Risk Tolerance and Life-Stage Marketing in Financial Services MacroMonitor Marketing Report Vol. IV, No. 3 April 1999

The prolonged bull market, combined with unprecedented access to more investment information and more financial choices, has ushered in a new financial environment for U.S. households. With the financial markets continuing their rally and breaking Dow Industrials and S&P 500-stock index records, households are adjusting their risk-tolerance levels and jumping into the market in increasing numbers. As households increase their awareness of the many opportunities in the financial market, financial institutions may need to reassess their life-stage marketing strategies to respond to the households' changing outlook and financial profile.

Most Important Factor

One of the principal tenets of life-stage marketing is that the appetite for risk depends on the life stage of the household. Older-Retired households and households with young children are usually more cautious about how and where they invest their money. Younger single or married households with no children, meanwhile, can afford to indulge in more high-risk activities. The figure highlights this divergence in risk orientation.

However, the trend data between 1994 and 1998 show a significant overall increase in risk tolerance across all life stages, particularly among younger households with no children (Single-No-Child and Married-No-Child households). Even among Older Retireds, the life-stage segment that has been traditionally risk averse, the positive responses have increased as well in the same period. This MacroMonitor study analyzes other attitudinal indicators showing increased risk tolerance over time among households in various life stages.

Life-stage marketers typically view asset accumulation and the accompanying need for financial advice as gradually increasing in importance as a household goes through the life stages. Investment-related activities, for example, traditionally reach top priority as the household approaches retirement. The current higher levels of interest and participation of Single-No-Child and Married-No-Child households in investing and financial planning that this study documents indicate that financial marketers can find many new opportunities to reach households long before they reach the empty-nest stage. In addition, financial marketers may need to address the needs of a growing subsegment of households that have decided to remain child free and skip altogether the child-rearing years and their attendant financial needs.

We are apparently entering a period in which asset accumulation—and in particular investing—is growing among all life stages without children. Because so many of these households are investing, marketers will need to focus on differences in the motivations of each life stage to tailor its advertising, marketing messages, and products. At the same time, should the market stall or decline for an extended period, the reaction of each life stage would be tempered by its goals and time line. Marketers with a better understanding of their target segments' objectives, preferences, and experience will be better prepared to anticipate and react appropriately, no matter what transpires.