MacroMonitor Market Trends January 2011

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

Uh-Oh! Even More Households Disengage with Financial Services

The first ten years of the twenty-first century have many names: the Aughts, the Naughts, the Double Zeros, the Lost Decade. New 2010–11 MacroMonitor data suggest "the Uh-Ohs" as an appropriate moniker because evidence indicates that widespread market contraction for financial products and services characterizes the New Normal.

One MacroMonitor question that reveals insight about the Uh-Ohs' impact on current consumers' frame of mind asks about consumers' interest in various types of financial planning. In spite of continued uncertainty that households are experiencing, the proportion of households that say they are likely to seek any of the various types of critically important financial advice in the next 12 months is at, or below, levels last evident following the 1991 recession. After peaking in 2000, interest in obtaining all types of financial advice declined between 2000 and 2008; the drop between 2008 and 2010 is precipitous. As the trends in the figure just below illustrate, consumer disengagement is pervasive—beyond investing, retirement, and potential money-saving tax planning to include education planning, debt consolidation, and overall financial planning.

Figure 1: Types of Advice Likely to Obtain In The Next Two Years

Although some of this decline in advice seeking is understandably because of the decline in trust of financial professionals and institutions, most of the drop reflects the cumulative, compounded consumer disengagement that developed in the past decade. A growing majority of households are burned out by the Uh-Ohs, exhausted by financial-institution overhype, angry about the continuous stream of scandals, and wiped out by the recession. Even for those wealthier households that are still standing, feelings of financial fragility are pervasive. As a result, more households have no idea what to do or whom to trust. They therefore feel uncertain about seeking financial advice.

As more households focus on paying down debt, use cash for purchases, and—according to media reports—flee the stock market, financial-services providers are challenged to devise methods to engender trust and stimulate consumer engagement. If possible, competition for the highly desirable high-net-worth households will increase. Even more households than previously have fallen below credit-score desirability—especially among those that still are interested in borrowing. Disengagement particularly affects the many households in the middle and upper-middle socioeconomic strata. And as the lower and lower-middle classes have grown, their ability to afford even the basic financial needs has diminished. By choice and necessity, many households are consolidating their financial relationships. With the economy mired in a jobless "recovery," the Uh-Ohs look likely to remain. Uh-oh!

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