Whenever I write anything about affluent Americans, inevitably I hear from some readers about how journalists are “out of touch” and not understanding the issues. I find these emails striking because they reflect a lot of the uncertainty and frustration most people are feeling in today’s job market and economy. And while I am often just reporting the results of someone else’s study, I understand that even doing that simple act can rub people who are struggling the wrong way.
So when I was told about a recent “Affluent Insights Survey” that Merrill Lynch conducted, I found myself wondering how we might think about its results so that it can be useful information for a variety of individuals, of varying incomes, and not just for those who happen to have $250,000 or more of investable assets. To me, these surveys are helpful if we can find even just one or two nuggets of new information that might serve as potentially interesting solutions when applied to our own lives.
Let’s start by laying out some of the context for the results uncovered by the survey. Among the 1,000+ individuals that Merrill Lynch interviewed, close to half view today’s economic uncertainty as a “new normal,” with rising healthcare costs, the care of aging parents, and the extended financial support being given to adult-age children weighing on their minds. Four out of five, or about 80 percent, of those surveyed worry that they won’t be able to achieve their financial goals before they retire.
Some of these “affluent” individuals are drawing a harder line on funding college. About 48 percent told Merrill Lynch that they were willing to support adult-age children for as long as they need. But some are trying to use the expense as a way to teach a financial lesson. About 38 percent of parents today paid for, or plan to pay for, the full cost of their children’s college education, down from 48 percent a year ago, the survey said. And when asked about their ability to fund higher learning, 19 percent said they chose not to pay for the full amount so that their kids would appreciate their education more.
Increasingly, “families are getting together, with their college-age kids, to talk about how they will pay for college, even in this group where the cost was traditionally paid for by parents,” said Merril Pyes, a managing director in Boston with Merrill Lynch. “Parents are talking with their kids about how to pay for it, what they’ll get out of college, and what their kids will do when they get out.”
Having more conversations as a family about finances seems to be one of the bigger lessons we can learn from this survey, which provided other examples of how people are trying to communicate, and work together, more to solve concerns and challenges.
Decisions about finances at home are becoming more of a team effort. Instead of just assigning one spouse to handle the finances, 89 percent of married couples are choosing to manage their finances collaboratively. Importantly, this may mean that more wives are not just getting involved in the daily routine, but are developing a deeper understanding of their household’s overall financial plan. More than a third said all financial decisions, including everyday expenses, are being discussed as a team.
Communication is extending beyond the immediate family as well. One in four of those interviewed said that friends as well as family are speaking with them more openly about their financial situations, compared with before the recession.
Avoid chasing returns. Remember the basics: Make a Plan.
Boston-based Pyes said he’s noticed that people are also becoming better about formulating a plan. Before the recession, people chased a return on their investments, and tried to play to the numbers. Now, they are setting more specific goals, and looking to fulfill them.
Review your investment approach and risk tolerance, and look at the long term.
Having adjusted to the “new normal” and accepted the market volatility, affluent investors are feeling a little more comfortable about taking some investment risk, Merrill Lynch found. About 30 percent of those interviewed described themselves as conservative investors, gravitating towards lower-risk investments and savings vehicles such as mutual funds, bonds and savings and money market accounts. That’s down from 2 years ago, when half of respondents were feeling conservative.
“They’re living with uncertainty better than they did before,” Pyes said.
Part of their comfort comes not as much from wealth itself but from their willingness to put in the time and effort to plan, he said. They are looking out to the long term instead of just reacting to the headline or financial issue of the ay.
“When people know where they’re going or have a roadmap, they feel more comfortable,” he said.
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