By Barbara O’Neill, Ph.D., CFP®, email@example.com
Personal finance research informs high-quality financial education briefings, publications, and 1:1 financial counseling sessions with clients. Below are findings and implications for practice from four recent studies:
Life Insurance – This study by Heo et al. examined the role of psychological characteristics (e.g., locus of control, financial self-efficacy, financial and life satisfaction), in addition to demographic traits, in demand for life insurance. Results showed respondents who had a higher external locus of control, higher level of financial self-efficacy, and higher subjective financial knowledge tended to have both term and cash value life insurance.
- Implications: This study confirmed the importance of analyzing four policy ownership patterns: no life insurance, term life only, cash value only, and both types. Study results suggest that various idiosyncratic characteristics of consumers should be considered, along with functional purposes of life insurance (e.g., risk transfer and wealth accumulation), when financial practitioners are discussing life insurance with clients.
Financial Education and Health – This study by White et al. explored relationships between financial stress and negative health behaviors (e.g., smoking, alcohol consumption, reduced exercise, and a poor diet). Results indicated a positive association between completion of a financial success program and reduced financial strain, reduced medical care, and increased smoking cessation. The researchers noted that financial stress mitigation can improve mental bandwidth leading to increased self-control and fewer behaviors that are harmful to health.
- Implications: Financial stress is an important determinant of health and a barrier to engaging in healthy lifestyle behaviors, which can increase health care costs and result in a vicious circle. Financial practitioners who help clients reduce financial stress may want to also assess health impacts, especially as they affect spending behaviors (e.g., quitting smoking). “Increased reserves of self-control” affect both health and wealth.
Financial Illiteracy – A National Financial Educators Council study with 3,389 respondents estimated that lack of financial knowledge costs $1,389 per individual and $352 billion in the U.S. each year. Almost 1 in 5 (17.9%) reported losses of $2,500+. Respondents were asked one question: “During the past year (2021), about how much money do you think you lost because you lacked knowledge about personal finances?”
- Implications: Consumers, themselves, realize that gaps in their financial knowledge have had numerically quantifiable financial consequences. Therefore, financial education should be available throughout the lifecycle; i.e., so-called “K to gray.” Financial education is a key building block for success throughout life and for long-term financial well-being.
Gen Z Financial Advice – A survey by the marketing company, Vericast, found more than a third (34%) of Gen Z Americans (born 1997-2012 and age 10-25 in 2022) obtain financial advice from TikTok vs. 13% of millennials, 6% of Gen Xers, and 1% of baby boomers. An even third (33%) get advice from YouTube and nearly half seek financial advice from friends or family vs. less than a third from financial advisors or institutions. 75% of respondents said the amount of money in their bank account impacts their mental health.
- Implications: These findings suggest that financial practitioners should consider enhancing their presence in digital channels where young adults are spending their time. They need to meet these clients (and potential future clients) “where they are.” There also appears to be a strong association between financial and emotional wellness. Helping young adults prioritize saving and reducing debt will likely impact mental health positively.
Consumers seek financial guidance and comfort from non-traditional sources like TikTok, Vericast survey finds (2022). https://vericast.com/2022/07/19/consumers-seek-financial-guidance-and-comfort-from-non-traditional-sources-like-tiktok-vericast-survey-finds/
Corbin, K. (2022). Gen Zers would rather get money advice from TikTok or YouTube than an Advisor. Barron’s. https://www.barrons.com/advisor/articles/gen-z-financial-advice-tik-tok-youtube-survey-51658428131#
Craig, K. (2022). Lack of financial literacy costing consumers, but banks can help. ABA Marketing. https://bankingjournal.aba.com/2022/06/lack-of-financial-literacy-costing-consumers-but-banks-can-help/
Financial illiteracy cost Americans $1,389 in 2021 (2022). National Financial Educator’s Council. https://www.financialeducatorscouncil.org/financial-illiteracy-costs/
Heo, W. Lee, J.M., & Park, N. (2022) Psychographics related to the ownership of life insurance. Journal of Financial Planning, 35(6), 72-76. https://www.financialplanningassociation.org/learning/publications/journal/JUN22-psychographics-related-ownership-life-insurance-OPEN
Hui, A. (2022). Here’s how financial education can improve your health. Health. https://www.health.com/news/financial-education-health-outcomes#
White, N.D., Packard, K., & Kalkowski, J. (2019). Financial education and coaching: A lifestyle medicine approach to addressing financial stress. American Journal of Lifestyle Medicine, 13(6), 540-543. https://journals.sagepub.com/doi/pdf/10.1177/1559827619865439