 rule. What does this tell us how we can deal with life’s stresses?
MB: We want to try and mimic the behaviors of those 20% of Americans who seem to be the least stressed. Essentially, what behaviors may be in our immediate control to help achieve a greater level of incremental emotional and financial confidence?

Our study is a hopeful one; the study suggests that there are specific, non-income driven, things we can try to do that may be in our control. We identified baby steps and behaviors Americans can adopt, that may lead to incremental increases of emotional and financial confidence over the long-term.

While money may not buy happiness, perhaps small, behavioral adjustments can.

PEK: What’s stressing America out?
MB: Part of the impetus for our study was the theory that there is a “new normal” of stress that Americans are facing. Over the past 17 years, we’ve faced a changing economy and massive disruption from the 2008 financial crisis, rapidly advancing technology that is changing how we work and live, the emergence of more frequent terrorist threats at home and around the globe, a more partisan political atmosphere, and the barrage of a 24/7 news cycle that’s on our mobile phones. How is all this connected to our financial lives?

Americans are stressed by a whole range of different factors:

  • 47% are troubled by chaos in the world
  • 38% feel the need to stay on top of breaking news minute-to-minute
  • 36% feel threatened by the possibility of terrorism at home
  • 37% are considering delaying retirement
  • 15% are NOT satisfied with their lives overall
  • 1 in 5, major sources of stress include work/life balance, the rate of change in our society and feeling overwhelmed.

Americans who fall into our “Confident Planner” bucket (20% of Americans) tend to be less stressed about these external factors than others. We looked atwhat those confident planners are doing (we identified this as “model behaviors”), to provide tips for Americans to achieve better ways of dealing with the surround sound of life’s other stressors.

We learned that Confident Planners:

  •  Have a healthy attitude toward money, including taking a long-term view and living within their means
  • Have (or believe they have) a solid understanding of basic financial concepts and financial products
  • Have a detailed financial plan (if created with an advisor even better)
  • Own a mix of growth and protection financial solutions
  • Work with a financial advisor

PEK: You’ve identified ‘major disconnects’ between financial priorities and the actions being taken to achieve them. What is this telling us about consumer behavior with regard to saving?
MB: Our behaviors and actions may not be setting us up for success – and the gap between what we are saying are our priorities, and what we are actually doing may cause stress and a lack of confidence.

Top financial priorities indicated by Americans can generally be grouped into having guaranteed income in retirement, savings of any kind, protection for your family, and having a long-term financial plan. However, when you look at how Americans are supporting their own priorities we tend to see a disconnect. Fewer than 1/3 say they prioritize protection, have a long-term plan, or enjoy saving more than spending.

What it tells us is that Americans need all the help they can get to make small incremental changes to get on the right track. It’s not easy to do this on your own, and we are not behaviorally wired to do these things automatically. It’s where a financial advisor can play a critical role in at least holding up a mirror and working with their clients to find ways to correct areas of concern. It’s not unlike going to the gym… I may know what I need to do when I get there to work out.

But, if I have a trainer who’s present and keeping me honest and tracking my reps, it helps. Richard Thaler, who just won the Nobel Prize for economics, coined the term “nudging” to describe cheap and easy interventions that change people’s decision-making. In many ways, financial advisors can “nudge” their clients to the right decisions.

PEK: How do consumers define ‘financial well being? How varied are the responses?
MB: In our survey, consumers did not define financial and emotional confidence. We developed a score to help find it. To hone in on the behaviors and attitudes that correlate with over overall emotional and financial confidence Guardian created a unique proprietary benchmark, The Guardian Financial and Emotional Confidence ScoreSM.

It standardizes and quantifies the overall emotional and financial well-being among working Americans by assigning an objective score to rank them on a scale from concerned to confident. With a range from 0 to 10, the mean, or average, Financial and Emotional Confidence Score for all working Americans surveyed was 6.3.

High net worth individuals are not immune from life and financial stressors. Because income was only modestly associated with the level of stress for respondents, 15% of respondents with household incomes $350K or more identified themselves as among the Day-to-Day Decision-Makers segment

We selected variables we assumed might reasonably contribute to assigning the score and we excluded income and demographics when looking at the score. The variables we looked at included: retirement readiness, quality of life vs. parents, assessment of their own financial success, overall life satisfaction and confidence, work/life balance, personal safety, job security, and financial confidence.

PEK: How are consumers prioritizing their lives? What’s important to them today?
MB: Priorities for Americans were not surprising as listed below. What’s key is what they are doing to meet these priorities and what steps they can take to help support their priorities.

Respondents were asked to think about their life priorities and to allocate 100 points of importance across a number of categories to indicate their highest and lowest priorities. Here were the top 6 priorities:

  • Being happy
  • Having a great marriage
  • Having enough money to enjoy life
  • Raising your children (if any well)
  • Staying fit and healthy
  • Retiring with a secure and adequate income

Additionally, we asked them about their financial priorities:

  • Having at least some guaranteed income apart from Social Security in retirement
  • Building savings for any reason
  • Having a solid long-term plan for achieving financial objectives
  • Saving for routine expenses in retirement
  • Protecting your family financially if you die or are unable to work
  • Saving for unexpected expenses in retirement
  • Just keeping up with your monthly expenses

PEK: You’ve developed a standardized ‘Financial & Emotional Confidence Score.’ How does this help consumers see and manage their financial and emotional lives?
MB: The score aligns to the 4 segments that emerged from the research. Americans can take a Financial and Emotional Confidence quiz on www.livingconfidently.com. The goal of the quiz is meant to be a self-assessment or a conversation-starter with financial advisor. It allows Americans to potentially identify with one of the four segments and receive tips and information unique for that segment.

The quiz is differentiated because it focuses on who you may be attitudinally, not just your income. Whether you agree with the segment you fall into or not is not the core issue. It’s a starting point to think about what drives how you approach money, and can help a financial advisor to dive more deeply into who you are, and what’s contributing to your overall confidence.

Instead of bringing in your bank statement, bring in the quiz results.  Talk about who you are, what your concerns are, what your attitudes are, what’s worrying you.  What you know and don’t know about finance.  That’s a productive conversation to have with your advisor to help get you on the right footing.

PEK: What behaviors does this research uncover for consumers to use in directing their emotional and financial lives?
MB: Our analysis identified what common traits and/or behaviors the most confident Americans exhibit and demonstrates that income is not the sole driver of confidence. There are other things at play that may help Americans incrementally improve their emotional and financial well-being. What can we learn from this segment of Americans? What are they commonly doing right?

  • Having healthy attitudes toward money, including taking a long-term view and living within their means
  • Having (or believing you have) a solid understanding of basic financial concepts and financial products
  • Having a detailed financial plan (if created with an advisor even better)
  • Owning the right mix of growth and protection financial solutions
  • Working with a financial advisor

PEK: Talk about the ‘Four Distinct American Experiences,’ the four segments, and how you’ve categorized the behaviors and attitudes toward life and financial decision making?
MB: While nearly half of working Americans fell into a segment defined by some level of stress, four distinct segments emerged from the research, grouping the respondents by similar attitudes about life and money, financial decision-making, technology, sources of stress, and drivers of happiness.

High net worth individuals are not immune from life and financial stressors. Because income was only modestly associated with the level of stress for respondents, 15% of respondents with household incomes $350K or more identified themselves as among the Day-to-Day Decision-Makers segment.

The Day-to-Day Decision-Maker puts an outsized emphasis on keeping up with monthly expenses. This segment placed a well-below-average emphasis on financial planning. Based on their current struggles, individuals in this segment lack an inspiring vision and are less likely to be satisfied with life and less likely to feel confident.

The Ambitious Spender puts an above-average emphasis on being up on technology and demonstrating success through possessions. This segment placed a below-average emphasis on retiring with a secure and adequate income. Based on their current struggles, individuals in this segment lack an inspiring vision and are less likely to be satisfied with life and less likely to feel confident.

Retirement Realists are looking for, among other things, guaranteed income in retirement. They put an above-average emphasis on having retirement income in addition to Social Security and on saving, for whatever purpose. They put a below-average emphasis on saving to start a business or to fund a child’s education, and on estate planning for heirs. They are more likely to be satisfied with life and more likely to feel confident.

Confident Planners put an above-average emphasis on work/life balance, staying fit and healthy, retiring with a secure and adequate income, and making good investment decisions. They are significantly above-average on being focused on the long-term. They put a sharply above-average emphasis on having a long-term financial plan, having guaranteed income in retirement, and working with an advisor they trust. They are more likely to be satisfied with life and more likely to feel confident. The Confident Planner segment, with a significantly higher Financial and Emotional Confidence Score, provides the model both for aligning priorities and behavior, and for going from concerned to confident.

While demographics did not drive the segmentation, there were correlations between certain demographic factors, attitudes and preferences allowing for meaningful inferences about groups within the overall survey population:

  • Women – were clustered in the Day-to-Day Decision-Maker, Retirement Realists and Ambitious Spender segments, with the highest percentage landing in Day-to-Day Decision-Maker (mean Financial and Emotional Confidence Score = 6.0)
  • Business owners – were most prevalent in the Ambitious Spender segment (mean Financial and Emotional Confidence Score = 6.6)
  • Millennials – generally exhibited a high level of stress, yet have a longer time horizon with which to work (mean Financial and Emotional Confidence Score = 6.4)
  • LGBTQ – while these respondents had a mean Financial and Emotional Confidence Score of 6.2, the segment with the highest percentage of LGBTQ respondents was Day-to-Day Decision-Maker.

Additionally, when we compare Confident Planners to Ambitious Spenders, we see that the mean HH income difference between the two segments is only $1,000 ($145k vs. $144k). However, their Financial and Emotional Confidence Score was significantly varied (8.2 vs. 6.4). This indicates that income is not the sole driver of confidence. There are other things at play. It’s up to financial advisors to dig into their client’s full story beyond income and savings, and see where they can help move a client to a place of greater confidence.◊