Financial Confidence U-Curve

1 Financial Confidence: Examining the U-Curve—and How We Might Improve the Confidence Trajectory
Financial
Confidence
Examining the U-Curve—and How We Might
Improve the Confidence Trajectory

At LearnVest, our financial planners work with
individuals and families representing a wide
range of ages, income levels, lifestyles, and
goals. We offer clients a detailed financial plan
and access to a holistic program designed to
help the client put the advice into action.
Visit www.learnvest.com.
LearnVest is
a program for
your money.

Financial Confidence
and the Workplace
Financial stress in employees’ personal lives can
have significant ripple effects in the workplace,
including declines in productivity, focus and
performance. A variety of recent studies have
explored the extent and impact of financial stress
in the workplace. Studies have also looked at
companies that have started adding financial
wellness programs to their benefits package to
help improve employee engagement—and, ideally,
their bottom line.1
In this whitepaper, we examine an interesting
trend in how people feel about their finances
over time. While it might be assumed that
financial confidence increases with time—along
with wisdom and salaries—our research found
the opposite. Specifically, we explore the sharp
decline in confidence after age 25, and how
increased financial responsibility paired with
stagnant income growth can culminate in a crisis of
confidence for people in their mid-30s and 40s.
By illuminating what may hinder financial
confidence across a range of age groups, this
report can help provide a deeper understanding
of how we might approach financial wellness in
the US, thereby mitigating the negative effects of
financial stress.
7 out of 10 workers say
financial stress is their most
common cause of stress2
In 2012, about 1 in 5
employees admitted they
had skipped work in the past
year to deal with a financial
problem2
Over 60% of human
resource professionals say
financial stress is having an
impact on employee work
performance2
55% of employers believe
financial wellness leads to
greater productivity3
26% of small companies, 43%
of medium companies and
46% of large companies have
a financial wellness strategy
in place for their employees
or plan to add one in the next
two years3
1
Data is from 9/1/2013–7/15/2014 and aggregate
of 78,717 users.
2
Consumer Finance Protection Bureau Report,
Financial Wellness at Work (August 2014),
available at http://www.consumerfinance.gov/
reports/financial-wellness-at-work/
3
Bank of America Merrill Lynch Workplace
Benefits Report (December 2013), available
at http://benefitplans.baml.com/ir/pages/
workplace-benefits-report.aspx

Contents
4
5
7
8
11
14
14
16
17
18
19
Introduction
The confidence gap
A pattern emerges
A closer look at earning power
Responsibility on the rise
A detailed look by decade
Under 25: “The young and free”
25–34: “The upwardly immobile”
35–44 “The spread thin”
45–55 “The light at the end of the tunnel”
Summary and final notes

Introduction
How do people feel about their finances? While
it might be assumed that financial confidence
increases with time—along with wisdom and
salaries—LearnVest research found the opposite.
In this paper, LearnVest looks at data from our
own members, statistics from the U.S. Bureau of
Labor Statistics, and several recent studies to try
to answer the confidence question. Specifically,
we examine the sharp decline in confidence after
age 25, and how increased financial responsibility
paired with stagnant income growth can culminate
in a crisis of confidence for people in their mid-
30s and 40s. In delving into the root causes, we
also begin to explore how the financial planning
industry can help rewrite the confidence story.

The confidence gap
Does financial confidence grow as people get
older (and presumably wiser)? Our internal
research involving individuals signing up for
LearnVest found that new clients’ confidence in
their finances actually demonstrated a U-curve.
While those under 25 generally felt very confident
about their finances, 30- and 40-somethings were
significantly less confident. In the 55 and older
brackets, confidence starts to tick up again.1
Confidence by age across income levels
20%
Under
25
years
25-34
years
35-44
years
45-54
years
55-64
years
65
years
and
older
30%
40%
50%
60%
Source: LearnVest

Curious about whether income played a role in
financial confidence, we then looked at confidence
across income brackets. We found that the U-curve
trend still holds true across most income levels. 63%
of people in their 30s making between $70,000 and
$100,000 annually stated they don’t feel good about
their finances.2
Confidence by age within income brackets
0%
$30,000-$50,000 $50,000-$70,000 $70,000-$100,000 $100,000-$150,000 $150,000 and aboveUnder $30,000
18-24
18-24
18-24
18-24
18-24
18-24
24-34
24-34
24-34
24-34
24-34
24-34
34-44
34-44
34-44
34-44
34-44
34-44
44-54
44-54
44-54
44-54
44-54
44-54
54+
54+
54+
54+
54+
54+
30%
20%
10%
40%
50%
60%
70%
Source: LearnVest

A pattern emerges
The confidence curve we found was based on
data from people who had just joined LearnVest.
Our group of respondents was 65% female,
from across the United States (with the heaviest
concentration from the east and west coasts) and
45% are married or partnered.
In order to mitigate the impact our somewhat
skewed demographic had on our analysis, we
explored similar research to understand the
broader context of the U-curve. We discovered
that the trend revealed in our own data is
also in line with the work of certain behavioral
economists, who have noted similar trends in
researching happiness. A study out of Dartmouth
College and Warwick University, for example,
found that “happiness and life satisfaction are
U-shaped in age...well-being reaches a minimum,
other things held constant, round the age of
forty.”3
Not only has this happiness curve been
demonstrated by extensive data from the United
States and Europe, but data from 72 countries
corroborates the trend.4
(We should note that while
the LearnVest data was analyzed by cohort, similar
studies have found that “the U-shape seems to be
unaffected by cohort influences.”5
)
With supporting evidence for the U-curve in the
broader context and other data sets, we set out
to understand what causes financial confidence to
nose-dive over time.

A closer look at
earning power
Larger market factors aside, a person’s income
generally increases as he or she gets older.
People who have been in the workforce longer
have more years of experience, and their salaries
tend to rise along with their duties and titles.
Average income over time
Under
25 Years
25-34
Years
35-44
Years
45-54
Years
55-64
Years
65 Years
and older
$30,000
$15,000
$
$45,000
$60,000
$75,000
$90,000
Source: Pre-tax income from the BLS “Table 1300. Age of reference person: Annual expenditure means, shares, standard errors,
and coefficient of variation, Consumer Expenditure Survey, 2013”

So why do people in their early twenties—a
demographic that currently faces more student
loan debt than previous generations before them,
and who for the most part are only just entering
the workforce6
—still appear to be more confident
about their finances than their higher-earning
counterparts in their thirties and forties? A closer
look at earning power over time may offer more
insight. National income data shows that while a
person’s income generally does increase over
time, income growth rates actually decrease
dramatically over time.
Average income over time and income growth rate over time
Under
25 Years
25-34
Years
35-44
Years
45-54
Years
55-64
Years
65 Years
and older
$30,000 0%
$15,000 -30%
-60%$
$45,000 30%
$60,000 60%
$75,000 90%
$90,000 120%
Source: Pre-tax income and growth rates from the BLS “Table 1300. Age of reference person: Annual expenditure means, shares,
standard errors, and coefficient of variation, Consumer Expenditure Survey, 2013”
Average Income Income Growth Rate

The average income for Americans grows an
astounding 111% from the under-25 age bracket
to the 25–34 bracket. After that, income growth
rate slows to 33% between the 25–34 bracket to
the 35–44 bracket. Income continues to slow to
a mere 1% growth rate between the 35–44 age
bracket and 45–54 bracket, and then hits -6% by
the time people reach the 55–64 age bracket. So,
while college students and recent graduates may
only have an entry-level salary, their earnings are
also likely to climb dramatically as they become
full-fledged members of the workforce. That
makes it more likely that they’ll have the cash
flow to at least cover their current expenses and
debt payments—keeping confidence levels high.
However, as people reach their mid-30s and 40s,
their salaries begin to stagnate and eventually
decline by the time they hit their mid-50s and 60s7
(likely due to near-retirees leaving their positions
as they prepare to retire full-time).

Under
25 Years
Under
25 Years
Under
25 Years
Under
25 Years
25-34
Years
25-34
Years
25-34
Years
25-34
Years
35-44
Years
35-44
Years
35-44
Years
35-44
Years
45-54
Years
45-54
Years
45-54
Years
45-54
Years
55-64
Years
55-64
Years
55-64
Years
55-64
Years
65 Years
and older
65 Years
and older
65 Years
and older
65 Years
and older
Responsibility
on the rise
Household and spending data across age brackets
from the U.S. Bureau of Labor Statistics provides
another key factor of the confidence equation.
Just when average income growth is slowing for
Americans, financial responsibilities are reaching
their highest point.
2 2.8 3.4 2.7 2.1 1.8
Average household size by age
$449 $2,862 $5,078 $3,950 $3,295 $1,560
Average mortgage payment amounts by age
$2,262 $3,641 $4,010 $3,958 $3,275 $2,133
Average vehicle payment amounts by age
$30,373 $48,087 $58,784 $60,524 $55,892 $41,403
Average yearly expenditures by age
Source: U.S. Bureau of Labor Statistics, “Table 1300. Age of reference person: Annual expenditure
means, shares, standard errors, and coefficient of variation, Consumer Expenditure Survey, 2013”

The data shows that average Americans are
facing their biggest household size, mortgage
payments, and vehicle payments in their lives
just as their income growth is peaking, with low
likelihood of a significant pay increase ahead.
Revisiting our confidence data with these insights
in mind, it’s less of a surprise that confidence starts
plummeting in the mid-30s and 40s demographics.
We cannot ignore the emotional toll of these
factors: according to the American Psychological
Association, the top causes of stress for Americans
are money, work, and the economy.8
With a clear
picture of their current responsibilities, looming
retirement needs, and tepid outlook for significant
pay increases, Americans may be facing an
unpleasant—and stressful—reality check when it
comes to their financial outlook.

Financial responsibilities and financial confidence by age
Under
25 Years
25-34
Years
35-44
Years
45-54
Years
55-64
Years
65 Years
and older
$30,000
$20,000
0
$10,000
$45,000
$60,000
$75,000
$90,000 60%
50%
40%
30%
20%
Spending Confidence
Source: BLS “Table 1300. Age of reference person: Annual expenditure means, shares, standard errors, and coefficient of variation,
Consumer Expenditure Survey, 2013”Annual expenditure means, shares, standard errors, and coefficient of variation, Consumer
Expenditure Survey, 2013”

A detailed look
by decade
While earnings tend to be low, those in their
early twenties also have, on average, the fewest
financial responsibilities. From a financial planning
perspective, that makes this an ideal time to start
building a habit of saving for emergencies and
retirement—though data reveals that few are.
Of incoming LearnVest members, this age group
is the least likely to have an emergency savings
goal (16.8% of LearnVest members versus 28–30%
of users in the 25–34 and 35–44 age brackets)9
.
Surveys show that only 43% of eligible workers
under 25 participate in 401(k) plans, compared with
over 70% of those over 45 years old, and that they
contribute less of their income to retirement—4.3%,
versus 8.7% for Americans between 55–64.10
Under 25: “The young and free”
Average income: $27,941
Average percent confident: 39%
Average annual vehicle payments: $2,262
Average annual mortgage payments: $449
Average household size: 2 people
Average yearly expenditures: $30,373
Source: U.S. Bureau of Labor Statistics, “Table 1300. Age of reference person:
Annual expenditure means, shares, standard errors, and coefficient of variation,
Consumer Expenditure Survey, 2013”

Data from the 2012 study for the Certified
Financial Planner Board of Standards, Inc. and the
Consumer Federation of America also shows that
only 35% of people 18–24 have any money saved
for retirement, far less than the 55% of people in
the 24–34 age bracket and the 66% of people in
the 35–44 age bracket.11
Just because people under 25 are saving less
doesn’t mean they haven’t thought about it. The
same study revealed that nearly 6 in 10 of those
under 25 think they’re in OK shape or can start
saving for the future, far more than any other age
group. 12
When we look at those under 25, it may be that
we’re looking at a case of false confidence—
with few current responsibilities and without a
clear notion of what’s on the horizon, they may
be missing out on the opportunity to establish a
savings habit early, when time (and compound
growth) may be the best asset they have.

The false confidence picture comes into sharper
relief in the next age category, those between
the ages of 25 and 34. People in this age bracket
are likely experiencing (or have just experienced)
the biggest income increase in their lives. And
their goals, which typically start to revolve around
lifestyle and building for the future, tend to expand
with this increase. In fact, according to LearnVest
data, savings goals for weddings, home buying,
and “fun” almost double in this age bracket
compared to those under 25.
While retirement and emergency savings
contributions also begin to ramp up at this time,
they may not be at the same rate that a financial
planner would advise, given the upcoming
financial responsibilities, retirement contributions,
and slowed income growth ahead. We see a bit of
an “I’ll cross that bridge when I get to it” mentality,
giving this age bracket a continued sense of false
confidence. It appears that lifestyle spending—not
savings—inflates with growing income.
Age 25-34: “The upwardly immobile”
Income growth rate from previous
age bracket: 111%
Average annual mortgage payments: $2,862
Average household size: 2.8 people

In this age group, income is still continuing to
increase, but at a more moderate 33% growth
rate versus the previous 111%. At the same time,
average household size is at its highest, vehicle
payments and yearly expenditures are increasing,
and mortgage payments are nearly doubling. In
addition, long-term goals like retirement are now
competing with other goals, like college funding,
and income may not be increasing enough to
accommodate it all. As a result, spending on “fun”
categories tends to drop back down. It’s hardly a
surprise then, that as the financial responsibilities
of adulthood continue to grow, and with little
chance for a significant pay raises ahead, financial
confidence declines to its low point here.
Age 35-44: “The spread thin”
age bracket: 33%

This age group continues to have low financial
confidence—right as income increases have
almost come to a halt, at an average 1% growth
rate. While expenditures continue to rise slightly,
the highest jump in savings goals for this group,
according to LearnVest data, is in retirement
and cars (perhaps bringing some validity to the
mid-life crisis car-buying trope). With retirement
looming, financial responsibilities still at a high
point, and income growth at standstill, people in
this age group are likely wondering how they’re
going to make ends meet. They may need to
wait another ten years or so (when it’s more
likely that their mortgage will be paid off and
their kids have left the house) for their income
to fall in line with their responsibilities. It’s at
that point (the 55+ age group) that we finally see
financial confidence rise again.
Age 45- 54: “The light at the end of
the tunnel”
age bracket: 1%

Summary
and final notes
Just like overall happiness and well-being, our
data demonstrates that financial confidence
follows a U-curve. Those under 25 feel very
confident before a swift confidence decline
hits in their 30s and 40s. People appear to
lose confidence in the face of growing financial
responsibilities and stagnating income growth.
The weight of these financial pressures is a
leading cause of stress nationwide, so perhaps it is
time to rewrite the confidence story.
The data shows that in general, young people
have fewer financial responsibilities and enough
money to meet their current needs. We posit
that, therefore, they tend to be more confident.
As people get older—and perhaps feel like their
income growth won’t keep pace with their financial
responsibilities—they tend to be less confident.
But if those confident 20-somethings had a
better sense of what the next 10, 20 or 30 years
might look like from a financial perspective and
could better prepare, perhaps the reality check
wouldn’t be so surprising. Could foresight be the
confidence cure?
In the aforementioned 2012 study for the Certified
Financial Planner Board of Standards, Inc. and the
Consumer Federation of America, researchers

found that people across age and income levels
who plan financially feel more confident about
their financial decision-making, save more money,
and feel better about their progress to date in
saving for financial goals.14
In fact, people who had
a plan for either emergency savings or retirement
were nearly twice as likely to feel in control over
their finances. 15
If financial confidence is defined as how people
feel about their money and, more specifically, how
they feel about their ability to meet their financial
responsibilities, then we could potentially replace
the U-curve with a steady line upward by giving
Americans the power of foresight and planning.
By knowing what’s ahead and what it may take
to meet future responsibilities, people can make
financial decisions today that take both their
current and future lifestyles into account.
Perhaps by taking a page from the wellness
industry, which has made it mainstream for people
to care about both their current and future health,
the financial planning industry can do the same.

Sources:
1
Confidence data is as of November 6, 2014, and run on a sample of
approximately 108k people who visited LearnVest.com.
2
Ibid.
3
David G. Blanchflower and Andrew J. Oswald, “Well-Being Over Time
in Britain and the USA,” 1999, http://www.brookings.edu/es/dynamics/
seminars/20000127.pdf.
4
David G. Blanchflower and Andrew J. Oswald, “Is Well-being U-Shaped
over the Life Cycle?,” 2008, http://dericbownds.net/uploaded_images/
Blancheflower.pdf
5
Ibid.
6
Jason N. Houle, “A Generation Indebted: Young Adult Debt across Three
Cohorts,” 2014, http://www.jnhoule.org/storage/Houle2014_GenIndebted_
final.pdf
7
“Visualizing the 2012 Distribution of Income in the U.S. by Age,” http://
politicalcalculations.blogspot.com/2013/01/visualizing-2012-distribution-of-
income.html#.VIniQlfF8hH.
8
American Psychological Association, “Stress in America Findings,” 2010,
https://www.apa.org/news/press/releases/stress/2010/national-report.pdf.
9
Data as of May 9, 2014 on a sample of 11,000 users across 20,00 goals.
10
Steven Rattner, “Saving Young People From Themselves,” New York Times,
April 12, 2014, SundayReview, http://www.nytimes.com/2014/04/13/opinion/
sunday/saving-young-people-from-themselves.html
11
Certified Financial Planner Board of Standards, Inc. and the Consumer
Federation of America, “2012 Household Financial Planning Survey,” http://
www.consumerfed.org/pdfs/Studies.CFA-CFPBoardReport7.23.12.pdf.
12
Ibid.
13
Data as of May 9, 2014 on a sample of 11,000 users across 20,00 goals.
14
Certified Financial Planner Board of Standards, Inc. and the Consumer
Federation of America, “2012 Household Financial Planning Survey,” http://
www.consumerfed.org/pdfs/Studies.CFA-CFPBoardReport7.23.12.pdf.
15
Ibid.
LearnVest Planning Services is a registered investment adviser and subsidiary
of LearnVest, Inc. that provides financial plans for its clients. Information
shown is for illustrative purposes only and is not intended as investment
advice. Please consult a financial adviser for advice specific to your financial
situation. LearnVest Planning Services and any third-parties listed, discussed,
identified or otherwise appearing herein are separate and unaffiliated and are
not responsible for each other’s products, services or policies.

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