The economy has been on a wild ride the last few years. We’ve seen bear markets, bull markets, high inflation, record low interest rates, the fastest rate hike cycle on record, and countless predictions of a forthcoming recession. Recent history makes it hard to feel certain or confident about the future.
As a part of Northwestern Mutual’s 2023 Planning & Progress Study, we sought to better understand human behavior as it relates to finances during times like these. I’ve worked in the industry for years and have seen people lose sight of the big picture during economic uncertainty. When that happens, folks can make shortsighted decisions that negatively impact their long-term financial objectives.
With this concept in mind, the two main questions we sought to answer through our study were:
- Does this reaction hold true across all investors, or do the most financially secure and savvy react differently than the general population?
- What habits aid these individuals when it comes to managing their finances?
To help get answers, we surveyed people with at least $1 million in investable assets, asking about their wealth, financial habits, and views on the economy.
While the data shows that the wealthy generally stay optimistic about what they can’t control (like economic policy), they are highly in tune with what’s going on around them. In fact, high-net-worth consumers in our study view inflation, the economy at large, volatile markets and global instability as the biggest potential threats to their financial security. What’s more, 65 percent believe we’ll be in recession before the year is out. And many prognosticators have similar views.
But if they believe a recession is coming, how are they preparing for it? Are they making knee-jerk, rash decisions as so many are tempted to do in times of economic uncertainty? The data says they aren’t. While most feel confident in their financial plans, it’s also true that some are working to shore up real or perceived weaknesses in theirs. But even among those who are making changes, what’s noteworthy is the type of actions they aren’t taking. Respondents aren’t moving assets to cash or gold in large quantities, for example. Instead, they are focused on measured and thoughtful changes to help shore up their financial security. This includes changes like:
- Building up their savings (50 percent),
- Reducing living expenses (46 percent),
- Postponing big-ticket purchases (38 percent), and
- Pulling back from speculative holdings like crypto (22 percent).
And these behaviors make sense, especially when considered in the context of other facts we know about these consumers. For example:
- 91 percent say they have a financial plan that incorporates the possibility of an unplanned financial or medical emergency,
- 84 percent say their financial plan is designed to withstand the ups and downs of the market,
- 77 percent describe themselves as disciplined or highly disciplined financial planners, and
- 70 percent say they work with a financial advisor.
When you have a financial plan and an experienced advisor to guide you through the challenging moments, it’s much easier to have confidence in your financial future. The road map your financial plan lays out, combined with the tailored advice your advisor delivers at every turn, helps give you a clear view of what’s ahead and helps you react in a way that advances your long-term financial goals.
What else did we learn from our 2023 Planning & Progress study? We uncovered seven financial habits high-net-worth people use to build and maintain wealth.
