The Many Barriers to Financial Advice and Confidence

Allianz Life has published the 2021 Retirement Risk Readiness Study, with this year’s edition putting a spotlight on the specific challenges faced by Black/African American, Hispanic and Asian/Asian American respondents.

The study identifies distinct differences among these and other demographic groups regarding retirement risks and engagement with the financial services industry. It also quantifies workers’ interest in getting help from a financial professional, exploring the real and perceived barriers to advice cited by survey respondents.

Overall, a 52% majority of Black/African American survey respondents reported feeling concerned they would not be able to save enough for retirement, with 56% of Hispanic people, 56% of white people and 62% Asian/Asian American people saying the same. Larger differences were seen with the question of whether respondents feel the rising cost of living will prevent them from enjoying their retirement, as 54% of Black/African American respondents said yes, compared with 67% of Hispanic respondents and 74% of Asian/Asian American respondents.

Other commonly cited financial fears among all groups include concern that healthcare costs will be so high one can’t afford needed care; concern the cost of living will increase and one won’t be able to afford necessities; concerns about not being able to physically and/or financially take care of oneself; and simply running out of money after one stops working. People of all stripes fear that the market will take a downturn and hurt their nest egg, and that they may one day become a financial burden to loved ones.

Context for these findings can be found in a related analysis published by the Employee Benefit Research Institute in March, looking at the breakdown of retirement savings across the different racial and ethnic groups comprising the U.S. workforce. EBRI says the data represents yet another clear piece of evidence that not every race/ethnic group is amassing similar levels of wealth within individual account retirement plans such as 401(k)s. It is derived from the Survey of Consumer Finances (SCF), which is the Federal Reserve’s triennial survey of wealth.

According to EBRI’s analysis of the SCF data, just over half of families had an individual account-style retirement plan in 2019 (50.9%). However, the likelihood of having a retirement plan is significantly lower for families with Black/African American family heads than for families with white, non-Hispanic heads. Specifically, 57.2% of the latter and 34.9% of the former report owning some type of individual account savings plan.

EBRI reports the discrepancy is even greater for families with Hispanic heads. The data shows fewer than half as many (25.5%) families with Hispanic heads reported having retirement plan assets compared with families with white, non-Hispanic heads. EBRI also reports that these disparities have changed only marginally since 2010, showing the persistence of the issue.

EBRI finds families with Black/African American or Hispanic heads who did have a retirement plan also reported significantly lower median account balances than families with white, non-Hispanic heads. As of the end of 2019, EBRI reports, the median account balance of families with white heads was $80,000, versus $35,000 and $31,000 for families with Black/African American heads and Hispanic heads, respectively.

EBRI’s analysis concludes that families with minority heads are generally in a much worse position in their preparation for retirement in terms of individual retirement plan assets. As a result, EBRI says, these families are likely to have much less flexibility in financing retirement.

Returning to the Allianz Life research, fewer respondents from these groups are getting professional help with their finances than white Americans (38% Black/African American; 44% Hispanic; 36% Asian/Asian American; and 46% white). When asked why they are not currently working with a financial professional, more than one-third (37%) of Black/African American respondents said it was because they don’t have enough money. This figure is only 30% for Hispanic and Asian/Asian American respondents. For Asian/Asian Americans, the most-cited barrier was cost, with 45% indicating advice costs too much. This reason was cited less often by Black/African American and Hispanic respondents.

Hispanic respondents report being most active in the financial planning process, with four in 10 indicating they have made a formal financial plan with a financial professional, versus less than one-third (32%) of Black/African Americans and only about a quarter (26%) of Asian/Asian American respondents.