Financial Wellness Is Really About Financial Priorities

Retirement industry researchers say the pandemic will have a lasting impact on the way people rank and pursue their financial priorities, influencing their vision of ‘financial wellness’ and redefining what success with money really means.

After living through a pandemic that has lasted for well over a year, U.S. investors’ behaviors and outlooks have clearly shifted, and their viewpoints about financial wellness have been similarly reshaped.

According to a financial priorities survey of more than 3,000 Americans published by Ameriprise Financial in April, nearly two-thirds (63%) of investors who did not have an emergency savings fund prior to the pandemic have put one in place or plan to do so soon due to COVID-19. The research shows the COVID-19 pandemic has rewritten the ways in which many investors are spending and saving their money—and they expect they’ll carry their newfound priorities into the future.

According to Ameriprise, a majority of respondents (63%) said their household income was not significantly impacted by the pandemic, and 10% said their income actually increased. However, a quarter (25%) reported they are earning less money, with many in this group having experienced a significant loss of income.

Against this backdrop, more than six in 10 respondents said protecting their financial assets (63%) and planning for uncertainty (62%) are more important to them now than before the pandemic. Nearly half (45%) believe these shifts will be long lasting, come what may in terms of broad economic recovery.

“While the economic impact of the pandemic has unevenly affected people across the country, it has been a wake-up call to everyone,” says Marcy Keckler, vice president of financial advice strategy at Ameriprise in Minneapolis. “The extraordinary circumstances of the last year convinced many people, even those who were already on strong financial footing, to take actions they may have previously put off. Investors are paying closer attention to their finances and are making important changes to strengthen their financial situation.”

Conflicting Signals?

Related data taken from the “2021 Retirement Confidence Survey” conducted by the Employee Benefit Research Institute (EBRI) and Greenwald Research shows that 80% of retirees are confident in their ability to live comfortably throughout retirement. This is actually up from the 76% of retirees who held that view last year.

EBRI and Greenwald find 18% of workers said their hours and/or pay have been reduced since February 1, 2020, while 10% had been furloughed or temporarily laid off. In total, 39% of workers reported that their household experienced some type of negative job or income change since February 1, 2020. On the flip side, 21% of workers reported having some type of positive change in work in the same time frame.

“Even with changes in the labor market, workers’ confidence in their ability to live comfortably in retirement remains high overall,” says Craig Copeland, EBRI senior research associate. “However, while resilience may be the watchword for 2021, three in 10 workers say the pandemic has negatively impacted their ability to save for retirement due to reduced hours, income or job changes. The group that was most likely to have their ability to save impacted were those more likely to have low confidence historically, such as those who are low income, not married and having a problem with debt.”

The Ameriprise research shows nearly half (45%) of respondents reduced their spending during the pandemic, and 30% of them expect to remain more frugal with their money in the future. On the other end of the spectrum, a quarter made big ticket purchases or made investments such as a significant home renovation. Once the pandemic ends, a quarter of investors anticipate spending more money than usual on activities they had to postpone. Also noteworthy, 30% of survey participants who did not have an adviser prior to the pandemic started working with one or intend to do so soon due to COVID-19.

“A financial professional can play an important role in helping investors assess the long-term impact of their shifting priorities,” Keckler says. “Advice from a qualified adviser can help them navigate life’s twists and turns and stay on track to achieve their biggest financial goals for the future.”

New Views Post-Pandemic

Data from the Northwestern Mutual “2021 Planning and Progress Study”—an annual research project that explores Americans’ attitudes and behaviors toward money, financial decisions and broader economic issues—shows a third (32%) of Americans say their financial discipline has actually improved during the pandemic. In this group, 95% say they expect their newfound habits will stick after the health crisis subsides.

The study finds that the pandemic and related events have prompted people to get proactive with their planning. Nearly one out of five (17%) U.S. adults aged 18 and older said they didn’t have a financial plan before the pandemic, but now they have one in place. Overall, 83% of people were prompted to either create, revisit or adjust their financial plan during the pandemic.

“COVID-19 has dealt financial setbacks to so many Americans, but people are changing their behaviors and financial choices to meet those head-on,” says Christian Mitchell, executive vice president and chief customer officer at Northwestern Mutual in Milwaukee. “While we don’t know what post-COVID life will look like, we’re encouraged to see that people intend to hold on to the better financial habits they’ve developed during this challenging time.”

Among the behaviors that people say they’ve adopted and expect to maintain going forward are reducing living costs and discretionary spending (45%); paying down debt more aggressively (34%); increasing investment levels (33%); regularly revisiting financial plans (29%); increasing use of tech/digital solutions to manage finances (28%); and increasing retirement contributions (25%).

On the other hand, the Northwestern Mutual research also shows nearly half (45%) of Americans say the pandemic has impacted their timeline for achieving long-term financial security, with most saying it’s a setback of one to two years.

“An improvement in financial habits is a positive for sure, but it shouldn’t overshadow the fact that it’s coming from a place of financial difficulties for many,” Mitchell concludes. “Taking action is critical, and the first step is putting a solid plan in place.”