As generations change, so the needs and fiscal behavior from the clients you see. Some clients have an excellent financial acumen and therefore are in a position to properly execute discussed plans down to the last detail; however, as financial literacy becomes less popular in academia, we see a rising trend of consumers who concentrate on living day to day. While there is hope for a more prosperous future, there is rarely a plan in place to see it come to fruition.
Americans lack money savings skills
In general, Americans have a difficult time saving money. According to trends, 36% of adults have yet to start saving for retirement and 26% have no savings to fall back on in the event of an emergency. Within the case where adults are actually saving money, the average rate in 2019 was only 4.4% of earned income being saved, which is down from 10.5% just two years prior. To make matters worse, Millennials average a 2% savings rate, meaning this age group lives outside their means and relies heavily on credit to obtain them through daily life. As financial professionals, these numbers mean one thing- there's a big problem in how Americans save for the future.
“We need it, but we probably won't buy it-“
The attitude toward life insurance has drastically shifted with Generation X and Y (Millennials) compared to previous generations and oddly enough, we are beginning to see a level of cognitive dissonance in the data that is coming from these groups. While nearly all Gen Xers and Millennials say that owning life insurance is extremely important (according to LIMRA, 77% of Millennials feel by doing this), LIMRA reports under 20% are even entertaining the thought of purchasing. Not only are Americans struggling to save for future years, we're also seeing a growing disinterest in protecting the future.
If only there was a method to fix both problems…
Two birds, one stone – Return of Premium for both savings and insurance
While not an ideal option for many clients, a life insurance policy with a return of premium feature does give a stable, guaranteed way to have both protection and a way to save for future years. While the cost for a return of premium policy can be 4-5 times greater than a standard term product, the odds are greater that the “difference” or savings will not be properly invested or saved.
“Buy term and invest the difference” sounds great, but rarely is put in action. If a client isn't disciplined enough to have a current savings plan, a return of premium policy may be considered a good solution as a source of savings that can be accessed later on. Instead of trying to alter the person's savings behavior, we as advisors should acknowledge the client's overall shortcomings, and implement a solution to address the underlying problems.