do the rich know something we don’t?

2

© 2015 Spectrem Group

Copyright Notice: This material is for use only by the individual receiving this report.

No part of the report may be photocopied, duplicated, displayed or distributed in print or electronic form

to other parties without the prior written consent of Spectrem Group.

Financial knowledge; Who has it, who wants it, and what can the financial services industry do to help their clients make the grade?

Several national studies have found the state of America’s financial literacy to be sorely lacking, although Americans tend to give themselves above-average grades. According to the National Foundation for Credit Counseling’s 2014 Consumer Financial Literacy Survey, roughly 60 percent of U.S. adults give themselves an A or B on their knowledge of personal finance. But some of the study’s key findings suggest they are grading on a curve:

America’s students fare worse when compared to their global peers. A 2014 assessment by the Organization for Economic Cooperation and Development ranked the United States between Nos. 8 and 12 among all 18 countries and economies considered.

Money mismanagement behavior can have devastating impact, not just on one’s personal financial situation, but on the country’s economy as a whole. A White House statement released in conjunction with National Financial Capability Month in April underscored the importance of financial literacy:

“Financial literacy enables people of all ages to make smart choices and set goals to protect their hard-earned income. And increasing individuals’ understanding of debt, including mortgages and credit cards, helps guarantee every person receives equal treatment and is able to secure lasting opportunity.”

This Spectrem Group White Paper examines the attitudes of Affluent households about how they perceive their financial knowledge. How do they rate themselves? How important is financial knowledge to them? Who and what are they consulting to gain this knowledge?

• Less than half (roughly 40 percent) report having a budget or keeping track of their spending. This proportion has held steady since 2007.

• One in three adults report they do not save any portion of their household’s annual income toward retirement savings.

• While 34 percent of U.S. adults carry credit card debt from month to month, 15 percent—or more than 35 million people—roll over $2,500 or more in credit card debt each month.

Financial Literacy: Do the Rich Know Something We Don’t?

A Spectrem Group Whitepaper

3© 2015 Spectrem Group



How Much Do Affluent Investors Value Financial Knowledge?

Wealth level studies conducted by Spectrem Group find that with greater wealth comes a greater

estimation for one’s financial knowledge. Among non-Millionaire Mass Affluent investors with a net

worth of at least $100,000 (not including primary residence), 72 percent consider smart investing to be

the primary factor in their wealth creation. In comparison, 83 percent of Millionaire households cite

smart investing as the driver of their financial success. This percentage is even higher (90 percent)

among Ultra High Net Worth households with a net worth between $5 million and

$25 million.

Thus, wealthier households tend to put greater stock in being financially literate concerning financial products and investments. When asked by Spectrem Group how important their financial knowledge is to them, half of Millionaires surveyed responded that it was “extremely important,” compared with just 27 percent of households with a net worth of less than $100,000.

72%

83%90%

Mass Affluent Millionaire Ultra High Net Worth

Smart Investing as Primary Wealth Creation Factor




How do Affluent Investors Grade Themselves on Their Financial Knowledge?

Again, there is a correlation between confidence in one’s financial knowledge and their wealth. Just 15 percent of non-Millionaire Mass Affluent investors consider themselves “very knowledgeable about financial products,” compared with 23 percent of Millionaires and 43 percent of UHNW households.

Mass Affluent Millionaire UHNW

15% 23% 43%

Conversely, the percentage of affluent households who indicate they are “not very knowledgeable” decreases as wealth increases (25 percent of Mass Affluent investors compared with 15 percent of Millionaires and 10 percent of UHNW).

Financial Literacy through the Ages

Of the 23 percent of Millionaires who consider themselves “very knowledgeable” about financial

products and investments, the highest percentage are ages 45-54, followed by Millennials ages 35

and younger. Millionaire Millennials are the least likely age demographic to say they are “fairly

knowledgeable,” but the most likely to admit they are “not very knowledgeable,” suggesting at once

that they have high confidence in their financial knowledge but are not reticent to admit when they

are lacking.

23%

60%

15%

1%

26%

53%

21%

0%

23%

61%

13%

4%

28%

59%

12%

1%

25%

59%

15%

1%

21%

62%

16%

1%

I am very knowledgeable aboutfinancial products and

investments

I am fairly knowledgeable, butstill have a great deal to learn

I am not very knowledgeableabout financial products and

investments, but I dounderstand some things

I am not at all knowledgeableabout financial products and

investments

Total Age ≤ 35

Age 36-44 Age 45-54

Age 55-64 Age ≥ 65

Very Knowledgeable About Financial Products

Investor Knowledge




Where are They Getting Their Financial Information?

Enjoyment of investing increases dramatically with wealth. Roughly 40 percent of non-Millionaires surveyed by Spectrem Group indicate investing is something they enjoy and do not want to give up. This attitude is more keenly felt by Millionaires (50 percent) and UHNW investors (63 percent). A similar progression can be seen among those who like to be actively involved in the day-to-day management of their investments (42 percent of non-Millionaires compared with 49 percent of Millionaires and 58 percent of UHNW households).

It follows that among these involved and motivated investors, personal research that will increase their financial knowledge is a priority. Three-fourths of Affluent advisors feel there is much more and much better information available to them regarding investments than there has been in the past. Previous Spectrem Group research found that the highest percentage of Affluent investors across all wealth levels is most likely to conduct independent research such as company reports, prospectus, and experts. The next highest percentage consults a financial advisor.

The Internet and mobile technology have opened up access to affluent investors seeking the best and latest information to help them make the most informed decisions. Currently, they are most likely to use their smartphones, tablets or personal computers to follow financial and economic news, obtain market updates, research information on financial products and services and correspond with a financial professional.

39%

50%63%

Enjoy Investing and Don’t Want to Give it Up

Mass Affluent

Millionaire

UHNW




How do They Prefer to Get Their Financial Information?

A majority (54 percent) of 21st century Millionaire investors still prefer to get their financial information the old fashioned way; by reading an article, while nearly four-in-ten prefer talking in person to someone. Almost one-third opt toward watching a video. Of these, the highest percentage primarily watches financial information videos, followed by videos created by financial commentators, and videos on current financial events. They are less interested in watching videos devoted to stock tips.

Millionaires Preference for Gathering Information

Watching a video Reading an article Talking in person to someone

4% 54% 39%

Age a Factor in Social Media Usage for Financial Information

Regardless of the social media platform, Millennials, who are highly likely to consider themselves “very knowledgeable” about financial products and investments in comparison to other age demographics, are significantly more likely than their older counterparts to express interest in reading financial blogs. They rate their interest in reading such a blog on their advisor’s site at 63.49 on a 100-point scale. There is even more interest in reading a financial blog on the websites of the major financial media sites (69.80) and other financial websites (67.56). Across all age groups, LinkedIn is a likelier go-to source for financial blogs than Facebook.

Likelihood of Reading Financial Blogs Posted by Financial/Investment Firms on the Following Platforms (0 = Not at all Likely, 100= Very Likely)

37.3549.27

63.4967.5669.80

40.0038.1227.18

36.66

59.2660.5363.50

29.4929.3118.92

24.88

52.8548.9852.05

23.8321.6211.70

15.24

46.4542.2144.29

9.4816.56

FacebookLinkedInWebsites of myfinancial

provider/advisor

Other financialwebsites

Websites of majorfinancial mediasites (CNBC, FoxBusiness, Forbes,

etc.)

TwitterYouTube

Millennials Gen X Baby Boomers WWII




Millennials were Born to Follow (on Twitter)

Millennials, too, are more likely than their older counterparts to use Twitter not just to follow family or friends, but also financial and/or investment commentators as well as news commentators, an indication that they have more fully assimilated 21st century technology into their lives. And while it is not a large percentage (10 percent), they are most likely to follow their financial advisor on Twitter.

76%

22%

30%

28%

37%

19%

4%

12%

80%

30%

50%

30%

60%

60%

10%

0

75%

19%

44%

19%

38%

31%

6%

6%

78%

35%

38%

29%

29%

15%

2%

13%

73%

24%

30%

32%

43%

19%

3%

11%

78%

8%

17%

19%

28%

14%

6%

17%

Family or friends

Athletes

Movie stars

Politicalcommentators

News commentators

Financial and/orinvestment

commentators

My financial advisor

Other

Total Age ≤ 35

Age 36-44 Age 45-54

Age 55-64 Age ≥ 65

Who do You Follow on Twitter? – By Age




Men and Women—A Financial Literacy Confidence Gap

Whether or not it is actually the case, women—even high income women with a net worth of at least $200,000— are more likely than men to self-report they are not confident about their financial knowledge. High income women are more likely than all other affluent investors to say they are “fairly knowledgeable” about financial products and investments, but they are less likely to consider themselves “very knowledgeable.”

Women face unique challenges to their long-term financial security, beginning with salary inequality that hinders efforts to save for retirement. They also have to make their savings last longer due to longer life spans.

Non-Millionaire women express more concern than their male counterparts about being able to retire when they want to (60 percent vs. 52 percent). The retirement confidence gap is smaller between Millionaire men and women (39 percent vs. 36 percent).

Running out of money in retirement, too, is a heightened financial fear among women, Spectrem Group research finds. Almost half (46 percent) cite this as their biggest financial fear, compared to 41 percent of men.

Investor Knowledge

11%

16%

64%

53%

23%

26%

1%

5%

High IncomeWomen

All OtherAffluentInvestors

I am very knowledgeable about financial products and investments.

I am fairly knowledgeable, but still have a great deal to learn.

I am not very knowledgeable about financial products and investments, but I do understand some things

I am not at all knowledgeable about financial products and investments




The Financial Crisis Do-Over

Reflecting on the devastating financial crisis, what would women, who generally present themselves as less confident investors, have done differently? Again, financial literacy, either gained independently or through an advisor, is an area they are more likely than all other Affluent investors to feel vulnerable. Nearly three-in-ten high-income women surveyed by Spectrem Group said they would have done more independent research about their finances, compared to 18 percent of all other Affluent investors. Twenty-one-percent said they would have used a financial advisor to a greater degree vs. 13 percent of Affluent investors overall.

Financial Crisis: What I Would Have Done Differently

18%

13%21%

Used a financial advisor to a greater degree

Done more research about finances on my own

29%

High Income Women

All Other Affluent Investors

An Opportunity for Financial Advisors

“No one is born knowing this stuff, and the only way we get smarter is by asking questions from people who can give us good answers.” –Liz Weston, author of “There are No Dumb Questions about Money.”

Financial literacy is the foundation on which individuals build toward a financially secure future.As investors age, they place more importance on the advice of a financial advisor and less value on financial information obtained through their own research, Spectrem Group research finds.




In an interview with Spectrem Group’s Millionaire Corner website, Eric Dyson, author of “Personal Finance for Dummies,” offered, “People get caught up in their lives and don’t step back, sit down, and take the time to look at their financial situation to make a game plan.”

A majority of affluent investors work with a financial advisor in some capacity, whether it is to consult on a specific need such as saving for college and retirement planning or turning over all investment decisions.

When asked by Spectrem Group what they consider to be the greatest benefit of working with a financial advisor, the highest percentage (72 percent) replied the knowledge they receive about investing. This ranks higher than such perceived benefits as being provided with a wider range of investment opportunities (64 percent) and improving investment returns (62 percent).

72%

64%

62%

57%

48%

Advantages of Working With a Financial Advisor

I am able to delegate the responsibility to an expert

Gives me peace of mind

Improves my investment returns

Provides me with a wider range of investment opportunities

Improves my knowledge of investing

As investors age, they place more importance on the advice of a financial advisor and less value on financial information obtained through their own research. Investors age 60 and older rank professional financial advice as the most important factor in their financial decisions (42 percent) and their own research as second (37 percent).




As wealth increases, so too does the importance affluent households place on their financial advisor’s counsel. When asked to rank helpfulness in making financial decisions on a scale of 0 (not at all helpful) to 100 (very helpful), non-Millionaires scored financial advisors at roughly 63, compared with 68 for their spouse. Millionaires ranked their spouse and financial advisor as equally helpful (67) in making financial decisions, while UHNW households tip the scale heavily in the favor of their financial advisor (roughly 70 vs. 60).

Helpfulness in making Financial Decisions(0 = Not at all helpful, 100 = Very helpful)

Financial Decision-Making

686760

696762

Mass Affluent Millionaire UHNW

Spouse

Financial Advisor

METHODOLOGY:This Whitepaper provides a summary of respondents’ views on their financial knowledge and their attitudes toward financial advisors. All respondents in this report have net worth, not including their primary residence, of $100,000 to $25,000,000. Spectrem conducted this research through an online panel that is generally representative of the affluent investors throughout the United States. However, some age–based weighting of the data was performed to insure a more representative sample.

Net Worth, NIPR, includes all assets except primary residence, less all liabilities. We examine three distinct segments: • Mass Affluent - $100,000 - $999,999• Millionaire - $1,000,000 - $4,999,999 • Ultra High Net Worth (UHNW) - $5,000,000 - $25,000,000


Decisions Regarding Long-Term

Care Insurance


SUMMARY

The 2008 economic collapse was a wake-up call for millions of Americans to become more engaged with their personal finances with an eye toward a secure financial future. Spectrem Research consistently finds that among affluent households, the biggest financial fear is running out of money in retirement, while the biggest financial regret is not saving enough toward their retirement.

In 2014 wealth level studies, non-Millionaires were asked what they wish they would have done differently in light of the financial crisis in 2008. They said they would have saved more and not taken on as much debt. They were also nearly twice as likely as the wealthiest respondents to say they would have used a financial advisor to a greater degree (16 percent vs. 9 percent)

It is incumbent on everyone regardless of wealth to use the tools at their disposal to take control of their financial situation, whether it be the vast resources on the Internet or the services of a financial advisor.

In his presidential proclamation on behalf of National Financial Literacy Month, President Barack

Obama emphasized that financial literacy is a national priority. “The nation's prosperity will ultimately depend on our willingness as individuals to empower ourselves and our families with financial knowledge.”


Decisions Regarding Long-Term Care Insurance


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do the rich know something we don’t?

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