Depending upon our age, we have parents or grandparents who were kids of the Great Depression. They tend to do things such as keep more than a week’s groceries in the pantry; save string, pennies and broken clocks; and continue to use the 1998 Nokia cellphone because it still works. The one thing they didn’t do was invest in the stock market.
Unlike today when people of any background have the ability to invest in anything from the Zukunftstechnologie Wasserstoff market, to cryptocurrency and different stocks and shares, back then the stock market was the almost exclusive domain of professionals and the wealthy until the 1980s when the post-depression generation came into the main-the baby boomers. The boomers and subsequent Generation Xers were a part of the greatest bull market in history, and the financial behavior of these generations was markedly different from those previous.
Boomers and Xers are investors, not savers, live for today instead of planning for tomorrow, and borrow to buy rather than wait for cash in hand. I’m painting with a broad brush, but the generalization has validity.
Then came the three-year millennium bear market that was the longest down period since the troubles of the 1970s; it cast doubt about the wisdom of Wall Street. Five years later the crash of 2008 brought the most savage financial environment since the Great Depression. It wasn’t just that the stock market lost more than half of its value, it was a coda to a 20-year period that had seen massive disruptions in job security and the more recent phenomenon where even a family’s home could become a liability instead of an asset. Back in October 2008 I wrote that this would cause a generational change in financial attitudes-and it has.
Numerous studies have concluded that consumers are more financially risk averse than they were. Many more consumers wish to avoid the possibility of market loss entirely and many have also made the conscious decision to accept lower returns in exchange for more safety. Nowhere is this truer than in the generation I didn’t mention-the Millennials.
Millennials (or Generation Y) are those around 30 or younger. They test as risk averse as retirees in their seventies because all they’ve seen is financial and economic uncertainty, which has made them better savers and harder workers than the previous generations were in their twenties.
This change in attitudes has affected behavior by making more people look for less risk and more guarantees. Wall Street realizes this, which is why we are seeing structured investment products being developed that put limits on upside return, thus allowing some protection on loss, or that partner with annuity carriers to create contingent deferred annuities that offer real annuity guarantees. Washington realizes this and is slowly beginning to embrace and even require the availability of annuities in retirement plans. When it comes to online trading, people are using things like automated crypto trading platforms which assure that they will only put a person’s money where they genuinely believe it will get a good return.
Fixed annuities are the big winner here for several reasons. First, in this rising interest rate cycle, multi-year guaranteed annuities will be able to offer significantly higher yields than certificates of deposit. This is due to the increased capital constraints imposed by bank regulators, which will keep bank yields down and, thus, annuities will be the better yielding safe money place.
Second, higher interest caps and new crediting methods in the indexed annuity world allow savers and former investors the potential for competitive returns without fear of the next bear market.
Third, the use of guaranteed lifetime withdrawal benefits will continue to grow because they not only provide the lifetime benefits of life contingent immediate annuities, but they do so without triggering the behavioral biases that stop so many immediate annuity sales. This will be a golden age for fixed annuities.
In the future, Generation Y will be a major buyer of fixed annuities-all they are lacking are assets. However, they do have disposable income and the right attitude for cash value life insurance. Gen Y wants certainty, predictability and guarantees. Gen Y also places a high value on protecting family.
All of this means they are receptive to the life insurance story. Yet, why aren’t they buying more life insurance? The main reason appears to be that they’ve never had a life insurance agent contact them.
The crash of 2008 caused the greatest change in consumer attitude toward financial risk since the Great Depression. The resultant behavior changed from risk-seeking to risk-averse and to value guarantees over projected returns. The net result is that there are more annuity and insurance prospects than ever before.
