What Spooks Us Most About Money
What will it take to get 'post-crash skeptics' investing again?
A riddle for you: What’s scarier than ghosts and goblins to Americans 50 and older?
Answer: Their finances.
That’s the upshot of the latest Country Financial Security Index, and two other surveys I’ve seen lately back it up.
In fact, there’s a strong case to be made that many boomers have grown truly scared of investment risk as a result of what they experienced in the 2008-2009 financial crisis and market crash.
The Biggest Financial Fears
The new survey of 1,000 adults from Country — a group of insurance and financial service companies — found that 81 percent of people 50+ have at least one financial fear. What spooks them most: being able to afford health care expenses and being able to retire comfortably. Women 50 and older were more likely than men to worry about being able to retire comfortably, 34 percent vs. 39 percent cited this as a fear.
Health care expenses are the biggest fear among Americans 65 and older, according to the survey. The top worry of Millennials: affording their rent or mortgage.
This may be the scariest part of the survey: Roughly one in five of the 50+ respondents (21 percent) said their financial fears are holding them back from reaching their goals.
Estate Planning Chills
Country Financial didn’t ask about this, but I’d suspect many people 50+ are also frightened about what will happen to their financial assets after they die and whether their loved ones will be taken care of properly.
The whole subject of estate planning gives some people the willies. “It is scary to think about dying and planning for what may happen after your death,” notes Lisa Featherngill, managing director for wealth planning at Abbot Downing, a division of Wells Fargo based in Winston-Salem, N.C.
But not thinking about it could wind up haunting your family for years to come. For instance, “if you don’t name guardians for your children [in a will], the court could name them,” says Featherngill. “If you don’t have a written estate plan, your wealth could go to heirs you wouldn’t have personally chosen or who are unprepared to handle the inheritance. What you worked hard to create could be gone in an instant.”
So I’ll repeat what I’ve said before: Meet with an estate planner to get a will drawn up if you haven’t already and see if it would be smart for you to have one or more trusts, too. Trusts can be especially helpful if you have children or grandchildren with special needs.
And use open enrollment season at work as a prompt to check that all your beneficiary designations for your investments, insurance, retirement plans and financial accounts are up-to-date.
Spooked by the Stock Market
The Country survey and two other recent reports suggest to me that many people 50 and older are spooked by the stock market. This could endanger their retirement, since alternatives like bank accounts and CDs and bonds and bond funds aren’t offering much income.
Country found that 22 percent of the people 50 and older it surveyed said the recent market volatility has made them less likely to invest in the market.
This echoes the 2015 BlackRock Investor Pulse Survey of 4,213 Americans age 25 to 74 that found even among people with investments, 49 percent think a lot less highly of investing than they do of saving. BlackRock also learned from the survey that 65 percent of Americans' wealth is in cash. “An over-reliance on cash undermines Americans’ ability to make the most of their money,” noted the financial firm’s report on the survey.
“Post-crash skeptics” is the term Allianz Life uses to describe how many boomers now view investing and finances as a result of the 2008-2009 debacle.
In September, the firm released its massive study of 2,000 adults age 35 to 67 with minimum household incomes of $30,000, Generations Apart: How boomers and Generation Xers are facing their financial futures.
Allianz said that more than six years after the 2008 market crash, 65 percent of boomers (and 68 percent of Gen X’ers) said they still feel the impact today.
What Rattles 'Post-Crash Skeptics'
Among the group Allianz calls “post-crash skeptics” — the ones who showed more skepticism, persistent worries and lower confidence about their financial future than others in their generation — 93 percent said they still feel the impacts.
“Surprisingly, 20 percent of the people we surveyed were post-crash skeptics,” said Katie Libbe, Allianz Life vice president of consumer insights. “I thought it would be much lower.”
These skeptics, Libbe said, have become a lot more conservative as investors even though the stock market has (generally speaking) recovered nicely since 2008 — the Standard & Poor’s 500 index has risen roughly 108 percent from July 2009 through September 2015.
“They’ve taken on more debt and they’ve stopped saving for retirement,” said Libbe. “A lot of them were traumatized when the market crashed and they have very long memories.”
Most of the post-crash skeptics, Libbe noted, don’t use financial advisers. But many would like to. “They tend to say ‘I think that would really be good for me,’” said Libbe.
How to Turn Skeptics Into Investors
What’ll it take to shake these skeptics — like Cher's "Snap out of it!" in Moonstruck — and get them mentally back where they were before 2009? No one knows.
“What concerns us most about the post-crash skeptics is that, as a group, they’ve thrown their hands up like they’ve basically quit,” said Libbe. Their view of investing in the stock market, she added, is: “‘I’m not going to play this game anymore.’”
But “they’ve got 10 to 15 years of savings they can still do. So they really need to get back to rational behavior,” Libbe said. “It’s almost like they need an intervention.”