Economic anxiety is driving investor behavior with potentially lasting consequences

• Many are navigating important financial decisions without a financial professional
• A growing number of investors are open to using Gen AI in the financial planning process

Many American consumers are questioning the health of the U.S. economy and how it is affecting their personal finances, according to a new survey from the Nationwide Retirement Institute®. As a result, some investors are taking potentially adverse actions, and many are doing so without professional guidance.

Almost 8 in 10 (78%) respondents rate the US economy overall as poor or fair, which marks a 6% improvement from last year. When asked the reasons for a negative rating of the economy, respondents overwhelmingly cite inflation (80%), wages not keeping up with the cost of living (51%) and high housing costs (50%). Almost two-thirds (64%) rate their personal finances as poor or fair.

For many Americans, retirement planning is taking a back seat to more pressing needs. Top financial goals for respondents include managing essential expenses (57%) and paying off debt (47%), followed by saving for retirement (45%), improving their investment portfolio (23%) and estate planning (14%).

Interestingly, this data seems to contrast with other economic indicators that show a more optimistic outlook of the evolving economic environment. For example, a Congressional Budget Office report found that household purchasing power has increased across all income levels since 2019 and data from the Bureau of Labor Statistics show a healthy job market with more job openings than unemployed workers.  

Despite these uplifting economic signals, consumers continue to feel budgetary strain and are changing their behavior in ways that could potentially have long-term adverse effects. More than one in four (27%) are either reducing their retirement plan contributions or considering doing so. About one in five (21%) have withdrawn money or are considering withdrawing money from their retirement savings to cover housing costs – a move that not only depletes savings but also carries significant tax implications. Additionally, anxiety about the upcoming presidential election has 76% of respondents on edge, with almost a third (32%) anticipating making changes to their investment allocations based on its outcome.

“People are feeling a deep sense of economic unease right now, driven by headlines of geopolitical uncertainty, and the seeming disconnect between their rising grocery bills and a surging stock market. With all this, it’s natural for American savers to feel anxious and be tempted to make changes in the way they manage their personal finances,” said Kristi Martin Rodriguez, leader of the Nationwide Retirement Institute. “However, emotional responses to short-term challenges – especially ones that may be easing – can lead to long-term mistakes when it comes to planning for a secure retirement. We are in the exact type of economic environment where a financial professional and trusted partner can add real value by helping their clients focus on their long-term goals and ensure they are set up for success long past current conditions.”

Many Americans are navigating important decisions without an advisor
Nearly three fourths of survey respondents (74%) said they do not use a financial advisor for help with personal finances. The top reasons include perceived cost (44%), not having enough assets to work with one (37%), feeling they don’t need advice (23%) or that they don’t know where to go to find an advisor (22%). For advice on personal finances, respondents are turning to friends and family (54%), prayer (26%), a financial professional (26%) and online resources like web sites and blogs (25%).

“The good news is that 38% of respondents indicated they either started working with a financial professional in the past 12 months or plan to do so,” Rodriguez said. “Our data highlights a huge opportunity for advisors to engage new and existing clients who feel overwhelmed by choices in the current economic environment.”

“For those investors who feel the need to make a change in their long-term plan, it could be a costly mistake to go it alone,” Rodriguez said. “In the end, the cost of working with a financial professional is likely to pay for itself in the form of potentially better long-term outcomes. And for those who feel professional advice is out of reach, many workplace retirement plans offer tools, education and advice for free or minimal cost.”

The emergence of Gen AI is transforming the financial advisor role
Although professional advice from a human advisor is invaluable, some investors are embracing new technologies to assist with their financial planning, such as Generative Artificial Intelligence (Gen AI). Furthermore, this adoption of Gen AI is also inspiring financial professionals to change the way they support their clients. While the majority of respondents remain cautious about its use in financial planning, many are open to including it in their process.

More than four in ten (44%) respondents believe that in the next 5 years AI technology will provide better financial advice than a human advisor (an increase of 13% since 2023) and 36% currently trust financial advice provided by AI, (up 11% in the past year). Four in ten (41%) feel comfortable working with a financial professional who uses AI to make recommendations about their financial plan. 

“I don’t believe AI will ever fully replace a trusted human to human interaction, but forward-thinking advisors will begin to find opportunities to incorporate these tools in their work to create increased efficiency and free up time for to better understand their client’s needs,” Rodriguez said. “For something as consequential as financial planning, there is no substitute for the ability to listen, empathize and personalize a plan to meet each client’s personal goals.”

Rodriguez offered these tips to help advisors meet anxious clients where they are:

• Be proactive: Don’t wait for your clients to come to you. Set up time to check in with them about how they are feeling about their financial plan.
• Listen: When clients express concerns, give them room to vent. Reinforce that it’s OK to share their emotions. Demonstrate empathy without judgement.
• Understand the basis of their concerns: Ask about the sources of information they rely on. Understand if their perspective is based on reliable or questionable sources and be prepared to back up your resulting guidance with simple, solid facts.
• Revisit their goals: Ask them if their long-term objectives have changed. Explore whether their current plan needs adjustment. By involving them in this process, you may calm their nerves and help them feel more in control when it comes to taking action or merely deciding to stick to their long-term plan.

To learn more about Nationwide’s 2024 Economic Impact survey, visit news.nationwide.com.

View this infographic highlighting survey results.

Methodology
Nationwide commissioned Edelman Data & Intelligence (DXI) to conduct a nationally representative online survey of 2,000 US consumer adults aged 18 and older from May 1-15, 2024. The survey was weighted to be representative of the U.S. population by age, gender, region and ethnicity. 69% of respondents claimed household income of $75,000 or less.

As a member in good standing with The Insights Association as well as ESOMAR Edelman Data and Intelligence conducts all research in accordance with local, national, and international laws as well as in line with all Market Research Standards and Guidelines.

Nationwide and its representatives do not give legal or tax advice. An attorney or tax advisor should be consulted for answers to specific questions.
 

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