MacroMonitor Market Trends September 2007

MacroMonitor Market Trends highlights topical news and trends of interest to you and your colleagues. If you would like more information about the items in the newsletter or would like to discuss other ways that we can assist you in your research and marketing efforts, please contact us.

Then and Now: Almost 30 Years Later

In 1978, the Consumer Financial Decisions (CFD) group of SRI International administered an 88-page financial survey to a representative sample of more than 3,000 U.S. households. The survey, which covered many areas, sought information about households' financial goals. Throughout the intervening years, CFD has continued to pursue this information and in 2006, more than a quarter century later, asked survey respondents about their goals for their savings and investments. Although the methodologies and the wordings of the questions in the two surveys differ, both seek to elicit households' financial priorities. By comparing the responses of 1978 and 2006, we can discern the impact of the long-term changes in the financial retail market on consumers' financial behavior. In 1978, households were more likely to choose "to have enough money for unexpected emergency expenses" (73%) than "to have enough income for retirement" (56.5%) as a financial goal. In 2006, a higher proportion of households selected "providing for retirement" as a goal for their savings and investments (64%); just half (49%) selected "providing for 'rainy-day' emergencies." The current prevalence of easy and readily available credit—either secured (equity based) or unsecured (credit cards)—has rendered saving for an emergency less important in 2006 than in 1978. Meanwhile, analysis of responses shows that concern about having sufficient savings to finance retirement has grown during the intervening years. Respondents are now more likely than in the past to have a defined-contribution retirement plan that is exposed to the vagaries of the stock market than to have a secure pension. In addition, they may face exorbitant medical and long-term–care costs as a result of increasing life expectancy. It is thus not surprising that households these days are more preoccupied with saving for retirement than with saving for emergency situations. This one example shows how CFD's historical database, going back to 1978, helps alert financial-industry professionals to shifting consumer behavior and enables them to develop financial products and services that meet the consumers' ever-changing financial needs.

Figure 1: Goals for Savings and Investments, 1978 and 2006 (Percent of Households)

Bill Payment Options: Toward a Cashless, Paper-Free Environment

Financial-payment media are in transition as consumers continue to move away from using cash and paper checks and increasingly adopt various electronic forms of payments. In just more than the past three MacroMonitor survey years (2002–03 to 2006–07), the percent of households opting for automatic payments from their accounts (for loan or bill payments or into investments) jumped by 60%, from 40% to 64% of all U.S. households. Even more dramatic is the rise in online bill payment: 39% of households use this payment method in 2006, in comparison with just 11% four years earlier: a 255% increase. Meanwhile, telephone bill payment, which had a higher incidence of users than did online bill payments in 2002, has subsequently shown signs of being sidelined. The percentage of households using this mode of bill payment, however, does show a hefty increase of 50%, from an incidence of 14% in 2002 to 21% in 2006.

Figure 2: Recent Trends in Households' Use of Bill-Payment Options (Percent of Households)

With various financial providers recently launching new contactless payment systems or cell-phone–based "mobile wallets," we continue to move toward a cashless, paper-free environment. The MacroMonitor noted an increase in the use of debit cards and a decline in the use of ATM cards in the June 2007 newsletter. Our data also show check writing on the decline—the average number of checks written per checking account is down to 10 checks in 2006 from a high of 16 a decade ago. But even as new payment technologies enter the market, financial institutions should not lose sight of customers' preferences, which will likely remain mixed. Offering a variety of payment channels rather than routing customers to the institution's "preferred" system could be the smartest move.

U.S. Households: Few in Order

The need for financial planning has never been more important than it is now as U.S. households face ever more complex financial and legal issues. Yet according to the 2006–07 MacroMonitor, just one in ten households have a written financial plan from a financial professional. Perhaps more critical to households is the importance of having appropriate legal documents in place. Yet only 36% of all households have a written last will and testament. And despite recurring media coverage of lengthy and emotionally charged legal health-related battles, just three in ten households (29%) have a living will in place, and an even smaller percentage have a medical-power-of-attorney document (22%). Among households with a primary head younger than 50 years old, just 7% have a written financial plan, fewer than one-quarter (23%) have a last will and testament, and only 20% have a living will. Many households may believe that financial planning and estate planning are limited to only those people approaching or in retirement. But for all adults, having a written financial plan and appropriate legal documents in place is critical in today's complex financial and legal environment. Financial providers could expend more effort in promoting financial planning to every household and educate their customers to the necessity of having vital legal documents in place. In return for providing their customers with this service, financial advisors should see more financial business coming from them.

Figure 3: Incidences of Households' Having a Written Financial Plan and Legal Documents (Percent of Households)