U.S. households that adopt five financial wellness behaviors build more wealth than other households, according to a research report by Hearts & Wallets, which has been tracking these behaviors.
Behaviors of peak accumulators
Peak Accumulator™ behaviors, first identified by Hearts & Wallets in 2010, allow households to amass far more assets than groups with less financially healthy behaviors, the survey said. Sixty-seven percent of Peak Accumulators save 10%-plus of their income, more than double the national rate of 30% for U.S. households, who saved 10%-plus in 2022.
According to the survey, Peak Accumulators also had a national adoption rate of being “true” for the following 5 behaviors in 2022:
“My insurance needs are covered" (life, home, car, health): 66%
“I have little or no credit card debt”: 59%
“I have some savings in case I lose my job”: 54%
“I generally spend less than I make”: 51%
“I have a retirement savings plan(s) and I contribute to it/them regularly”: 43%
“Consumers can execute on behavioral measures immediately as a way to boost their financial nest eggs,” Laura Varas, CEO and founder of Hearts & Wallets, said. “Behavioral segmentations can help firms to measure progress internally and against competitors and are also an excellent way to supplement success scores in advice experiences.”
Consumers’ challenges with saving for retirement
The most difficult behavior for consumers to adopt is having a retirement savings plan or plans and contributing regularly, added Varas.“Only 43% of households nationally say they've adopted this behavior, making it the lowest percentage of the five Peak Accumulator behaviors. “
There are several reasons why saving for retirement is the most difficult behavior for consumers to adopt, Varas explained. Part of the issue is that consumers need to balance multiple, often competing goals, she said.
“When Hearts & Wallets looks at top financial goals for U.S. households, we find the top three goals at the national level are to build up my emergency fund (48%), take a vacation (42%) and have enough money to be able to work less/spend time as I want when I'm older (39%) as of 2022. Often Americans prioritize other goals that take on more immediacy before the longer-term goal of saving for retirement. These other goals include saving for a home, a car or a child's education.”
Another part of the explanation may be that retirement is not seen as a goal for some individuals, who may plan to continue working for as long as possible, Varas added. Advisors may want to shape their messaging around saving to meet goals when older rather than use the word "retirement" to get more participants engaged in these longer-term saving goals.
Helping clients save more
As they work with their clients, advisors can also help provide suggestions for saving that take into consideration multiple goals.
“Identify where their next dollar saved should go,” Varas said. “Help them consider where emergency funds make the most sense to be located and when some savings can be put into taxable brokerage or other vehicles for better returns and still provide liquidity for short-term goals. Educate clients about how retirement savings can be part of an overall financial plan, and help them get the full match from their company, if that's an option. As I said earlier, advisors may want to adjust their client messaging to talk about saving to meet goals when older, rather than actual 'retirement.' "
Takeaways for advisors
U.S. households are saving more than at any time since 2012, and Americans are favoring liquid accounts, Varas said. Advisors can help clients build wealth by enhancing advice about saving allocation and about diversification of savings across different types of accounts.
In addition, Varas advised, advisors should:
Identify the high savers. High savers are most likely aged 35 to 54, when saving 10%-plus of income is at or near all-time highs. Recognize that income is the biggest predictor of high saving, but good savers can be found across all income ranges.
Assess your current customer base, competitive positioning and relative strengths to attract and retain high savers. “Cross-sell savings products that might interest high savers to increase your share of wallet,” she said.
Talk about the need for emergency funds and emphasize taxable brokerage accounts as a way of building liquid reserves. Develop more compelling packaging for taxable brokerage accounts and avoid trying to keep assets in low-yield accounts.
Build content on how to balance retirement and taxable registrations into customer- advice experiences. Set recommendations for retirement saving in context of all types of saving, Varas added.
Financial-wellness behaviors by firm
In addition to identifying the five financial-wellness behaviors that help build wealth, the survey noted that workplace program, participant-reported, financial- wellness behaviors are improving steadily at the following companies:
Voya has the highest proportion of workplace participants who do all 5 Peak Accumulator behaviors at 47% among participants who know their plan providers, the survey said.
“Workplace wellness programs position participants for successful wealth building, “ Amber Katris, Hearts & Wallets Subject Matter Expert and report co-author, said. “Such programs can also satisfy sponsor demand and bolster low recordkeeping margins with additional revenue streams.”
The report, Household Finance: Quest for Liquidity, the Connection to Workplace Financial Wellness and the Current Competitive Environment, provides a full picture of household finance. It is based on a survey of 5,993 U.S. households in the latest wave of the Hearts & Wallets Investor Quantitative™ Database, which was fielded from August 15 – September 15, 2022.
Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].