More than half of Gen X and Gen Y consumers no little about investments and financial products, according to a new study.
LIMRA, Windsor, Conn., discloses this finding in a summary of results from a May 2012 survey that polled 5,296 Americans aged 20 to 84. Of the total, 884 respondents were Gen X (born 1965-1980) and 720 were Gen Y (born 1980-2000). Additional results were based on LIMRA analysis of the U.S. Census Bureau’s Current Population Survey March 2012 Supplement and the Federal Reserve Board’s 2010 Survey of Consumer Finances.
The study concludes that 60 percent of Gen consumers are not knowledgeable about investments and financial products. Four in ten (39 percent) of them say they are not “very knowledgeable.” And one in five indicate they are “not at all knowledgeable.”
Among Generation Y respondents, just over half say they are not knowledgeable about investments and financial products. One-third of the group indicate they are “not very knowledgeable” and one-fifth say they are “not at all knowledgeable.”
The study also finds that Gen X and Gen Y consumers who work with financial professionals to make investment decisions are more likely than those who do not work with financial professionals to be very knowledgeable about investments and financial products (14 percent versus 6 percent). Yet, only one in five work with a financial professional.
“The increased knowledge levels could be related to education efforts on the part of financial professionals, or the fact that more knowledgeable Gen X and Gen Y consumers work with financial professionals,” says Cecilia Shiner, senior analyst, LIMRA Retirement Research.
LIMRA’s research discovered that among Gen X and Gen Y consumers with access to a defined contribution (DC) plan through their employer, those who have never made contributions are more likely to feel less knowledgeable about investments and financial products than those currently contributing to their DC plan. This finding suggests that if financial literacy could be improved for these consumers, the likelihood of participating in their employers’ DC plans may rise.
The study also finds that the market opportunity for Gen X and Gen Y households is growing. Based on analysis of the Federal Reserve Board’s 2010 Survey of Consumer Finances, of the nearly $3 trillion in Gen X household financial assets, 43 percent is invested in retirement and pension accounts. Among retirement and pension accounts, two thirds of assets are held in DC savings plans and 30 percent are in IRAs.
On average, Gen X consumers have contributed to their current employer’s DC plan for nine years, accumulating nearly $70,000. The median deferral rate is six percent for all Gen X consumers, but slightly higher for men (seven percent). Given that Gen X consumers are over age 30, their deferral rates are typically recommended to be above 10 percent. However, less than half (43 percent) are contributing eight percent or more.
Gen Y household financial assets only totaled $229 billion, reflecting their life stage, according to LIMRA. On average, Gen Y consumers have contributed to their current employer’s DC plan for four years, accumulating slightly less than $26,000.
The median deferral rate is for Gen Y consumers is six percent, with one in five Gen Y consumers contributing three percent or less to their current employer’s DC plan.