When Americans sign up for a defined contribution plan, they are thinking about their retirement. They are hoping the funds that are invested in a DC plan grow and make retirement a bit more comfortable.
It’s easy to see that DC plan participants might not see themselves as wealthy. After all, if they were wealthy, they might consider not contributing to the plan in the first place?
Our newest DC insights series study Financial Behaviors and the Participant’s Mindset examines how defined contribution plan participants feel about investing, retirement, health, issues of national interest and wealth.
The responses regarding their wealth indicate that the more money a participant has in their defined contribution account, the better they feel about their wealth status.
There is no more clear indication of the attitude of plan participants toward their wealth status than the question asking participants to place their wealth status on a 0-to-100 scale, with “100’’ being more wealthy and “0” being less wealthy. Plan participants placed their wealth level at 48.99, obviously below the mid-mark.
It is telling that plan participants placed their parents’ wealth status above their own, at 50.19. They placed the wealth status of their spouse’s parents at well below their own, at 44.64.
The fact plan participants have a lower respect for their own wealth status could certainly provide a stepping stone to a relationship between the participant, the plan provider or a financial advisor, with the opportunity to examine and explain the participants’ current wealth status.
The wealth status question was further examined by segmenting plan participants by age. Millennials, those under the age of 36, rated themselves at 47.73, while the next Generation, named Generation X, rated themselves lower, at 46.43. The rating climbs to 51.09 for Baby boomers and 60.31 for World War II plan participants.
Female plan participants rated themselves slightly better than male participants did, 49.35 to 48.54. Historically, females tend to have a lower opinion of their wealth status than men.
It makes sense that the size of a plan participant’s account would also affect their wealth status determination. Those with less than $10,000 rated their wealth status at 41.58, while those with more than $100,000 in their account rated themselves at 55.79.
Plan participants also report a relatively low regard for their own financial knowledge. Only 54 percent indicate there are fairly knowledgeable or very knowledgeable about finance and investing, while 41 percent place themselves as not very knowledgeable and 5 percent claim they are not at all knowledgeable.
Without a strong belief in investment knowledge, it makes sense that plan participants would be more moderate in their risk-taking as it relates to investments. Exactly two-thirds of plan participants consider themselves “moderate: or “conservative” in investing, while 31 percent call themselves “aggressive” and only 3 percent are “most aggressive”.