What are the implications for the insurance industry?5 key findings from Cake & Arrow’s recent survey about insurance and personal finance. Download the report here.
A robust body of research supports the idea that financial literacy is strongly linked to financial well-being, including higher savings rates and more stable incomes. Yet, what financial literacy entails, including the financial knowledge required to be considered financially literate and how to achieve financial literacy, remains loosely defined and is constantly in flux.
As new financial tools and trends converge with an unprecedented preponderance of information, opinions, and influence amid an environment of increased economic uncertainty, financial literacy has become even more elusive.
Late last year, Cake & Arrow surveyed over 1,000 Americans to understand how ideas of personal finance and financial literacy are changing and what these shifts mean for the insurance industry. Here’s what they learned.
1.) In The Mind’s Eye, Money Serves A Larger Purpose
For most, money is a top area of focus in their lives but not an end in and of itself. Instead, the majority see money as a means of achieving an overall sense of well-being. Money is the scaffolding that supports higher-order values, specifically related to family and relationships. When we asked our survey respondents about their primary financial goals, the most popular goals and motivations were related to starting or supporting a family, spending more time with family, etc. Far fewer respondents viewed their finances in terms of more material goals, ie. buying a new car or going on vacation.
2.) It Can Be Hard To Move Beyond The Basics
While responsible money management is a hallmark of many people’s financial behavior, relatively few engage in higher-order financial activities. While over half of their survey respondents reported engaging in basic activities like saving and budgeting, only 21% reported investing money in the stock market and 31% of non-retired working respondents reported saving for retirement. What’s more, their research found that those who do engage in higher-order financial activities, like investing and buying property, demonstrate significantly higher levels of financial confidence.
3.) Structural Forces Sometimes Overpower A Sense Of Personal Responsibility
Financial security is generally viewed as a personal responsibility within an individual’s control, yet many see structural forces as the major obstacle to their financial security and success.
65% of their survey respondents agreed that their financial success is in their control, while at the same time inflation, a force outside of their control, was considered the #1 impediment to financial progress. Respondents were more than twice as likely to name inflation as a hurdle to meeting their financial goals than they were to name poor financial or spending habits.
4.) Formal Education Is Not A Stand-In For Financial Experience
Formal education around money and finances is viewed as lacking and necessary, with an overwhelming majority of respondents agreeing that schools need to do more to teach kids about finances. Even still, most believe the best way to learn about finances is through real-life experience—not formal education. Experience, in other words, is the best teacher. But their research also suggests, that for many, opportunities to gain financial experience are lacking.
5.) A Crisis Of Confidence Looms Large
Engagement and experience with money are linked to financial confidence, yet many feel they lack opportunities to gain the experience necessary to build financial confidence and ultimately achieve their financial goals. This is especially true for younger generations.
What Does This Mean For Insurance?
The good news is that their research also found that most Americans consider purchasing insurance to be an important aspect of financial planning, even if only in the abstract. Many still struggle to fully understand insurance and how specific products align with their financial goals.
It is up to the insurance industry to not only position their products strategically in ways that align and resonate with their customer’s mindsets around money and financial goals but to provide education, opportunities for financial experience, products that address personal as well as individual factors while helping consumers build financial confidence, and not only achieve financial literacy, but financial freedom.
Download Cake & Arrow’s report, Insurance & Personal Finance, for more opportunities and tips on how insurance companies can deepen their customer’s financial literacy and help them build toward financial freedom.
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