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Consumers prepare for a deep recession and turn to other sources for financial advice

Consumers prepare for a deep recession and turn to other sources for financial advice

 


A new Nationwide Retirement Institute survey shows consumers fear the worst: 68% expect a recession in the next six months and nearly 80% of those expecting it expect it to be severe . In fact, about two-thirds (62%) of respondents think a recession will be as bad or worse than the Great Recession of 2007-2009.

As a result, consumer sentiment towards the economy and their own financial strategy has deteriorated since 2022. Only 16% of consumers rate the US economy as good or excellent today, a drop of 8 points from September 2022. About four in ten (39%) rate their own personal finances positively, another drop of 8 points from September 2022.

When it comes to managing their personal finances, consumers are most concerned about inflation or rising cost of living (59%), cost of rent or housing (34%), lack of savings for unexpected or urgent expenses (32%), debt management (31%); healthcare costs (28%) and not being on track for retirement (18%).

It’s no surprise people feel anxious, said Kristi Martin Rodriguez, leader of the National Retirement Institute. It’s important for advisors and financial professionals to understand the emotions their clients are feeling right now as a first step in helping them stay focused on their long-term financial plans.

People need help to stay the course
To counter inflation, some consumers make decisions that could affect their long-term financial strategy. More than a third (37%) have or plan to use more credit cards, 24% have or plan to reduce their contributions to a pension plan and 21% have or plan to take out a new loan. Nearly six in ten consumers (57%) have used their savings in the past 12 months to pay for everyday expenses. It’s even higher for Gen Z and Millennial consumers, at 64% and 66%, respectively.

In a recession, consumers’ top concerns are their ability to save in general (58%), their ability to save for retirement (52%), the loss of value of their retirement account (52%) and their ability to retire on time. (42%).

Investors turn to other sources for financial advice
Despite fears and worries about their personal finances, most consumers, especially younger ones, are turning to unproven sources for help. Seven in ten survey respondents (70%) do not use a financial advisor, citing reasons such as: It costs too much (46%), they don’t have enough assets (37%), they don’t know don’t know who to turn to (22%), they don’t need advice and can manage on their own (21%), they don’t trust the financial services industry (16%) or they are too busy (11 %).

Instead of professional help, they turn to other sources, including friends or family (48% Gen Pop, 66% Gen Z); online resources (26% Gen Pop, 34% Millennials), prayer (20% Gen Pop) and social media (11% Gen Pop, 22% Gen Z).

Notably, around a third of respondents (31%) believe that ChatGPT will provide better financial advice than a human advisor over the next five years. This percentage is higher for younger consumers, at 37% for Gen Z and 43% for Millennials.

In times like the ones we are experiencing today, advisors and finance professionals have a huge opportunity to build deeper, trusting relationships with clients, Rodriguez said. The temptation can be real for consumers to retreat or even give up when the financial news cycle seems so difficult. The first step for advisors is to understand where their clients are coming from by listening with empathy. This can pave the way for a more collaborative conversation about what steps to take to keep them on track.

Rodriguez offers five tips to help advisors and finance professionals ease their clients’ financial anxiety and build trust

  1. Listen and sympathize: Reach out to your customers today and start the conversation by understanding their concerns and fears. Listen to them and give them space to express their feelings.
  2. Discover the client’s sources of information: If they are considering rash decisions, ask questions like “who do you listen to?” and “what are they saying?” to determine the factors that influence their state of mind.
  3. Discuss the best way forward: Ask them what actions they plan to take, the alternative options available, and work together to decide which path is most appropriate for their situation and goals.
  4. Review their risk tolerance and current asset allocation strategy: Ask her what’s new in her life, if her financial goals or circumstances have changed, and if her current financial strategies are working.
  5. Reinforce the plan: Reinforce with your clients the tangible and emotional benefits of a financial plan and the importance of sticking to it when times are tough. Sometimes a quick history lesson can help them visualize the eventual economic recovery that follows each downturn.

For more information on the data from this survey, see the full survey results.

Methodology
Nationwide partnered with Edelman Data & Intelligence to conduct a 15-minute online survey of a nationally representative sample of 2,000 adult consumers between March 30 and April 13, 2023. As a member in rule of The Insights Association as well as ESOMAR Edelman Data and Intelligence conducts all research in accordance with local, national and international laws and all market research standards and guidelines.

Economic and market forecasts reflect our opinion as of the date of this report and are subject to change without notice. These predictions show a wide range of possible outcomes. Because they are subject to high levels of uncertainty, they will not reflect actual performance. We have obtained certain information from sources believed to be reliable, but we do not guarantee its accuracy, completeness or fair presentation.

Nationwide, Nationwide N and Eagle, and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. 2023 nationwide.

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