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FINANCIAL EXPERIENCE & BEHAVIORS AMONG WOMEN 2012-2013 Prudential Research Study FINANCIAL EXPERIENCE & BEHAVIORS AMONG WOMEN 1 FOREWORD Many of the fundamental changes in the lives and experiences of women over the last generation are reflected in the data we have seen in the 12 years we have been researching women’s financial experience and behaviors. In an effort to provide more comparative data that is reflective of women’s evolving roles in society, we’ve broadened the scope of Prudential’s biennial study on the Financial Experience & Behaviors Among Women. • With this study, we sought to highlight key ways in which women differ from men in their financial attitudes, perceptions, goals and confidence. • Previous studies focused on the financial experiences of female financial decision makers with household incomes of $50,000 or more. This study includes broader representation of women aged 25-68 across all income brackets. • We also sought data reflective of our increasingly diverse country. In addition to generational differences covered in past surveys, this year’s study specifically focuses on the experiences of Asian American, African American and Hispanic women. • A regional snapshot is also included at the close of this year’s study to highlight key financial differences among women by their geographic location. Susan Blount Senior Vice President and General Counsel Our 2012-13 study found that women are increasingly the primary breadwinners of many households. They are more likely to be single than a generation ago, either as a result of being widowed or the decision to remain single, marry later or divorce. This is increasingly the case for women in their 50s or later. Our data confirms the long-term trend we have seen of women playing a key role in making financial decisions, but notes that increasingly this is not a matter of choice. Christine Marcks President, Prudential Retirement This survey also shows generational differences in attitudes toward money, as well as differences based on ethnicity. Women close to or about to retire clearly have had different life experiences and expectations than women in their 20s or 30s. As more women assume greater responsibility for financial decisions out of need, they are doing so at a time when both men and women are taking on an increased responsibility for managing retirement and benefits choices due in part to the shift from traditional defined benefit pension to defined contribution plans. In sum, the financial crisis has served to accelerate change and push more women into primary breadwinner roles. They have assumed greater responsibility for financial decision making at a time when financial planning has arguably never been more difficult and the choices never more complex. While women are more in control than ever of their finances, the study shows they are facing significant challenges when it comes to financial decision making and admit to a lack of knowledge about financial solutions that can help them. The financial services industry clearly has work to do to support financial education and help women take action toward financial empowerment and a more secure retirement. Learn more at www.prudential.com/women 2 FINANCIAL EXPERIENCE & BEHAVIORS AMONG WOMEN SUMMARY Women are concerned about the economy, yet remain optimistic The slow economic recovery has taken its toll on women, with more than a third identifying themselves as economically on the edge or falling behind. Yet, they remain less pessimistic than men about the near-term future of the U.S. economy. Women who are the primary breadwinners, earning more than their spouses, are much less pessimistic about the economy’s future than male breadwinners are. Women are breadwinners The majority of women surveyed are primary breadwinners. Forty percent of female respondents are single, and a quarter of married women earn higher incomes than their spouses or partners. On the surface, this appears to put a large portion of women in the driver’s seat when it comes to financial decision making. Yet, just 23% of breadwinner women feel very well prepared to make financial decisions, compared with 45% of their male counterparts. Women’s financial priorities differ Women are more collaborative in their decision making, more focused on household expenses, and concerned about not becoming a financial burden to loved ones and passing money on to heirs. But this tendency to take care of others first can compromise their families’ futures. Women are diverse, and backgrounds matter Women of different backgrounds have different financial experiences. A higher proportion of Asian American and African American women are employed full time and, compared to other women, these two groups are also more confident they will achieve their financial goals. Asian American women are the highest users of financial advisors; African American women rarely use financial advisors but are the most open to working with an advisor in the future. Both younger women and baby-boomer women are ‘not prepared’ for retirement Women under 35 have well-defined goals for their financial future. Although they frequently identify themselves as investment beginners and are less likely to say they feel very well prepared to make wise financial decisions than female baby boomers, they are the most likely to see financial decision making as their own responsibility, and they feel empowered to participate in or make decisions on their own. They also show a strong interest in receiving financial advice. Yet, they are not far from baby-boomer women in their perceptions about retirement readiness, with both groups saying they are way behind or haven’t started planning for retirement. Women’s confidence gap has deepened Women are far less confident that they will meet their financial goals and feel less prepared to make wise financial decisions. They are twice as likely as men to describe themselves as financial ‘beginners’ (15% of women vs. 7% of men). Most women are not working with financial advisors. Those who do use advisors tend to have higher assets and more diversified portfolios, as well as greater confidence and preparedness to meet their financial goals. FINANCIAL EXPERIENCE & BEHAVIORS AMONG WOMEN 1 WOMEN REMAIN RESILIENT – DESPITE ECONOMY Women remain positive about the future Despite the challenging economy, women are surprisingly positive about the future, with over a third (38%) of female respondents saying they feel optimistic about the country’s economic prospects over the coming year. On the other hand, more men than women (24% vs. 16%) say they are very pessimistic about the economic outlook, even though women say they have been hit harder by the events of the past few years. While hard hit by the slow recovery, women have not succumbed to pessimism. Economy has impacted women more severely than men The majority of both women (70%) and men (65%) say they have lost ground as a result of the slow economic recovery, but the impact has been more severe for women. More men than women report some improvement in their household’s situation and describe themselves as either doing well or upscale (See Figure 1). Double the national average of respondents (17%) report being unemployed.* Only 39% of women have full-time jobs compared to 55% of men. For married women and those living with a partner, 30% say they’ve experienced a layoff within their household as a direct result of the downturn. More troubling, more than one in three women surveyed report they are struggling to make ends meet or they are no longer able to keep up with expenses (See Figure 1). Figure 1 Few women see their status as more than adequate Female Male Upscale – I’m doing what, when, where I want 3% 7% Doing well – I’m not part of the 1%, but things are good 17% 22% Adequate – I’m living modestly, paying the bills and staying independent 43% 37% On edge – I’m making ends meet, but it’s a struggle 28% 25% Falling behind – No longer able to keep up with expenses 9% 9% * The Department of Labor calculates unemployment rates by counting those who are both out of work and actively filing unemployment claims, so self-reports, such as surveys, are often higher than official reports. 2 FINANCIAL EXPERIENCE & BEHAVIORS AMONG WOMEN WOMEN ARE BREADWINNERS – THOUGH NOT ALWAYS BY CHOICE Many women are higher earners, but lack financial expertise The majority of women (53%), including single, married or with a partner, are primary breadwinners. Almost a quarter (22%) of women who are married or living with a partner report being the one who makes more money. This varies greatly by race: a third of Asian American (33%) and African American (31%) married women are the higherincome earners, compared to just 19% of white women. Among female breadwinners, nearly a third say they earn more than their spouse as a direct result of the challenging economy. Women’s level of financial responsibility within the household has outpaced their investment confidence. Being the higher earner does not always lead to greater control over financial decision making. Compared with all women, female breadwinners are less likely to see themselves as the primary financial decision makers and, instead, are more likely to report an equal sharing of that responsibility with their spouses. Compared with their male counterparts, female breadwinners are half as likely to feel very well prepared to make wise financial decisions (See Figure 2) and, though they are more knowledgeable than their non-breadwinner counterparts, only one in 10 female breadwinners feels very knowledgeable about financial products and services. Overall, understanding of many financial products is very low (See Figure 3). Figure 3 Female breadwinners lack knowledge of financial products Not too well Not at all well Female breadwinners are more likely than other women to say that they maintain completely separate financial accounts and investments from their spouse (27% vs. 15%). Although relatively few women or men report having financial accounts of which their spouse is unaware, female breadwinners are three times more likely to do so than other women. Figure 2 Female breadwinners less confident than male peers Female Male IRAs 26% 8% Long-Term Care 35% 9% Estate Plans 32% 14% Stocks/Bonds Very well prepared 33% 20% 12% 45% Mutual Funds Need help in a few areas 29% 38% 15% 37% Annuities Need to catch up in many areas 34% 29% 21% 15% I’m a beginner 13% 3% FINANCIAL EXPERIENCE & BEHAVIORS AMONG WOMEN 3 FINANCIAL STYLES AND PRIORITIES DIFFER Women and men make decisions differently Women are more collaborative in making household financial decisions and typically involve their partner. Thirty-five percent of women with spouses or partners say they share equally in decision making, while 73% of men report being the primary decision makers (See Figure 4). Women not involved in financial decisions most often claim a lack of financial knowledge, while uninvolved men say they are too busy with other obligations. Different worries keep women and men up at night Women worry most about household expenses, levels of household debt and their ability to save enough for retirement. Those who are primary breadwinners also worry about their job security and whether they will be able to pay their mortgage. Men are more externally focused, saying they worry most about the state of the economy, followed by concerns over paying household expenses and being able to save for retirement. While both men and women worry about having enough money to maintain their lifestyle in retirement, more women are concerned about not becoming a burden to their families. This is particularly true of African American women (nearly 100% strongly agree). Figure 4 Men take control of financial decision making Wife Women focus on the family, but their risk aversion may be putting their families’ financial health at risk. Women and men have different appetites for risk With the backdrop of the slow economic recovery, Americans in general tend to be risk averse, but this is especially true for women. The majority (70%) see themselves as savers rather than investors, and are interested only in guaranteed or FDIC-insured products. The exact opposite is true for men – they are willing to take some risk for the opportunity of greater financial reward (70%) and actually say they enjoy the sport of investing (40%) (See Figure 5). Figure 5 Women are more risk averse Female Male I enjoy the sport of investing 22% 40% Husband Have spouse take control 8% 1% Have spouse do it with your input 14% 5% Share equally I’m only interested in guaranteed/FDIC-insured products 59% 50% I’m willing to take risk for opportunity of reward 49% 70% 35% 21% I am more a saver than investor 70% Do it yourself with input 60% 25% 35% Take control 19% 38% 4 FINANCIAL EXPERIENCE & BEHAVIORS AMONG WOMEN THE CONFIDENCE GAP HAS DEEPENED OVER THE PAST TWO YEARS Lack of confidence persists regarding retirement and other needs Women lack confidence about achieving one of their most important financial goals: retirement security. Women are relatively confident in their ability to achieve financial goals such as buying a house, reducing debt, being able to support themselves and not being a financial burden to their families. Yet they are less confident about having enough money to maintain their lifestyle in retirement, protecting investments from volatility, and not outliving or spending the money they have saved for retirement (See Figure 6). Four in 10 women say they need help in specific areas to feel prepared financially. Fewer women than men feel very well equipped to make wise financial decisions (22% vs. 37%). Prudential’s tracking of U.S. women since 2004 (household income $50K+) reveals that the gap between important goals and confidence in achieving those goals has widened from 62 points in 2008 to 69 points in 2012. This is especially true for one of the most important goals to women: having enough money to maintain their lifestyle in retirement (See Figure 7). Figure 6 CONFIDENCE Higher Women not confident in achieving key financial goals Buy a home Reduce personal debt Take care of parents Give to charities Provide college tuition to children Not be a financial burden Maintain standard of living Pass money to heirs Lower Start or grow a business Secure long-term health or nursing home care Lower Be financially secure if outlive spouse Not outlive or spend savings Have enough money to maintain lifestyle in retirement Protect investments IMPORTANCE OF FINANCIAL GOALS Higher Figure 7 A drop in confidence about maintaining lifestyle in retirement (Women with household income $50K+) CONFIDENCE GAP -55 -60 -65 -70 2004 FINANCIAL EXPERIENCE & BEHAVIORS AMONG WOMEN 2006 2008 2010 2012 5 ADVICE CAN HELP CLOSE THE CONFIDENCE GAP Confidence grows with advice On the surface, women may not be seen as a primary audience for financial advisors. The median household income for all female respondents is $51,000 vs. $57,000 for men, so it is not surprising that just over a third (35%) of these women report using a financial advisor. Yet, men are slightly less likely to do so despite somewhat higher incomes (33%). Compared to other women, those who currently use an advisor are more likely to be married, to have a higher income level, to feel they are either ahead or on track for meeting their retirement goals, and are more willing to take risk for reward (See Figure 8). With their higher income, they also boast higher savings and investments – a median of approximately $63,000 compared with just $10,000 for women without a financial professional. In addition to these material investment differences, women who work with a financial professional feel more confident about not outliving their savings in retirement and maintaining their standard of living than others. Thus, advisors help close the confidence gap. Women seek financial partnership When purchasing financial products, women tend to identify themselves as collaborators, with 44% saying they usually rely on some input from a professional advisor but make their own decisions. By contrast, men most often say they prefer to make financial decisions on their own (54%). A small percentage of both women and men say they base their decisions mostly on the recommendation of their advisor (15% of women and 12% of men) (See Figure 9). Women who work with advisors are generally satisfied with the amount of time their advisor spends with them, with only 17% saying they want to be more engaged. However, almost a quarter of women say they would discontinue the relationship with their financial professional in the event that their spouse passed away, suggesting room for improvement in the quality of the advisory relationship for women. Advisors can help women build diverse portfolios and foster confidence. Figure 8 Women who use advisors are different No Advisor Advisor Figure 9 Women more likely to rely on advisor input than men All women Female 65% Male 35% Do my own research and buy directly Married/in a domestic partnership 41% 59% 54% 64% Rely on advisor input, but make my own decisions Feel ahead/right on track 44% 18% 33% 36% Base decisions mostly on advisor recommendations Willing to take risk for reward 15% 41% 12% 64% 6 FINANCIAL EXPERIENCE & BEHAVIORS AMONG WOMEN Women likely to work with advisors More than a third of women (35%) who do not use a financial professional today would consider doing so. Despite their growing earnings power and interest in partnering with a financial professional, women remain relatively underserved by financial advisors. Two-thirds do not currently work with a financial professional. Women who do not currently use an advisor but are likely to do so are younger, have higher incomes, are disproportionately African American, and are more likely to own an IRA or contribute to an employer-sponsored defined contribution plan (See Figure 10). Figure 11 Many obstacles to using advisors Female Male Too expensive 53% 44% Don’t have sufficient assets 51% Women are more receptive to advice than men. The key barrier to overcome is the perception of expense. 47% Prefer to do it on my own 19% 30% Not interested Yet, cost is an issue Perceived expense is the main reason cited by women for not using a financial professional, which suggests they would be interested if they thought fees weren’t a barrier (See Figure 11). Women who are receptive to using an advisor say they would rely on a referral from a friend, family member or co-worker to find one. 17% 26% Untrustworthy 17% 24% Figure 10 Women likely to use advisors are more diverse Women with an advisor Median Age 49 Years old Education 51% College Ethnicity 62% 9% 12% 16% White Black Asian Hispanic Financial products owned 59% DC Plan 65% 48% IRA Mutual Fund 26% Annuity 46% Stocks/Bonds 7% Annuity 17% Stocks/Bonds 6% Annuity 12% Stocks/Bonds Women with NO ADVISOR but would consider Median Age 39 Years old Education 40% College Ethnicity 52% 20% 8% 16% White Black Asian Hispanic Financial products owned 44% DC Plan 34% 13% IRA Mutual Fund Women with NO ADVISOR and would NOT consider Median Age 47 Years old Education 27% College Ethnicity 62% 15% 7% 15% White Black Asian Hispanic FINANCIAL EXPERIENCE & BEHAVIORS AMONG WOMEN Financial products owned 34% DC Plan 26% 16% IRA Mutual Fund 7 DIVERSE BACKGROUNDS DRIVE DIVERSE FINANCIAL HEALTH Financial experience varies by ethnicity Reflecting the diversity within American households and among ethnic groups, there are a number of trends that highlight differences between them, with a significant impact on financial health. Asian American and African American women have the highest rates of full-time employment (See Figure 12). Four in 10 African American women surveyed were married or living with a partner compared with approximately six in 10 women of other ethnic groups, which means that they are less likely to benefit from a dual income or a sounding board. White women more often self-identify as homemakers. Ethnicity impacts American women’s financial health. Asian American women indicate a higher use of financial advisors and broader financial product ownership (See Figure 13). Figure 13 Financial profile differs by ethnicity Figure 12 Employment differs by ethnicity Asian Hispanic Asian Hispanic Black White Median Income $77K $51K $43K $51K Median Savings $59K $10K $11K $17K Use an Advisor 47% 36% 23% 36% Own Life Insurance 46% 38% 46% 38% Own an IRA 51% 28% 23% 32% Own a Mutual Fund 40% 16% 13% 22% Own an Annuity 16% 8% 5% 10% Own Stocks/Bonds 37% 15% 13% 22% Black White Unemployed 9% 15% 19% 19% Homemaker 12% 10% 10% 18% Employed part time 5% 13% 10% 12% Employed full time 55% 42% 47% 33% 8 FINANCIAL EXPERIENCE & BEHAVIORS AMONG WOMEN