As generations change, so do the needs and fiscal behavior of the clients you see. Some clients have a great financial acumen and are able to properly execute discussed plans down to the last detail; however, as financial literacy becomes less popular in academia, we see a rising trend of consumers who focus on living day to day. While there is hope for a more prosperous future, there is rarely a plan in place to see it come to fruition.
Americans lack money savings skills
In general, Americans have a difficult time saving money. Based on trends, 36% of adults have yet to begin saving for retirement and 26% have no savings to fall back on in case of an emergency. In the case where adults are actually saving money, the average rate in 2014 was only 4.4% of earned income being saved, which is down from 10.5% just two years prior. To make matters worse, Millennials average a 2% savings rate, meaning that this age group lives outside their means and relies heavily on credit to get them through day to day life. As financial professionals, these numbers mean one thing… there is a big problem in how Americans save for the future.
“We need it, but we probably won’t buy it…”
The attitude toward life insurance has drastically shifted with Generation X and Y (Millennials) compared to previous generations and oddly enough, we are beginning to see a level of cognitive dissonance in the data that is coming out of these groups. While the majority of Gen Xers and Millennials say that owning life insurance is very important (according to LIMRA, 77% of Millennials feel this way), LIMRA reports less than 20% are even entertaining the idea of purchasing. Not only are Americans struggling to save for the future, we are also seeing a growing disinterest in protecting the future.
If only there was a way to fix both problems…
Two birds, one stone – Return of Premium for both savings and insurance
While not an ideal option for some clients, a life insurance policy with a return of premium feature does provide a stable, guaranteed way to have both protection and a way to save for the future. While the cost for a return of premium policy can be 4-5 times greater than a standard term product, the odds are greater that the “difference” or savings will not be properly invested or saved.
“Buy term and invest the difference” sounds great, but rarely is put into action. If a client is not disciplined enough to have a current savings plan, a return of premium policy may be a good solution as a source of savings that can be accessed in the future. Instead of trying to change the person’s savings behavior, we as advisors should acknowledge the client’s overall shortcomings, and implement a solution to address the underlying problems.