In Uncharted Waters, Savers Keep Both Hands on the Tiller

As Americans move forward financially in the new year, they vow to more carefully manage their money. But they’re banking on stability over big gains

Ever since the collapse of the first speculative price bubble in 1637 — it centered on tulips and involved a plague outbreak in Holland — investors have known that bad financial news can come from messengers too small to see, much less predict. While stocks ultimately thrived during the past year of the COVID-19 pandemic, volatility remains a concern — and the broader global economy is on life support thanks to massive government interventions. In light of all this turmoil, how are Americans adjusting their personal financial goals?

A new survey conducted by the Harris Poll for Empower Retirement and Personal Capital reveals changing attitudes. Obviously, the most pain continues to be felt by those who have lost jobs and businesses. Millions of unemployed Americans are not in a position to save for the future. But we wanted to see how those fortunate enough to keep working during the pandemic, as well as retirees, are tweaking their financial goals going forward.

Unsurprisingly, respondents are pessimistic about the broader economy, with diminished confidence especially among women, baby boomers and parents with children at home. Uncertainty is driving the negative outlook — unknowns range from the speed of vaccine rollouts to the return of normal business and the future of school attendance.

But with so much out of their control, working Americans are more committed to taking charge of their own finances. They are determined to save more and be prepared for the future, no matter what happens in the world. And they are looking for advice on how to move forward financially in the new year.

Amid global uncertainty, personal confidence 

American workers and retirees say they’re confident in their ability to manage their personal finances, despite deep pessimism about the larger economy. Yet when it comes to expectations for 2021, both employed and retired Americans are down-shifting from optimism toward more realistic goals of stability and survival.

• In April 2020, as the first pandemic wave was just taking hold (and just after the S&P 500^® had plunged 34%),¹ 29% of respondents were still “optimistic” about their own financial future.
• By December and the second pandemic wave, only 22% of respondents said they were optimistic about their own finances, while the percentage feeling “stable” increased by 10 percentage points — from 26% to 36%.

And the pandemic continues to dampen spirits. Lockdown fears loom large — fully two-thirds of respondents said they’re bracing for financial pain if major lockdowns continue to roll out. Forty-four percent worry about losing money on investments, with an equal number saying a lockdown could impact their ability to save.

Parents with children at home remain concerned about school closings. Beyond the pain of juggling work and homeschooling — and worries about their kids’ development — nearly two thirds of parents reported higher costs associated with learning from home. Some of those costs could be offset by less spending on restaurants and other external activities — or the necessary funds could come out of savings. On the bright side, parents expressed hope that over the long term, the pandemic could inspire a dramatic reset on college costs as well as student loan forgiveness.

Our report supports evidence^2,3 that women have been disproportionately impacted by the pandemic. Reasons include the fact that women are more likely to be the primary caregivers for children stuck at home, making it harder to work; and the heavy concentration of women in healthcare and other frontline service jobs that expose them to the coronavirus as well as to COVID-related business closures.

Through the lens of personal finance, the survey found wide gaps in the confidence of men and women.

• Just 16% of women say they are now more optimistic about the stock market than they were last year, compared to 26% of men.
• Fewer women feel optimistic or in charge of their finances — 33% versus 44% of men.
• More women report they “barely have their head above water” — 31% as opposed to just 19% of men.
• Women are less confident in their ability to build emergency savings—55% compared to 69% of men.
• Just 62% of working women are confident in their job security, compared to 72% of men.
• Only 54% of women are confident they can retire when they want, compared to 67% of men.

It’s worth noting that baby boomers in or near retirement also expressed less confidence in their finances, while Gen X and Z respondents were more confident. These results may reflect the younger generations’ longer investment horizon.

Beyond concerns directly related to the pandemic, our survey identified a host of tangential issues about which Americans are more pessimistic, ranging from healthcare costs to higher taxes and housing affordability. None of this adds up to a ringing endorsement of the near financial future — but a closer look shows that at the dawn of 2021, working Americans are more concerned about the overall state of the economy than they are about their own financial situation.

• 51% are more concerned about the economy than they were last year.
• But only 43% are more worried about their personal financial future.

 Nevertheless, 63% of all respondents still feel confident in their ability to plan for retirement. For them, the question is how to proceed.

Taking back control of personal finances

COVID may end up being the catalyst that some Americans needed to rethink their relationship with money. Unable to control the virus, the economy or the political environment, Americans are narrowing their focus to their immediate locus of control: the financial stability of their own households. In our survey, 83% of respondents said they want to minimize worrying about their finances this year, mainly through increased savings.

Fully 70% of respondents (again, all of them people with jobs or retired) say they’re putting more money into savings. This data could in part reflect the fact that people are spending less (if anything) on vacations, restaurants and entertainment.

Nevertheless, more money is being saved and invested — especially among some segments of the population. For example, parents (80%), Hispanic workers (81%), Black workers (75%) and Asian workers (78%) are more focused on saving than other groups.

Another window into personal financial behavior comes from Empower platform intelligence. The 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act allowed Americans with COVID-related financial hardships to withdraw up to $100,000 from tax-advantaged retirement funds without the standard 10% penalty. Moreover, the withdrawals would be tax-free if paid back to their retirement plan over three years; alternatively, participants could simply pay the taxes ratably over three years.

Not surprisingly, some people took advantage of the offer — but it wasn’t exactly a run on the bank. On the Empower platform, just 4.4% of participants made withdrawals, totaling $8.2 billion. The average distribution was $16,000, well below the allowable maximum.⁴

Data from the Empower platform also show more Americans increased their savings rates than decreased them during the second half of 2020. That held for every generation, from Z (the youngest of today’s workers) to the so-called silent generation, born 1928-1945.

And we’re seeing that desire to save reflected in the new Harris survey. When respondents were queried on their life goals for 2021, financial stability ranked high. In fact, “saving for retirement” and “paying off personal debt” tied with that New Year’s perennial, “exercising more,” at the top of the list. All three were named as top goals by 25% of those surveyed. (For the record, only 5% of respondents prioritized having children, and just 3% hoped to get married.)

We then asked respondents about more specific financial resolutions in the new year. The largest group (41%) said they plan to spend less money on nonessential items. And 38% plan to save more of each paycheck they receive. That number jumps to 49% of Asian workers and 47% of parents.

One dynamic that hasn’t changed is risk tolerance. In December 2020, 71% of respondents reported being “more risk averse with my financial planning” — an increase of just two percentage points from 2019.

From aspiration to action

We’ve all seen New Year’s resolutions that fade by February. So it’s reasonable to ask if Americans’ newfound commitment to financial well-being will stick. One way to measure that intention is by looking at people’s willingness to engage financial professionals — much like exercise resolutions get a boost when people hire personal trainers.

Our survey found broad interest in expert financial advice; many respondents now view it as essential given the recent upheavals. Fully 52% say that after all the uncertainty of 2020 they will seek more guidance when it comes to their financial strategies. And 33% have become more likely to work with financial professionals, as opposed to 24% at the onset of the pandemic. (First-generation Americans were considerably more likely (49%) than members of other groups to want to work with a pro.) Many investors say they’ll seek advice from family (25%) and friends (19%).

Politics has also affected the desire for outside input. Seventy-five percent of respondents said they believed the outcome of the presidential election would affect their personal finances — but 59% admitted they weren’t sure how. And more than half (57%) said they sought financial advice from people within their personal networks or their financial advisor. Notably, 28% said they’re more likely to look for advice after the election’s outcome.

Regardless of where they seek advice, plenty of workers and retirees are more focused on their finances. Twenty-seven percent said, “I will spend more of my time in 2021 planning my finances.” That number jumped to 37% for millennials and parents. Twenty-five percent said they planned to learn more about different financial strategies, while 17% vowed to “stop being afraid of my finances.”

The desire for more control is paramount, as is the need for more guidance. But as we learned in a 2019 study of retirees and near-retirees, many Americans want financial advisors to function as partners, not wizards behind a curtain. For example, according to our new survey, 28% plan to make better use of online resources that allow them to take charge of their own finances, backed by research and expertise. Given Americans’ new commitment to financial well-being, professionals who can offer investors “self-guided tours” of the landscape will find an eager audience.

Back to basics

It might go without saying that financial well-being impacts mental well-being, and indeed our survey found 78% of respondents in agreement. The shock and stress of the pandemic have prompted all manner of self-care regimens, and financial care is up near the top of the list.

Faced with uncertainties and the glaring evidence that much in life is beyond individual control,

Americans are returning to bedrock financial principles including saving more, spending less and safeguarding their investments. Fortunately, very few investors succumbed to panic. Americans’ risk tolerance and focus on long-term planning remain steady. And as they return to the fundamentals, Americans are looking for support from professionals who can provide advice and guidance in 2021 and beyond.