America's Affluent: Satisfying Their Needs in an Era of Uncertainty 2002–03 Affluent MacroMonitor Report


Introduction
Table of Contents
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Introduction

The market events of the past two years have changed the financial landscape for institutions and consumers. This report examines the current state of the Affluent market and analyzes Affluent consumers' financial needs, behaviors, and attitudes in the context of a dynamic and rapidly changing environment. To be "Affluent" for inclusion in the MacroMonitor's segmentation requires that a household have either a total annual income of at least $100,000 or total assets, excluding the primary residence, of $500,000 or more. Our analyses are based on eight key populations within the overall Affluent group. Definitions of the two larger groups—Mass Affluent and Millionaires households—are based on total household net worth, with the dividing line at $1 million. The six smaller groups represent populations that we have defined consistently since 1992; they allow us to analyze the financial needs and attitudes of Affluent households in the United States that share fundamental wealth attributes that are predictive of financial needs and reflect a combination of preferences for certain types of assets and their wealth-accumulation/distribution status.

Figure 1 shows the present and recent past distribution of Mass Affluent and Millionaires households in the United States.


Trend in Distribution of Mass Affluent and Millionaires Households (Percent of Households)


What are some of the forces that drove this dramatic shift in the composition of the Affluent market? How can we gain a better understanding of how consumers' reactions to those defining forces manifest themselves and change the shape of the Affluent population? What are the effects on the behaviors and attitudes of Affluent households as they react to new financial challenges and opportunities? To answer these and other important questions, while developing a meaningful context to advance our understanding of what affluence means in terms of the opportunity to provide financial services to this population, we look at the Affluent population also through the lens of our proprietary segmentation.

The Consumer Financial Decisions (CFD) Affluent Segmentation graphic illustrates and provides definitions for the Affluent population segments that we have been tracking and analyzing for the past decade.


THE CFD AFFLUENT SEGMENTATION


The Consumer Financial Decisions (CFD) segmentation algorithm incorporates demographic, psychographic, life-stage, and behavioral variables to select, cluster, and assess household behavior. It focuses on households with total income equal to or greater than $100,000 or with assets of $500,000 or more (excluding the primary residence). At present, this upscale market comprises 16.5 million Affluent American households. The proprietary model divides the Affluent market into six mutually exclusive household types. We define retired households (under Wealthy Retired) and business owners (under Entrepreneurs) first. We then define the remaining segments on the basis of the value of their primary home and their financial assets.


Distribution of Affluent U.S. Households (Percent of Households)


  • Balanced Builders are households with high levels of both real and financial assets. They have financial assets of $300,000 or more, and their home value is $200,000 or more.

  • Focused Builders hold high financial assets equal to or greater than $300,000 but have home values lower than $200,000.

  • Real Asset Builders invest primarily in real estate. Their real estate assets are worth $200,000 or more, but their financial assets total less than $300,000.

  • The Emerging Affluent have both a low level of financial assets (less than $300,000) and low home values (less than $200,000).

  • In Wealthy Retired households, the primary head of household either is retired or is 65 years old or older and works fewer than 20 hours per week.

  • Entrepreneurs are households in which the household head's primary occupation is the ownership of or partnership in a business or professional practice.

Composition of Affluents by MacroMonitor Segments



Figure 2 shows how our Affluent segments are distributed in the Mass Affluent and Millionaires populations.


Distribution of Affluent Segments among Mass Affluent and Millionaires Populations (Percent of Households)


If one is focusing on the Mass Affluent market, the main focus will be on the households characterized by the Real Asset Builders, Focused Builders, and Emerging Affluent segments because more than 70% of the households in each segment fall into the Mass Affluent group. If, on the other hand, one is pursuing the Millionaires market, the Wealthy Retired, Balanced Builders, and Entrepreneurs segments represent 90% of households that have a net worth of $1 million or more. Those three segments are also well represented in the Mass Affluent population and may represent the best opportunity in terms of growing profitability by an acquisition and retention strategy. Figure 3 puts into perspective the relative shares of each segment that qualifies as Mass Affluent or Millionaires households.


Proportion of Mass Affluent versus Millionaires Households within each CFD-Proprietary Affluent Segment (Percent of Households)


The fact that all the segments represent opportunities within both the Mass Affluent and the Millionaires groups suggests the complex marketing challenge that the Affluent market represents. The key to unlocking the Affluent market opportunity is a thorough understanding of who these households are financially and how they react to changes in the overall market environment. The events of the past two years offer a unique opportunity for gaining meaningful insight into the behaviors and attitudes of the U.S. Affluent population.



TABLE OF CONTENTS
Introduction 1
Executive Summary 6
  The Total Affluent Market 6
  The Mass Affluent Market 6
  Transactions 6
  Protection 7
  Savings and Investments 7
  Credit 7
  Information and Advice 8
  The Millionaires Market 8
  Transactions 9
  Protection 9
  Savings and Investments 9
  Credit 10
  Information and Advice 10
  The Mass Affluent and Millionaires Markets 11
  Mass Affluent Trend Analysis: 2000 versus 2002 16
  Financial Profile 16
  Financial Needs of the Mass Affluent 19
  Sizing and Segmenting the Market by Age Cohort and Life Stage 19
  The Role of Recent Life Events in Shaping the Mass Affluent Market 21
  Transactions 24
  Protection 28
  Savings and Investments 31
  Credit 35
  Information and Advice 38
  Millionaires Trend Analysis: 2000 versus 2002 42
  Financial Profile 42
  Financial Needs of the Millionaires Population 46
  Sizing and Segmenting the Market by Age Cohort and Life Stage 46
  Transactions 49
  Protection 54
  Savings and Investments 56
  Credit 60
  Information and Advice 64

Segment Profiles
Balanced Builders 68
  Highlights 68
  Demographics 68
  Savings and Investments 68
  Credit 68
  Protection 69
  Information and Advice 69
  Attitudinal Profile 75
  Demographics 77
  Savings and Investments 79
  Credit 81
  Protection 82
  Transactions 82
  Information and Advice 83
  Personal-Computer and Internet Use 83
  Trend Analysis: 2000 versus 2002 85
Focused Builders 92
  Highlights 92
  Demographics 92
  Savings and Investments 92
  Credit 92
  Protection 92
  Information and Advice 93
  Attitudinal Profile 99
  Demographics 101
  Savings and Investments 103
  Credit 104
  Protection 105
  Transactions 105
  Information and Advice 106
  Personal-Computer and Internet Use 108
  Trend Analysis: 2000 versus 2002 109
Real Asset Builders 117
  Highlights 117
  Demographics 117
  Savings and Investments 117
  Credit 117
  Protection 118
  Information and Advice 118
  Attitudinal Profile 124
  Demographics 127
  Savings and Investments 129
  Credit 132
  Protection 133
  Transactions 134
  Information and Advice 134
  Personal-Computer and Internet Use 135
  Trend Analysis: 2000 versus 2002 137
Emerging Affluent 144
  Highlights 144
  Demographics 144
  Savings and Investments 144
  Credit 144
  Protection 145
  Information and Advice 145
  Attitudinal Profile 150
  Demographics 155
  Savings and Investments 156
  Credit 158
  Protection 160
  Transactions 161
  Information and Advice 163
  Personal-Computer and Internet Use 165
  Trend Analysis: 2000 versus 2002 167
Wealthy Retired 175
  Highlights 175
  Demographics 175
  Savings and Investments 175
  Credit 175
  Protection 175
  Information and Advice 176
  Personal-Computer and Internet Use 176
  Attitudinal Profile 181
  Demographics 186
  Savings and Investments 188
  Credit 190
  Protection 190
  Transactions 191
  Information and Advice 192
  Personal-Computer and Internet Use 193
  Trend Analysis: 2000 versus 2002 195
Entrepreneurs 202
  Highlights 202
  Demographics 202
  Savings and Investments 202
  Credit 202
  Protection 202
  Information and Advice 203
  Personal-Computer and Internet Use 203
  Attitudinal Profile 209
  Demographics 212
  Savings and Investments 215
  Credit 216
  Protection 217
  Transactions 217
  Information and Advice 218
  Personal-Computer and Internet Use 220
  Trend Analysis: 2000 versus 2002 222

Tables

Mass Affluent
 
Market Size and Balance-Sheet Trends 16
Asset-Class Incidence and Balance Trends 17

Millionaires
 
Market Size and Balance-Sheet Trends 43
Asset-Class Incidence and Balance Trends 44

Balanced Builders
 
Demographic Profile 70
Balance Sheet 72
Insurance Product Ownership Profile 74
Balanced Builders: Market Size and Balance-Sheet Trends 85
Balanced Builders: Asset-Class Incidence and Balance Trends 87

Focused Builders
 
Demographic Profile 94
Balance Sheet 96
Insurance Product Ownership Profile 98
Focused Builders: Market Size and Balance-Sheet Trends 109
Focused Builders: Asset-Class Incidence and Balance Trends 112

Real Asset Builders
 
Demographic Profile 119
Balance Sheet 121
Insurance Product Ownership Profile 123
Real Asset Builders: Median Balances in Savings and Investment Products 131
Real Asset Builders: Market Size and Balance-Sheet Trends 138
Real Asset Builders: Asset-Class Incidence and Balance Trends 139

Emerging Affluent
 
Demographic Profile 146
Balance Sheet 148
Insurance Product Ownership Profile 150
Focused Builders: Market Size and Balance-Sheet Trends 168
Focused Builders: Asset-Class Incidence and Balance Trends 170

Wealthy Retired
 
Demographic Profile 177
Balance Sheet 179
Insurance Product Ownership Profile 181
Estimated Mean Number of Annual Financial Transactions 192
Wealthy Retired: Market Size and Balance-Sheet Trends 196
Wealthy Retired: Asset-Class Incidence and Balance Trends 197

Entrepreneurs
 
Demographic Profile 204
Balance Sheet 206
Insurance Product Ownership Profile 208
Entrepreneurs: Market Size and Balance-Sheet Trends 222
Entrepreneurs: Asset-Class Incidence and Balance Trends 223

Figures
Trend in Distribution of Mass Affluent and Millionaires Households 1
Distribution of Affluent Segments among Mass Affluent and Millionaires Populations 4
Proportion of Mass Affluent versus Millionaires Households within Each CFD-Proprietary Affluent Segment 5
A Slowdown in Affluent-Market Growth 11
Trend in Distribution of Mass Affluent and Millionaires Households 12
Trend in Relative Proportions of Mass Affluent versus Millionaires 13
Trend in Number of Mass Affluent versus Millionaires Households 13
Distribution of Affluent Households by Net Worth 14
Trend in Numbers of Households Qualifying as Affluent on the Basis of Income Only, Assets Only, or Both 14
Trend in Proportions of Households Qualifying as Affluent on the Basis of Income Only, Assets Only, or Both 15
Trend in Distribution of Incidence of Ownership and Average Assets for All Affluent and Mass Affluent Households 18
Distribution of the Mass Affluent by Age Cohort 19
Distribution of Mass Affluent Households by Life Stage 20
Trend in Incidence of Recent Life Events among Mass Affluent Households 23
Trend in Distribution of Financial Institutions Named as Primary among Mass Affluent Households 24
Trend in Distribution of Preferred Type of Primary Financial Institution among Mass Affluent Households 25
Trend in Incidence of Use of Key Types of Financial Transactions among Mass Affluent Households 26
Trend in the Average Number of Key Types of Financial Transactions among Mass Affluent Households 27
Trend in Incidence of Use of Online Financial Transactions among Mass Affluent Households 28
Trend in Incidence of Insurance Ownership for Major Categories of Insurance among Mass Affluent Households 29
Trend in Incidences of Types of Property and Casualty Insurance among Mass Affluent Households 29
Trend in Group versus Individual Life Insurance Ownership Incidences and Distribution of Individual Policies by Type among Mass Affluent Households 30
Trend in Ownership Incidences of Health and Disability Insurance among Mass Affluent Households 31
Trend in Incidences of Goals for Saving and Investing among Mass Affluent Households 32
Trend in Average Distribution of Household Savings and Investments by Type of Financial Institution among Mass Affluent Households 33
Trend in Incidences of Brokerage Accounts among Mass Affluent Households 34
Trend in Level of Securities Trading Activity among Mass Affluent Households 34
Trend in Purposes for Borrowing among Mass Affluent Households 35
Trend in Incidences of Loans on Primary Residence among Mass Affluent Households 36
Trend in Consumer Loans among Mass Affluent Households 36
Trend in Incidences of Credit-Card Ownership by Type among Mass Affluent Households 37
Trend in Method of Paying Monthly Credit-Card Bill among Mass Affluent Households 38
Trend in Household Financial Strategy among Mass Affluent Households 39
Trend in Level of Confidence Regarding Financial Matters among Mass Affluent Households 39
Trend in Types of Financial Advisors Used during the Past Two Years among Mass Affluent Households 40
Trend in Types of Professional Planners and Advisors That Households Are Likely to Use Next Year among Mass Affluent Households 41
Trend in Distribution of Incidence of Ownership and Average Assets for All Affluent and Millionaires Households 45
Distribution of Millionaires by Age Cohort 46
Distribution of Millionaires by Life Stage 48
Trend in Incidence of Recent Life Events among Millionaires Households 49
Trend in Distribution of Financial Institutions Named as Primary among Millionaires Households 50
Trend in Distribution of Preferred Type of Primary Financial Institution among Millionaires Households 51
Trend in Incidence of Use of Key Types of Financial Transactions among Millionaires Households 52
Trend in the Average Number of Key Types of Financial Transactions among Millionaires Households 52
Trend in Incidence of Use of Online Financial Transactions among Millionaires Households 53
Trend in Incidence of Insurance Ownership for Major Categories of Insurance among Millionaires Households 54
Trend in Incidence of Types of Property and Casualty Insurance among Millionaires Households 55
Trend in Group versus Individual Life Insurance Ownership Incidences and Distribution of Individual Policies by Type among Millionaires Households 55
Trend in Ownership Incidences of Health and Disability Insurance among Millionaires Households 56
Trend in Incidences of Goals for Saving and Investing among Millionaires Households 57
Trend in Average Distribution of Household Savings and Investments by Type of Financial Institution among Millionaires Households 58
Trend in Incidences of Brokerage Accounts among Millionaires Households 59
Trend in Level of Securities Trading Activity among Millionaires Households 60
Trend in Purposes for Borrowing among Millionaires Households 61
Trend in Incidences of Loans on Primary Residence among Millionaires Households 61
Trend in Incidences of Consumer Loans among Millionaires Households 62
Trend in Incidences of Credit-Card Ownership by Type among Millionaires Households 63
Trend in Method of Paying Monthly Credit-Card Bill among Millionaires Households 64
Trend in Household Financial Strategy among Millionaires Households 64
Trend in Level of Confidence Regarding Financial Matters among Millionaires Households 65
Trend in Types of Financial Advisors Used during the Past Two Years among Millionaires Households 66
Trend in Types of Professional Planners and Advisors That Households Are Likely to Use Next Year among Millionaires Households 67
Balanced Builders: Savings and Investment Orientation 75
Balanced Builders: Attitudes toward Financial Institutions and Delivery of Services 76
Balanced Builders: Attitudes toward Professional Financial Advice 77
Balanced Builders, by Age Cohort 78
Balanced Builders, by Life Stage 78
Balanced Builders: Millionaires versus Mass Affluent 79
Balanced Builders: Ownership of Investment Products 80
Balanced Builders: Ownership of Retirement Products 80
Balanced Builders: Median Balance in Retirement Products 81
Balanced Builders: Reliance on Professional Financial Advisors 83
Balanced Builders: Online Financial Activities Now Use 84
Balanced Builders: Use of Financial Services on the Internet 84
Balanced Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Savings and Investments 88
Balanced Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Financial Institutions and Delivery of Services 89
Balanced Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Professional Financial Advice 90
Focused Builders: Savings and Investment Orientation 99
Focused Builders: Attitudes toward Financial Institutions and Delivery of Services 100
Focused Builders: Attitudes toward Professional Financial Advice 101
Focused Builders, by Age Cohort 102
Focused Builders, by Life Stage 102
Focused Builders: Millionaires versus Mass Affluent 103
Focused Builders: Median Balance Held in Stocks and Mutual Funds 104
Focused Builders: Ownership of Stockbrokerage Accounts 106
Focused Builders: Incidence of Having Trust in Various Types of Financial Institutions 107
Focused Builders: Acceptance of Need for Financial Advice 108
Focused Builders: Use of Financial Services on the Internet 109
Focused Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Savings and Investments 113
Focused Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Financial Institutions and Delivery of Services 115
Focused Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Professional Financial Advice 116
Real Asset Builders: Savings and Investment Orientation 124
Real Asset Builders: Attitudes toward Financial Institutions and Delivery of Services 126
Real Asset Builders: Attitudes toward Professional Financial Advice 127
Real Asset Builders, by Age Cohort 128
Real Asset Builders, by Life Stage 128
Distribution of Mass Affluent Households, by Segment 129
Real Asset Builders: Ownership of Savings and Investment Products 130
Real Asset Builders: Likelihood of Making Retirement Account Transactions in the Next 12 Months 132
Real Asset Builders: Incidence of Liabilities 133
Real Asset Builders: Online Financial Activities Now Use 136
Real Asset Builders: Use of Financial Services on the Internet 136
Real Asset Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Savings and Investments 141
Real Asset Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Financial Institutions and Delivery of Services 142
Real Asset Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Professional Financial Advice 143
Emerging Affluent: Savings and Investment Orientation 151
Emerging Affluent: Attitudes toward Financial Institutions and Delivery of Services 153
Emerging Affluent: Attitudes toward Professional Financial Advice 154
Emerging Affluent, by Age Cohort 155
Emerging Affluent, by Life Stage 156
Emerging Affluent: Ownership of Savings and Investment Products 157
Emerging Affluent: Ownership of Retirement Products 157
Emerging Affluent: Risk Orientation 158
Emerging Affluent: Method of Paying Monthly Credit-Card Bills 159
Emerging Affluent: Credit Attitudes 160
Emerging Affluent: Incidence of Mortgage and Credit Insurance 160
Emerging Affluent: Life Insurance Attitudes 161
Emerging Affluent: Difference from Total Affluent in Average Number of Financial Transactions by Type 162
Emerging Affluent: Financial-Advice Attitudes 164
Emerging Affluent: Likelihood of Obtaining Professional Advice in the Next 12 Months 165
Emerging Affluent: Online Financial Activities Now Use 166
Emerging Affluent: Use of Financial Services on the Internet 167
Emerging Affluent: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Savings and Investments 171
Emerging Affluent: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Financial Institutions and Delivery of Services 173
Emerging Affluent: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Professional Financial Advice 174
Wealthy Retired: Savings and Investment Orientation 182
Wealthy Retired: Attitudes toward Financial Institutions and Delivery of Services 184
Wealthy Retired: Attitudes toward Professional Financial Advice 185
Affluent Households with Female Head of Household Only, by Segment 186
Distribution of Affluent Female-Head-Only Households, by Segment 187
Wealthy Retired: Millionaires versus Mass Affluent 188
Wealthy Retired: Risk Orientation 189
Wealthy Retired: Ownership of Financial Assets 190
Wealthy Retired: Use of Professional Financial Advisors 193
Wealthy Retired: Online Financial Activities Now Use 194
Wealthy Retired: Use of Financial Services on the Internet 195
Wealthy Retired: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Savings and Investments 199
Wealthy Retired: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Financial Institutions and Delivery of Services 200
Wealthy Retired: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Professional Financial Advice 201
Entrepreneurs: Savings and Investment Orientation 209
Entrepreneurs: Attitudes toward Financial Institutions and Delivery of Services 210
Entrepreneurs: Attitudes toward Professional Financial Advice 211
Entrepreneurs, by Age Cohort 212
Entrepreneurs, by Life Stage 213
Entrepreneurs: Millionaires versus Mass Affluent 214
Entrepreneurs: Primary Financial Decision Maker 214
Entrepreneurs: Ownership of Investment Products 215
Entrepreneurs: Participation in Traditional IRAs 216
Entrepreneurs: Use of Professional Financial Advisors 219
Entrepreneurs: Online Financial Activities Now Use 220
Entrepreneurs: Use of Financial Services on the Internet 221
Entrepreneurs: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Savings and Investments 225
Entrepreneurs: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Financial Institutions and Delivery of Services 227
Entrepreneurs: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Professional Financial Advice 228

Boxes
The CFD Affluent Segmentation 2

Appendixes
A. MacroMonitor Survey Methodology A-1
B. Survey Weighting Procedures B-1
C. Affluent Segment Definitions C-1