How Do Americans Perceive Their Financial Health?

Nearly one-third of Americans do not have an accurate handle on the state of their own finances, thinking they are either better or worse off than they actually are, according to a new study.

Prudential’s first ever Financial Wellness Census, which surveyed more than 3,000 U.S. adults, explores Americans’ objective financial health (such as what they earn, own and owe) and their subjective financial health (including their financial outlook and how optimistic or pessimistic they are about achieving financial goals).

Responses were sorted in four different groups based on how they perceive their financial wellness:

  • Confident: 34% are doing well financially and believe it
  • Pessimists: 12% are doing well financially, but are pessimistic about their finances
  • Discouraged: 37% are not doing well financially and recognize it
  • Idealists: 17% are not doing well financially, but they perceive themselves to be in good financial shape

Perceptions Matter

Poor perceptions of financial health could have many adverse consequences, the study found. “This apparent misalignment between objective and perceived financial health may have important and in some cases troubling implications,” explains Stephen Pelletier, executive vice president and chief operating officer of Prudential’s U.S.-based businesses. “Our relationship with money can affect our physical health, stress levels and state of mind, family dynamics and even our performance at work.”

For example, Idealists may fail to save and invest adequately for future needs, while Pessimists could subject themselves to unnecessary and unhealthy stress — and “rob themselves” of experiences and comforts that could improve their quality of life, the report explains.

The top three financial goals for Americans include having enough savings to last through retirement, ensuring they can pay for health care and keeping up with current expenses, according to the findings. Perhaps not surprisingly, Americans’ most pressing financial worry is the thought that they will never be able to retire and will have to continue working as long as they can hold a job.

Holding Out Hope

Even among those who are struggling, the findings show that many still hold out hope they will be able to enjoy a financially secure retirement. Approximately two-thirds of this group (68% of Discourageds and 69% of Idealists) say that having enough savings to last through their retirement years is an important financial goal. These respondents include it in their top three goals, suggesting they haven’t given up on the idea of making it happen. By contrast, 81% of Confidents and 84% of Pessimists — the two groups doing best objectively — both rank a financially secure retirement as their top goal.

Despite having high objective levels of financial health, Pessimists worry just as much about their financial future as do Discourageds. According to the findings, 73% of Pessimists, who are financially healthy, say they are worried about their financial future — nearly equal to the 71% of Discourageds who have low objective levels of financial health.

When broken down by gender, women tended to have a more negative view about their financial outlook than men do. According to the findings, slightly more than 10% of financially healthy women have a negative view of their financial health, compared to 6.3% of financially healthy men. Among those who are not financially healthy by objective measures, women again were more likely to have a gloomier outlook — although the disparity is not statistically significant, the report notes.

One solution to a more positive outlook on financial health is working with a financial adviser. Among those with high levels of objective health, 53% of Confidents are working with a financial professional, versus only 40% of Pessimists. Similarly, 31% of Idealists work with a financial professional, versus only 23% of Discourageds.

Reality Bites

Despite their level of hope, individuals with low financial health are saving very little for retirement — suggesting their financial struggles may last a lifetime, the report notes. While Confidents and Pessimists are saving 16% of their money for retirement, Discourageds and Idealists are saving only 4%.

Not surprisingly, Discourageds and Idealists spend a bigger percentage of their income on necessities: 57% and 54%, respectively, versus 35% and 37% for Confidents and Pessimists. Discourageds and Idealists were also found to be spending a larger share of their income on paying down debt.

The Financial Wellness Census was conducted by Prudential and Chadwick Martin Bailey within the U.S. among a nationally representative sample of 3,013 U.S. adults ages 25-70.

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