Political turmoil outstrips inflation as Americans’ top financial worry

By Ayo Mseka

While more than 4 in 10 Americans surveyed named inflation as a major economic concern, the U.S. political environment topped inflation as their top financial worry.

These were the findings according to a new market intelligence report by Hearts& Wallets, Advice, Technology & Actions: Engagement with Human and Digital Influences and the Connection to Outcomes.

Top financial worries, in order, were:

U.S. political environment: 47%
Inflation: 44%
Future of Social Security: 39%
U.S. economy: 39%
Future of healthcare in the U.S.: 35%
U.S. deficit/future tax increases: 34%
Conflict and strife around the world: 33%

Financial worry spurs more saving

As a result of these economic concerns, Americans are cutting spending and increasing savings. Nationally, 8 in 10 U.S. households have taken a saving/investing action in the past year, and saving more, an area overlooked by many current financial advisors, explained Laura Varas, CEO and founder of Hearts & Wallets. And two thirds of households plan to take a saving/investing action,she added.

“These top concerns indicate consumers may have several reasons to boost saving, especially if they perceive economic and government instability, worry about the future of Social Security, and how to pay for healthcare,” added Varas.

Top household saving and investing goals of consumers also point to consumers’ motivation to save and invest, according to Varas. Top goals are:

Build up my emergency fund: 52%.
Take a vacation: 44%.
Have enough money to be able to work less/spend time as I want when older: 41%.
Stop work/retire when I am older: 35%.
Generate current income from my investments: 28%.

Goals that increased year over year (2023 to 2024) include having enough money to work less when older, stop work/retire when older, and take a vacation.

Support from financial advisors

Despite the actions of consumers to cut spending and increase savings, financial services firms aren’t delivering the desired support to help them, according to the survey.

So, what are some of the steps that financial services firms can take to provide this support and help their clients?

Hearts & Wallets Inside Advice Benchmarking reveals that advice on how to allocate savings is rare from financial advice experiences, said Varas. Most (67%) advice experiences do not even address allocation of new saving across account types.

Hearts & Wallets finds that advice experiences in more robust advice categories are linked to higher action-taking, Varas said. “The highest level goes beyond advice on investing and retirement to include advice on multiple goals (in addition to retirement), buy/sell investment recommendations, how to optimize taxes, detailed retirement planning, insurance and estate planning,” Varas said

“So more comprehensive advice really helps with positive outcomes,” she said, adding, “Of course, firms and advisors must be compensated for more robust advice. And the industry must work to ensure more households have some level of service and advice.”

In light of these financial worries, aAccording to Varas, firms and advisors can enhance support to help consumers act to cut spending or increase saving/investing by:

Tailoring solutions to facilitate interaction with human advisors while harnessing the economies and efficiencies of digital.
Offering a range of advice experiences to allow more households to achieve healthier financial outcomes by receiving at least some advice and service.
Identifying competitive opportunities to align with consumer demand for help with budgeting and saving.

Financial advice linked to better outcomes

“Healthier actions and better outcomes are linked to advice in more robust advice categories but not more online activities. Younger households and more affluent households are more likely to take many actions,” Varas said.

Another takeaway is that U.S. households cut back on sources of information and advice year over year. Consumers are favoring themselves and advisors over other sources, including online and employers, said Varas. Reliance on online as a source of investment information and advice has remained stagnant for 3 years, hovering at about 60% of households. “This suggests digital advice may have reached saturation with current technology,” she added.

Today, the average household conducts four to five online activities related to investment information and advice, up from two activities in 2012, Varas said. 22% of households engage in 10+ online activities. Top activities are “track or check accounts” and “use planning tools.”

Among investment decision-making preferences, self-directed (DIY) investment decision-making is at its lowest level since Hearts & Wallets tracking began in 2010. “General contracting” is at a peak. Varas said that Hearts & Wallets coined the term “general contracting,” defined as “seeking input from various sources as well as making some decisions on my own.” Delegation to financial professionals, which has been in decline since 2018, ticked up year over year, she said.

Advice, Technology & Actions: Engagement with Human and Digital Influences and the Connection to Outcomes examines sources of financial information and advice, online financial activities, and financial actions taken and planned. The report is based on the Hearts & Wallets Investor Quantitative™ Database, with over 120 million data points on saving, investing and advice behaviors from 80,000 U.S. households the past 15 years. The latest wave was fielded from July 17-Aug. 9, 2024, with 5,989 U.S. households.

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].