It’s no surprise that those who have the most “financial fragility” — that is, vulnerability to a financial crisis and a negative outlook on personal finances — are the younger generations, i.e. millennials and Gen Xers, as well as those who are disabled and have lower education levels.

However, as the Society of Actuaries found in its recent survey, Financial Fragility Across the Generations, there are “distinguishing characteristics” of those deemed financially fragile, and they have specific views about their finances and retirement, information that could help advisors get them better situated for the future.

The study found that one in four millennials and Gen Xers are highly financially fragile, whereas the number for baby boomers and silent generation drops to about one in six. Gender wasn’t much of a factor in fragility, with 55% of men and 48% of women at low fragility and 19% of men and 23% of women at high fragility.

The group with the lowest financial fragility were married people, with only 15% measuring highly fragile. Interestingly, those living with a partner were most likely, 33%, to be highly fragile, although 46% of them fell into the low-fragility category, compared with 38% of those single and never married.

Other groups with low fragility included those with college and post-graduate degrees, those retired as well as working for pay, those making $100,000 a year or more, and those with savings and investments of $100,000 or more.

Retirement Concerns

The study found that six in 10 of those with high financial fragility plan paycheck to paycheck, while those with low levels tend to think long term, especially for retirement.

The study also found that priorities differed dramatically according to low and high levels of fragility. Almost all those with high fragility, 92%, stated being able to pay bills was their high or highest priority. Comparatively, 57% of those in the low fragility category said the same.

For those with low financial fragility, 67% said saving for retirement was a high or highest priority, compared to 43% of those in the high-fragility group. Other areas, such as building up emergency funds or saving for medical expenses, vacations, long-term care or children’s education was roughly similar across all groups. However, paying off credit card debt was highest for 60% of those of moderate fragility, compared with 52% of those with high fragility and 34% of those with low fragility.

The greatest retirement concern across all groups was whether the value of their savings and investments would keep up with inflation. For those with high financial fragility, they were most concerned about maintaining a reasonable standard of living for the rest of their lives, having enough money to pay for adequate health care, and depleting all their savings. All groups also were concerned if they would have enough money to stay in a nursing home or pay for nursing care. The smallest concern across all groups was whether they will be able to leave money to heirs.

Devil Is in the Debt

Again, it’s no surprise those with a high level of fragility have the highest level of debt, car loans and money owed to friends and family. Those with the lowest level of fragility are the largest group with no debt. That said, those with high and moderate financial fragility were most likely to stick to a budget and learn to use credit cards wisely to get debt under control. However, they also are the least likely to have a retirement plan or work with a financial advisor or planner.

The online study, which was done by Greenwald & Associates for the SOA, surveyed 2,001 individuals of all age groups from July 17, 2018 through July 27, 2019.

The key takeaways SOA had for advisors included:

  • Debt is a key issue for those with high financial fragility, and is a “huge barrier” to financial security. This group, i.e. younger generations, must be educated on use of debt.
  • Advisors would be wise to help clients set up emergency funds, as they are important tools that are “currently underutilized.”
  • Helping high financial fragility clients to expand planning horizons is key. This means moving clients beyond cash flow management to longer-term planning, such as retirement. The study recognizes this needs to be done in small steps and must include “effective strategies” that integrate paying everyday bills as well as saving for the future.
  • As savings accumulate, advisors need to educate clients on how to shift from saving to investing.

“I was very concerned about the lack of retirement planning and longer-term thinking among those with high financial fragility,” said Anna Rappaport, chair of SOA’s Aging and Retirement Strategic Research Initiative, in an email. “The number of financially fragile individuals is one of the most striking findings from the Society of Actuaries survey. We found that one in four millennials and Gen Xers are considered financially fragile. That means that a quarter of this age group is not only dealing with financial fragility currently, but there are also major implications for their future retirement preparedness. The survey made it clear to me how important it is to deal with the issues related to fragility before one can expect real planning and saving for retirement. That requires an add-on to typical programs that help people plan for retirement.”

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