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Research Study

Key Finding #2

Financial Priorities

T. Rowe Price

In Retirement Savings and Spending 3, the third of our annual participant surveys, T. Rowe Price examines the attitudes and behaviors of 401(k) plan participants to provide insights for plan sponsors and their advisors. One important finding in the 2017 study shows that participants’ multiple, conflicting financial priorities demonstrate the need for financial wellness strategies.

Multiple Priorities

Respondents to our survey, all 401(k) plan participants, showed a surprising number of financial objectives. When prompted with 16 specific objectives, the majority indicated that 14 of them were either “major” or “minor” objectives. Only two were labeled “not an objective” for the majority of respondents—saving to purchase a home and saving to start a business. However, both objectives were high priorities for a significant number of millennials.

Progress and Conflicts

So how are they doing? With so many priorities, it’s not surprising that participants report mixed results. What’s particularly interesting is that the highest priority objectives aren’t the ones with the most progress. Saving for retirement is a major or minor objective for 94% of respondents, yet only 40% report a great deal of progress, and as many as 18% report not very much or practically no progress. Similarly, while 82% of respondents said reducing debt and 88% said saving for emergencies are major or minor objectives, 23% report making little to no progress on debt reduction, and 28% say they’ve made not very much or practically no progress on emergency savings.

Symptoms of Financial Stress

While it’s encouraging that most respondents say that having financial peace of mind is a major or minor objective, and 82% report making progress toward that goal, our study uncovered some troubling symptoms of financial stress. Nearly a quarter of respondents (24%) have taken loans or withdrawals from qualified plans and 31% of those with household debt other than first mortgages report that debt to be more than $50,000. Average debt is $72,000, up from $57,000 in 2015. And nearly half indicate that in a financial emergency, they’d turn to credit cards to cover financial needs, presumably because they don’t have emergency savings.

Prescription for Wellness

Our survey found that some respondents are making greater progress on lower-priority goals. For participants who value financial wellness, some triage might be in order. We believe that achieving financial wellness requires concentrating on the fundamentals—proper budgeting, debt elimination, and emergency savings—in order to have the means to prioritize saving for longer-term goals, such as retirement.

For participants who are experiencing financial stress, eliminating underlying causes of the stress, such as debt or over-spending, can help them build a stronger foundation for long-term wellness. Participants who have a financial foundation may need help to stay on track and make periodic adjustments.

Actions for Sponsors and Advisors

For employers, a workforce free of financial stress is an important goal. The retirement plan—with a strong provider, a robust communications strategy, and powerful tools—is often the best way to address financial wellness. For some plan sponsors, this may mean rethinking how you measure a plan’s success. For example, a good measure might be the attendance at a budgeting seminar. A great measure, on the other hand, would be attendance by those with outstanding plan loans. Plan sponsors are encouraged to work with their provider and advisor to align plan’s objectives and communication strategies with financial wellness goals.

For advisors who work directly with individuals, the right prescription is a solid financial foundation based on reducing debt, managing income via sound budgeting, and saving for short- and long-term objectives. Different approaches are needed for different types of clients. The financially healthy need guidance on investment choices and staying on track, while unhealthy need help with financial basics, such as budget prioritizing. Then there are clients who think they’re healthy but have hidden ailments, such as excessive debt alongside high account balances or inappropriate investment choices. These concerns can be uncovered as the relationship deepens and the client develops increased trust for the advisor.

About the Study

T. Rowe Price engaged Brightwork Partners to conduct a national study of 3,022 adults aged 18 and older who have never retired and are currently contributing to a 401(k) plan or eligible to contribute and have a balance of at least $1,000. The online survey was conducted from March 3–14, 2017.

For more information on these and other findings from Retirement Savings and Spending 3, please contact your T. Rowe Price representative.

T. Rowe Price Investment Services, Inc.

201712-317422

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