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Many advisory practices focus on affluent clients. There’s nothing wrong with that. When it comes to citing economic data, experts and pundits have penchants for highlighting those in the highest and lowest income brackets.
It almost feels as though the only time the middle class gets any attention is when someone is trying to get elected and then after Election Day, poof, no more emphasis on middle income people. Neither advisors nor economists should fall prey to that line of thinking. In fact, important insight can be gleaned from the perspectives of people with “middle” incomes.
While much has been made of the decline of the middle class – a very real phenomenon – the reality folks in that economic segment make up the bulk of this country. As such, it’d be foolhardy for advisor to ignore them and the potentially valuable economic insight they provide. Read on to learn more.
Middle Income Clients Feel Positive and Worried
A recent survey of middle income Americans conducted by Santander US contains valuable clues for advisors. Conducted in the fourth quarter, the poll indicates 70% of respondents believe they’re on the right track financially and 80% think they can become wealthy within a decade. That positivity shouldn’t be ignored and it underscores the need for some middle class people to work with advisors, but there’s more to the story.
“Despite the optimistic view, middle-income Americans acknowledge there are headwinds with two-thirds reporting that they expect the United States will enter a recession in 2024,” according to Santander US. “The majority of respondents (57%) say they have already delayed a major financial decision due to concerns about a recession. Inflation remains a primary concern along with rising healthcare premiums and student debt. In fact, while the majority of middle-income Americans (62%) are setting financially related goals, only one third are highly confident they can achieve their goals.”
Another reason why many middle income Americans need advisors: they’re arguably too heavily allocated to cash at a time when stocks are showing promise and as fixed income could become more hospitable, assuming the Federal Reserve lowers interest rates.
“To offset financial stressors in 2024, some consumers are taking advantage of higher interest rates on savings. According to the survey, 40% of middle-income Americans had moved money into higher-yielding accounts since interest rates began to increase in 2022. This is an improvement from 32% in the second quarter, but still six in 10 have not acted,” notes Santander US.
Familiar Foe Confounds Middle Class
For advisors that need more convincing about working with middle income people and for the folks in that demographic that need more cajoling to work with a financial professional, inflation could very well seal the deal.
Yes, it’s declining, but it’s still persistent and it remains a top concern for many in the middle class. They want answers and strategies. Advisors can offer those and more.
“Inflation remained the top obstacle to financial prosperity (51%), though down from its peak of 57% in the second quarter. Inflation also was cited as the top reason why middle-income Americans believe a recession is looming in 2024,” concludes the Santander research. “The survey also found 56% of these households will be impacted financially by higher health care premiums in 2024. Additionally, of those with responsibility for student-loan debt (36%), 67% say the resumption of federal student-loan payments in 2023 is having an impact on their ability to achieve financial prosperity.”
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