Consumers are bracing for a deep recession, turning to alternative sources for financial advice

Consumers are bracing for a deep recession, turning to alternative sources for financial advice

Nationwide's Kristi Martin Rodriguez offers tips to help advisors keep nervous clients engaged

A new survey from the Nationwide Retirement Institute shows consumers are fearing the worst: 68% expect a recession within the next six months and nearly 80% of those who do, expect it to be severe. In fact, about two thirds (62%) of respondents believe a recession will be as severe or worse than the 2007-2009 Great Recession.

Because of this, consumers' sentiment on the economy and their own financial strategy has deteriorated since 2022. Only 16% of consumers rate the U.S. economy as good or excellent today, an 8-point decline from September 2022. About four in ten (39%) give a positive rating to their own personal finances, another 8-point decline from September 2022.

When it comes to managing their personal finances, consumers are most concerned about inflation or rising living costs (59%), the cost of rent or housing (34%), lack of savings for unexpected or emergency expenses (32%), managing debt (31%); healthcare expenses (28%), and not being on track for retirement (18%).

"It's not surprising that people are feeling anxious," said Kristi Martin Rodriguez, leader of the Nationwide Retirement Institute. "It's important for advisors and financial professionals to understand the emotions their clients are feeling right now as a first step to helping them stay focused on their long-term financial plans."

People need help staying the course
To offset inflation, some consumers are making decisions that could be detrimental to their long-term financial strategy. More than one-third (37%) have or are considering relying more on credit cards, 24% have or are considering reducing their retirement plan contributions, and 21% have or are considering taking out a new loan. Nearly six in ten (57%) consumers have used savings in the past 12 months to pay for everyday expenses. This is even higher for Gen Z and Millennial consumers at 64% and 66%, respectively.

In the event of a recession, consumers' top concerns include their ability to save in general (58%), their ability to save for retirement (52%), their retirement account losing value (52%), and their ability to retire on time (42%).

Investors are turning to alternative sources for financial advice
Despite fears and concerns about their personal finances, most consumers - especially younger ones - are turning to unproven sources for help. Seven in ten survey respondents (70%) are not using a financial advisor, citing reasons such as: It costs too (46%), they don't have enough assets (37%), they don't know who to go to (22%), they don't need advice and can handle themselves (21%), they don't trust the financial services industry (16%), or they're too busy (11%).

Instead of professional help, they are turning to other sources, including friends or family (48% Gen Pop, 66% Gen Z); online resources (26% Gen Pop, 34% Millennials), prayer (20% Gen Pop) and social media (11% Gen Pop, 22% Gen Z).

Notably, about one-third of respondents (31%) feel ChatGPT will provide better financial advice than a human advisor in the next five years. This percentage is higher for younger consumers, at 37% for Gen Z and 43% for Millennials.

"In moments like we're experiencing today, advisors and financial professionals have a huge opportunity to build deeper, trusting relationships with clients," Rodriguez said. "There can be a real temptation for consumers to retreat or even surrender when the financial news cycle seems so challenging. The first step for advisors is understanding where their clients are coming from by listening with empathy. That can set the stage for a more collaborative conversation about steps to keep them on track."

Rodriguez offers five tips to help advisors and financial professionals relieve their clients' financial anxiety and build trust

1. Listen and empathize: Reach out to clients today and enter the conversation with an understanding of their worries and fears. Listen to them and give them space to open up about their feelings.
2. Uncover the client's sources of information: If they are considering rash decisions, ask questions such as "who are you listening to?" and "what are they saying?" to determine the factors that are influencing their mindset.
3. Discuss the best path forward: Ask them what actions they're thinking of taking, the alternative options available, and work together to decide the most appropriate path forward for their situation and goals.
4. Review their risk tolerance and current asset allocation strategy: Ask what's new in their life, if their financial goals or circumstances have changed and whether their current financial strategies are working.
5. Reinforce the plan: Reinforce with your clients the tangible and emotional benefit of a financial plan - and the importance of sticking to it when times are tough. Sometimes a quick history lesson can help them visualize the eventual economic recovery that follows every downturn.

For additional insights on this survey data, see the full survey results.

Methodology
Nationwide partnered with Edelman Data & Intelligence to conduct a 15-minute online survey among a sample of 2,000 nationally representative adult consumers between March 30 and April 13, 2023. As a member in good standing with The Insights Association as well as ESOMAR Edelman Data and Intelligence conducts all research in accordance with local, national and international laws as well as in line with all Market Research Standards and Guidelines.

The economic and market forecasts reflect our opinion as of the date of this report and are subject to change without notice. These forecasts show a broad range of possible outcomes. Because they are subject to high levels of uncertainty, they will not reflect actual performance. We obtained certain information from sources deemed reliable, but we do not guarantee its accuracy, completeness or fairness.

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