Professional Documents
Culture Documents
Confidence
Examining the U-Curve—and How We Might
Improve the Confidence Trajectory
1 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
LearnVest is
a program for
your money.
At LearnVest, our financial planners work with
individuals and families representing a wide
range of ages, income levels, lifestyles, and
goals. We offer clients a detailed financial plan
and access to a holistic program designed to
help the client put the advice into action.
Visit www.learnvest.com.
Financial Confidence
and the Workplace
Financial stress in employees’ personal lives can
7 out of 10 workers say
have significant ripple effects in the workplace,
financial stress is their most
including declines in productivity, focus and common cause of stress2
performance. A variety of recent studies have
explored the extent and impact of financial stress In 2012, about 1 in 5
in the workplace. Studies have also looked at employees admitted they
companies that have started adding financial had skipped work in the past
wellness programs to their benefits package to year to deal with a financial
problem2
help improve employee engagement—and, ideally,
their bottom line.1
Over 60% of human
resource professionals say
In this whitepaper, we examine an interesting financial stress is having an
trend in how people feel about their finances impact on employee work
over time. While it might be assumed that performance2
financial confidence increases with time—along
with wisdom and salaries—our research found 55% of employers believe
financial wellness leads to
the opposite. Specifically, we explore the sharp
greater productivity3
decline in confidence after age 25, and how
increased financial responsibility paired with
26% of small companies, 43%
stagnant income growth can culminate in a crisis of of medium companies and
confidence for people in their mid-30s and 40s. 46% of large companies have
a financial wellness strategy
By illuminating what may hinder financial in place for their employees
confidence across a range of age groups, this or plan to add one in the next
report can help provide a deeper understanding two years3
3 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
Contents
4 Introduction
5 The confidence gap
7 A pattern emerges
8 A closer look at earning power
11 Responsibility on the rise
14 A detailed look by decade
14 Under 25: “The young and free”
16 25–34: “The upwardly immobile”
17 35–44 “The spread thin”
18 45–55 “The light at the end of the tunnel”
19 Summary and final notes
4 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
Introduction
How do people feel about their finances? While
it might be assumed that financial confidence
increases with time—along with wisdom and
salaries—LearnVest research found the opposite.
In this paper, LearnVest looks at data from our
own members, statistics from the U.S. Bureau of
Labor Statistics, and several recent studies to try
to answer the confidence question. Specifically,
we examine the sharp decline in confidence after
age 25, and how increased financial responsibility
paired with stagnant income growth can culminate
in a crisis of confidence for people in their mid-
30s and 40s. In delving into the root causes, we
also begin to explore how the financial planning
industry can help rewrite the confidence story.
5 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
The confidence gap
Does financial confidence grow as people get
older (and presumably wiser)? Our internal
research involving individuals signing up for
LearnVest found that new clients’ confidence in
their finances actually demonstrated a U-curve.
While those under 25 generally felt very confident
about their finances, 30- and 40-somethings were
significantly less confident. In the 55 and older
brackets, confidence starts to tick up again.1
60%
Confidence by age across income levels
50%
40%
30%
20%
Under 25-34 35-44 45-54 55-64 65
25 years years years years years
years and
older
Source: LearnVest
6 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
Curious about whether income played a role in
financial confidence, we then looked at confidence
across income brackets. We found that the U-curve
trend still holds true across most income levels. 63%
of people in their 30s making between $70,000 and
$100,000 annually stated they don’t feel good about
their finances.2
70%
60%
50%
40%
30%
20%
10%
0%
24-34
24-34
24-34
24-34
24-34
24-34
44-54
44-54
44-54
44-54
44-54
44-54
34-44
34-44
34-44
34-44
34-44
34-44
18-24
18-24
18-24
18-24
18-24
18-24
54+
54+
54+
54+
54+
54+
Source: LearnVest
7 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
A pattern emerges
The confidence curve we found was based on
data from people who had just joined LearnVest.
Our group of respondents was 65% female,
from across the United States (with the heaviest
concentration from the east and west coasts) and
45% are married or partnered.
8 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
A closer look at
earning power
Larger market factors aside, a person’s income
generally increases as he or she gets older.
People who have been in the workforce longer
have more years of experience, and their salaries
tend to rise along with their duties and titles.
$90,000
$75,000
$60,000
$45,000
$30,000
$15,000
$
Under 25-34 35-44 45-54 55-64 65 Years
25 Years Years Years Years Years and older
Source: Pre-tax income from the BLS “Table 1300. Age of reference person: Annual expenditure means, shares, standard errors,
and coefficient of variation, Consumer Expenditure Survey, 2013”
9 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
So why do people in their early twenties—a
demographic that currently faces more student
loan debt than previous generations before them,
and who for the most part are only just entering
the workforce6—still appear to be more confident
about their finances than their higher-earning
counterparts in their thirties and forties? A closer
look at earning power over time may offer more
insight. National income data shows that while a
person’s income generally does increase over
time, income growth rates actually decrease
dramatically over time.
Average income over time and income growth rate over time
$90,000 120%
$75,000 90%
$60,000 60%
$45,000 30%
$30,000 0%
$15,000 -30%
$ -60%
Under 25-34 35-44 45-54 55-64 65 Years
25 Years Years Years Years Years and older
Source: Pre-tax income and growth rates from the BLS “Table 1300. Age of reference person: Annual expenditure means, shares,
standard errors, and coefficient of variation, Consumer Expenditure Survey, 2013”
10 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
The average income for Americans grows an
astounding 111% from the under-25 age bracket
to the 25–34 bracket. After that, income growth
rate slows to 33% between the 25–34 bracket to
the 35–44 bracket. Income continues to slow to
a mere 1% growth rate between the 35–44 age
bracket and 45–54 bracket, and then hits -6% by
the time people reach the 55–64 age bracket. So,
while college students and recent graduates may
only have an entry-level salary, their earnings are
also likely to climb dramatically as they become
full-fledged members of the workforce. That
makes it more likely that they’ll have the cash
flow to at least cover their current expenses and
debt payments—keeping confidence levels high.
However, as people reach their mid-30s and 40s,
their salaries begin to stagnate and eventually
decline by the time they hit their mid-50s and 60s7
(likely due to near-retirees leaving their positions
as they prepare to retire full-time).
11 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
Responsibility
on the rise
Household and spending data across age brackets
from the U.S. Bureau of Labor Statistics provides
another key factor of the confidence equation.
Just when average income growth is slowing for
Americans, financial responsibilities are reaching
their highest point.
Source: U.S. Bureau of Labor Statistics, “Table 1300. Age of reference person: Annual expenditure
means, shares, standard errors, and coefficient of variation, Consumer Expenditure Survey, 2013”
12 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
The data shows that average Americans are
facing their biggest household size, mortgage
payments, and vehicle payments in their lives
just as their income growth is peaking, with low
likelihood of a significant pay increase ahead.
Revisiting our confidence data with these insights
in mind, it’s less of a surprise that confidence starts
plummeting in the mid-30s and 40s demographics.
We cannot ignore the emotional toll of these
factors: according to the American Psychological
Association, the top causes of stress for Americans
are money, work, and the economy.8 With a clear
picture of their current responsibilities, looming
retirement needs, and tepid outlook for significant
pay increases, Americans may be facing an
unpleasant—and stressful—reality check when it
comes to their financial outlook.
13 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
Financial responsibilities and financial confidence by age
$90,000 60%
$75,000
50%
$60,000
$45,000
40%
$30,000
$20,000
30%
$10,000
0 20%
Under 25-34 35-44 45-54 55-64 65 Years
25 Years Years Years Years Years and older
Spending Confidence
Source: BLS “Table 1300. Age of reference person: Annual expenditure means, shares, standard errors, and coefficient of variation,
Consumer Expenditure Survey, 2013”Annual expenditure means, shares, standard errors, and coefficient of variation, Consumer
Expenditure Survey, 2013”
14 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
A detailed look
by decade
Under 25: “The young and free”
Source: U.S. Bureau of Labor Statistics, “Table 1300. Age of reference person:
Annual expenditure means, shares, standard errors, and coefficient of variation,
Consumer Expenditure Survey, 2013”
15 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
Data from the 2012 study for the Certified
Financial Planner Board of Standards, Inc. and the
Consumer Federation of America also shows that
only 35% of people 18–24 have any money saved
for retirement, far less than the 55% of people in
the 24–34 age bracket and the 66% of people in
the 35–44 age bracket.11
16 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
Age 25-34: “The upwardly immobile”
Source: U.S. Bureau of Labor Statistics, “Table 1300. Age of reference person:
Annual expenditure means, shares, standard errors, and coefficient of variation,
Consumer Expenditure Survey, 2013”
17 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
Age 35-44: “The spread thin”
Source: U.S. Bureau of Labor Statistics, “Table 1300. Age of reference person:
Annual expenditure means, shares, standard errors, and coefficient of variation,
Consumer Expenditure Survey, 2013”
18 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
Age 45- 54: “The light at the end of
the tunnel”
Source: U.S. Bureau of Labor Statistics, “Table 1300. Age of reference person:
Annual expenditure means, shares, standard errors, and coefficient of variation,
Consumer Expenditure Survey, 2013”
19 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
Summary
and final notes
Just like overall happiness and well-being, our
data demonstrates that financial confidence
follows a U-curve. Those under 25 feel very
confident before a swift confidence decline
hits in their 30s and 40s. People appear to
lose confidence in the face of growing financial
responsibilities and stagnating income growth.
20 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
found that people across age and income levels
who plan financially feel more confident about
their financial decision-making, save more money,
and feel better about their progress to date in
saving for financial goals.14 In fact, people who had
a plan for either emergency savings or retirement
were nearly twice as likely to feel in control over
their finances. 15
21 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
Sources:
1
Confidence data is as of November 6, 2014, and run on a sample of
approximately 108k people who visited LearnVest.com.
2
Ibid.
3
David G. Blanchflower and Andrew J. Oswald, “Well-Being Over Time
in Britain and the USA,” 1999, http://www.brookings.edu/es/dynamics/
seminars/20000127.pdf.
4
David G. Blanchflower and Andrew J. Oswald, “Is Well-being U-Shaped
over the Life Cycle?,” 2008, http://dericbownds.net/uploaded_images/
Blancheflower.pdf
5
Ibid.
6
Jason N. Houle, “A Generation Indebted: Young Adult Debt across Three
Cohorts,” 2014, http://www.jnhoule.org/storage/Houle2014_GenIndebted_
final.pdf
7
“Visualizing the 2012 Distribution of Income in the U.S. by Age,” http://
politicalcalculations.blogspot.com/2013/01/visualizing-2012-distribution-of-
income.html#.VIniQlfF8hH.
8
American Psychological Association, “Stress in America Findings,” 2010,
https://www.apa.org/news/press/releases/stress/2010/national-report.pdf.
9
Data as of May 9, 2014 on a sample of 11,000 users across 20,00 goals.
10
Steven Rattner, “Saving Young People From Themselves,” New York Times,
April 12, 2014, SundayReview, http://www.nytimes.com/2014/04/13/opinion/
sunday/saving-young-people-from-themselves.html
11
Certified Financial Planner Board of Standards, Inc. and the Consumer
Federation of America, “2012 Household Financial Planning Survey,” http://
www.consumerfed.org/pdfs/Studies.CFA-CFPBoardReport7.23.12.pdf.
12
Ibid.
13
Data as of May 9, 2014 on a sample of 11,000 users across 20,00 goals.
14
Certified Financial Planner Board of Standards, Inc. and the Consumer
Federation of America, “2012 Household Financial Planning Survey,” http://
www.consumerfed.org/pdfs/Studies.CFA-CFPBoardReport7.23.12.pdf.
15
Ibid.
22 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory