America's Affluent: On the Threshold of the New Millennium 1998–99 Affluent MacroMonitor Report

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Executive Summary

Affluent households in the United States—during these times of economic vigor, technological revolution, and relative worldwide political stability—are a growing market of unprecedented opportunity. However, significant challenges face any institution that seeks to serve and profit from this market. Products and services that were merely adequate to meet the needs of Affluent households in the past will no longer fit their needs in the future. And because advances in the Affluent's capabilities (assets, education, health, and enabling technologies) will continue to grow, the speed with which the Affluent's needs will change will accelerate. As the Affluent change, institutions that do not evolve with them will wither and die.

On the basis of our analysis of the current and previous waves of the MacroMonitor's survey of Affluent households—combined with continuous conversations among the leading financial institutions, associations, government agencies, universities, and consultants and balanced with what the media report–we believe that the following five factors will have the most profound impact on the future of financial services for the Affluent:

Mass affluence
Penetration of PC ownership and growth of the Web
Longer life expectancy
Women in the workforce and beyond
Changing nature of retirement.

MASS AFFLUENCE

Something wonderful is happening. The United States has more Affluent households than ever before. And the reason is not just population growth or wage inflation. Some of the explanation is the natural occurrence of an economy that has grown virtually uninterruptedly for nearly a decade. Part of it is attributable to enhanced productivity and the gains from shifting from an industrial and merchandise to an information and service society. Enhancing the situation is an (irrationally?) exuberant stock market that has grown twentyfold in nearly two decades. Finally, economic benefits come from people's living longer, healthier lives.

Figure ES-1
Pyramid to Diamond
(Millions of Households)

Whatever the causes, the effect is that in the United States more households have more resources. This change translates into higher levels of education, more jobs, more forms of entertainment and other diversions, more affluent (calculated by income or net worth per capita), and more millionaires. The danger for a financial institution seeking to serve these households is in making the assumption that they are all alike. As this group grows, so do the variations that make a difference. Treating today's Affluent as a homogeneous group can only provide misunderstanding based on stereotypes and other measures of centrality that drown out the critical distinctions. What is necessary is an effective way in which to separate the Affluent into distinct, cohesive groups, each of which is easy to identify and market to. The CART (Computer Aided Regression Trees) segmentation, which MacroMonitor used initially in 1992 to segment Affluent households and comparably implemented in the three waves of the MacroMonitor since, is such a method.

Figure ES-2
The Affluent Segmentation

The growth and movement that we have seen among the various Affluent segments is readily explainable by the changes in the economy and the stock markets and the natural evolution of standard demographics. The three segments that have historically had the most exposure to the equity markets—the Wealthy Retireds, the Balanced Builders, and the Focused Builders—have all increased significantly in the past two years. The other segment most likely to have equities—the Capables—has not increased significantly because as its financial assets have grown, the Capables have migrated into the Balanced and Focused Builder segments. Conversely, if a major correction occurred in the stock markets, this segmentation suggests that the three segments most affected would be the Wealthy Retireds and the Balanced and the Focused Builders.

CONTENTS


EXECUTIVE SUMMARY		i
BACKGROUND		1
THE AFFLUENTS: PRIME TARGETS FOR FINANCIAL PRODUCTS AND SERVICES		1
THE CFD AFFLUENT SEGMENTATION		2
	The Balance Sheet	3
	Empowerment of the Affluent in the New Millennium	9
	The Internet and Electronic Finance	11
	The Economic Environment	12
SEGMENT PROFILES		14
BALANCED BUILDER HOUSEHOLDS		15
	Highlights	15
	Demographic Profile	16
	Balance Sheet	18
	Financial Attitudes	20
	Demographics	21
	Savings and Investments	22
	Credit	23
	Protection	23
	Transactions	23
	Information and Advice	23
	Personal-Computer and Internet Use	25
	Marketing Implications	25
FOCUSED BUILDER HOUSEHOLDS		26
	Highlights	26
	Demographic Profile	27
	Balance Sheet	29
	Financial Attitudes	31
	Demographics	32
	Savings and Investments	32
	Credit	33
	Protection	34
	Transactions	34
	Information and Advice	34
	Personal-Computer and Internet Use	35
	Marketing Implications	36
REAL ASSET BUILDER HOUSEHOLDS		37
	Highlights	37
	Demographic Profile	38
	Balance Sheet	40
	Financial Attitudes	42
	Demographics	43
	Savings and Investments	44
	Credit	44
	Protection	45
	Transactions	45
	Information and Advice	46
	Personal-Computer and Internet Use	46
	Marketing Implications	47
CAPABLE HOUSEHOLDS		48
	Highlights	48
	Demographic Profile	49
	Balance Sheet	51
	Financial Attitudes	53
	Demographics	54
	Savings and Investments	56
	Credit	57
	Protection	57
	Transactions	57
	Information and Advice	58
	Personal-Computer and Internet Use	58
	Marketing Implications	59
BORDERLINE HOUSEHOLDS		60
	Highlights	60
	Demographic Profile	61
	Balance Sheet	63
	Financial Attitudes	65
	Demographics	66
	Savings and Investments	66
	Credit	67
	Protection	68
	Transactions	68
	Information and Advice	68
	Personal-Computer and Internet Use	69
	Marketing Implications	69
WEALTHY RETIRED HOUSEHOLDS		70
	Highlights	70
	Demographic Profile	71
	Balance Sheet	73
	Financial Attitudes	75
	Demographics	76
	Savings and Investments	77
	Credit	77
	Protection	78
	Transactions	78
	Information and Advice	78
	Personal-Computer and Internet Use	79
	Marketing Implications	79
ENTREPRENEUR HOUSEHOLDS		80
	Highlights	80
	Demographic Profile	81
	Balance Sheet	83
	Financial Attitudes	85
	Demographics	86
	Savings and Investments	87
	Credit	88
	Protection	88
	Transactions	88
	Information and Advice	89
	Personal-Computer and Internet Use	89
	Marketing Implications	90

Tables
Assets		4
Liabilities		5
Net Worth		5
Net Worth Excluding Primary Residence		6
Financial Assets		6
Investable Assets		7
Liquid Assets		8
Home Equity		8
Savings		9
Balanced Builders: Sources of Income		22
Capables: Sources of Income		56
Wealthy Retireds: Sources of Income		76

Figures
Pyramid to Diamond		ii
The Affluent Segmentation		iii
PC Use by Affluent Segments		iv
PC Banking by Affluent Segments and PC Investing by Affluent Segments		v
Working Women by Affluent Segments		vii
Marital Status among the Affluent		viii
Trend and Projection of Life Stages		ix
Percent Distribution of American Affluent Households		2
Balance Sheet for America’s Affluent		3
Average Household Income per Affluent Segment		9
Discount Brokerage Penetration of American Affluent Segments		13
Balanced Builders: Education of Primary Head of Household		21
Balanced Builders: Median Household Income		21
Balanced Builders: Financial Decision Maker		24
Balanced Builders: Computer Use and Online Access at Home		25
Focused Builders: Education of Primary Head of Household		32
Focused Builders: Financial Decision Maker		35
Focused Builders: Computer Use and Online Access at Home		36
Real Asset Builders: Education of Primary Head of Household		43
Real Asset Builders: Median Household Income		44
Real Asset Builders: Computer Use and Online Access at Home		47
Capables: Median Household Income		54
Capables: Median Age of Head of Household		54
Capables: Marital Status		55
Capables: Education of Primary Head of Household		55
Capables: Computer Use and Online Access at Home		58
Borderlines: Education of Primary Head of Household		66
Borderlines: Computer Use and Online Access at Home		69
Wealthy Retireds: Computer Use and Online Access at Home		79
Entrepreneurs: Education of Primary Head of Household		86
Entrepreneurs: Financial Decision Maker		87
Entrepreneurs: Computer Use and Online Access at Home		89

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