A transformation is occurring in American life—middle-class Americans are taking more active responsibility for their financial futures. The change is good and probably profound, yet it appears induced by worry over a weak economy.
A recent report (PDF) by Merrill Edge, a division of Bank of America and Merrill Lynch, offers a snapshot of the people taking more responsibility for their finances. Merrill Edge surveyed a group it dubs “mass affluent,” which are households having investable assets between $50,000 and $250,000. They make a good target for financial services because they have money and they are a large number of households. The mass affluent comprise about 28 million of the roughly 114 million households in the United States, and they lie approximately between the 50th and 75th percentiles of wealth.
Here is a summary of how the mass affluent view financial issues:
- Most mass affluent people believe college is worth the investment, but they worry about rising costs.
- Most parents see paying for their children’s college from several sources: their personal savings, scholarships, loans, and contributions from their children. Yet parents talk more about large purchases, day-to-day finances (and credit cards), saving for retirement, their mortgage, entertainment, and their home’s value than they talk about saving for their children’s education.
- More than half of working respondents (56%) plan to retire later than they did a year ago, representing almost a 20% increase. A separate study by the Center for Retirement Research at Boston College estimates about half of American families will be financially ready to retire at age 65, another quarter will need to work an extra one to three years, and the remaining quarter will need to work four or more years past 65.
- Mass affluent people are concerned about the big picture: 84% worry about health care costs, 73% about having money last through retirement, 67% about their ability to afford the retirement they would like, 75% about the effect of the economy on their ability to meet their goals, and 48% worry about supporting their parents and their adult children.
- Three-quarters (76%) are seeking guidance about finance. To varying degrees, their problems include planning, allocating assets, saving for retirement, rolling over retirement accounts, building emergency funds, managing debt and helping family members with special needs.
Most people lack financial knowledge and specialized economics training, and they see the financial world as a bewildering array of complex products and services. At the same time, the concerns of the mass affluent sound well beyond just understanding investment products. They worry about fitting all of life around available money.
These people sense that life is growing perilous and that their responsibilities are expanding. Although most are successful, mid-life workers still in the saddle of responsibility, many are retired or nearing retirement. Their growing concerns coincide with the declining economic well-being of the middle class, to which the mass affluent belong. In recent years, incomes declined, home values and household net worths sank, many middle-class workers lost jobs, pensions disappeared or grew toward insolvency, and adult children now struggle to get started. Although public programs for the poor and disabled have expanded (many programs are entitlements that expand as more people meet the thresholds), public programs supporting the middle class are mostly stagnant. Mass affluent people are on their own in a more risky world.
The Merrill-Edge report strikes a positive tone because its numbers point to an expanding market for financial services. Yet those services will be costly, which is yet another measure of the growing burdens facing middle-class Americans.
The mass affluent and the rest of the middle class can no longer count on a vigorously growing economy to back them up. Economic growth has been paltry since 2007 and many economists expect slow growth in the near future. Some commentators believe slow growth will be the norm for many years to come.
Although individuals or households may have a hazy awareness of the economic data, many of them have seen friends or family falter in this new economy. So people worry while they tend their savings, curb spending, plan for higher education, and hope for a decent retirement. No one knows how well they may succeed.