Survey Finds Modern Families Gripped by Financial Insecurity
September 3, 2014 by Katie Libbe
In 1970, nearly 40 percent of families in the U.S. identified as “traditional,” meaning those headed by a married opposite-sex couple having at least one child under age 21 living at home.
Fast-forward 40 years and the picture of the American family looks quite different. Less than 20 percent of families now fit that traditional structure, according to the U.S. Census Bureau. This means that several new family types have emerged and, with them, new challenges.
With that in mind, Allianz conducted the LoveFamilyMoney study of more than 4,500 Americans to seek insights into the financial needs of today’s families. In addition to traditional families, the study evaluated six distinct modern family structures, including same-sex couple families, single-parent households, those with adult children returning home (boomerang families), multigenerational families, blended families, and families with older parents and young children.
The study revealed surprising differences in their responses to questions related to the financial security of traditional versus modern families. These responses provide the financial services industry with compelling evidence of the need to tailor products and services to meet the needs of these unique family structures.
Middle Class Feeling Financial Pressure
The most startling finding from the study was the extent to which all families – not just modern ones – are feeling financial pressure. Even though 85 percent of survey respondents identified themselves as “middle class” – a status that traditionally has afforded a level of financial security – nearly half of traditional families (47 percent) said that they are either “making ends meet,” “struggling financially” or “poor.” However, this response was a full 10 percentage points higher for modern families than for their traditional family counterparts.
Also worrisome was the finding that 49 percent of modern families said that they currently live paycheck to paycheck, versus 41 percent of traditional families. In addition, 25 percent of modern families said they are not saving any money at all.
Modern families also are feeling less confidence when it comes to their finances. This perhaps is because they have experienced more financial hardships in the past than traditional families reported.
Only 30 percent of modern families reported feeling a high level of financial security, versus 41 percent of traditional families. The split becomes more pronounced when looking at financial hardships. Thirty-six percent of modern families have collected unemployment benefits, versus only 21 percent of traditional families. And 35 percent of modern families have unexpectedly lost a main source of income, compared with 23 percent of families in the traditional category. Moreover, twice as many modern families have declared bankruptcy versus traditional families (22 percent compared with 11 percent of traditional families).
Modern Families Not Focused on Future
Perhaps more concerning, modern families also are struggling with their future financial outlook. Only 34 percent of modern families believe that they have “excellent/above average” financial planning knowledge or expertise, compared with 44 percent of their traditional counterparts. And only 51 percent of modern families (versus 60 percent of traditional families) think that they are on track to achieve their financial goals. The reason? Fifty-eight percent of modern families said that covering current expenses takes priority over planning for the future.
However, there were some positive takeaways from these families’ responses. Despite the challenges they face, today’s modern families are, in fact, striving to achieve financial success. More modern families said they talk openly to their children about their personal financial situation than do traditional families (54 percent versus 47 percent of traditional families). Moreover, 47 percent of modern families have actively encouraged their children to invest and save for their own retirement goals, compared to only 38 percent of traditional families.
Yet despite this encouraging and open environment regarding managing family finances, modern families are unlikely to rely on professional assistance to build their own financial plan. Less than half (43 percent) of modern families said they have ever used a financial professional, versus 53 percent of traditional families. This lack of professional guidance may be a factor in the way many modern families approach financial planning. More than a quarter (26 percent) said they “don’t make enough money to think about financial planning for the future,” versus 18 percent of traditional families. Nearly a third (31 percent) of modern families said they have “too many expenses and/or debts to pay off before I can think about planning for the future,” compared with about a quarter (26 percent) of traditional families.
Opportunity for the Financial Services Industry
The attitudes and opinions about money and financial planning revealed in the LoveFamilyMoney study point to an opportunity for financial professionals to make an impact with modern families and their approach to managing their finances. It’s clear that modern families have a different relationship with money, so they also need better feedback about what they are doing well, what habits need to change and how they can plan for a more successful financial future.
The following insights from LoveFamilyMoney can be a useful way for financial professionals and financial services firms to build more understanding about the different modern families that exist today and how the financial industry can be more effective in fulfilling their needs.
[1] Modern families are not alone: Statistics about the sheer number of modern families that exist today are telling, but perhaps more important is the fact that so many of them said that they are struggling financially and in need of assistance. Many modern families may feel uneasy about sharing their stories, but knowing that so many of their contemporaries are facing the same issues can be very comforting and can prompt them to take action.
[2] Higher hurdles need more planning: As the study revealed, far more modern families have experienced financial hardships in the past, including collecting unemployment benefits and declaring bankruptcy. This no doubt has an effect on whether these families believe that they can achieve their financial goals. However, a bigger issue may be the unexpected additions to many of these modern families that can throw their financial plans off track. Whether they are adding a child later in life, combining families or are taking on the burden of caring for an adult relative, new responsibilities require an entirely new approach to financial planning.
[3] Encourage financial inclusivity: Both traditional and modern families described a supportive family environment, saying they are supportive of one another, trusting, cooperative and emotionally close. However, as noted previously, modern families reported that closeness extends to more open family discussions about finances. This is a positive trend that should be encouraged and can be used to create a more inclusive family financial plan. Modern families want their children to have a better financial foundation. A greater percentage of modern families reported that they are helping their kids employ better financial habits, from encouraging better savings habits to helping them create a budget. An effective way to connect with these families is to harness this focus on total family involvement and build it into the larger plan.
[4] Live for today but plan for tomorrow: The respondents in LoveFamilyMoney were clear about their dedication to their families and ensuring that they are building lasting memories today. In fact, more modern families said that they were interested in “providing my children memorable experiences and opportunities today” than traditional families, who were more focused on “providing my children with a stable financial future.” Unfortunately, this strategy can come at the expense of retirement planning. More modern families than traditional families said that they worry about running out of money in retirement, and fewer said that they know exactly what steps they need to take to ensure a more comfortable retirement. Modern families need help balancing these goals and also determining how to save for middle-term priorities (house, education, etc.).
[5] Embrace diversity, realize opportunity: In 2014, the American family has taken a variety of shapes and sizes. Most financial professionals are well-aware of this fact, but the great diversity we see in this country through these modern family structures necessitates a more specialized approach to financial planning than ever before. For example, same-sex couples in the study reported a low amount of debt and a high level of financial security. The majority also indicated that they would prefer to work with a financial professional who is “knowledgeable and sensitive to my specific financial needs as a same-sex couple/family.” Financial professionals should challenge themselves to use these detailed insights to make better connections with their clients.
Modern families are here to stay and have a number of unique factors impacting how they approach financial planning. The more our industry recognizes this reality, the better we’ll be able to respond to their needs and help them achieve their financial goals.