More than a quarter of Americans have a skewed perception of the state of their finances, according to new research released by Prudential Financial.
The study found that there is considerable misalignment between the perception of financial health and reality. The majority of respondents said they believe they will reach their financial goals, even though many are not on track to do so.
According to Prudential’s first-ever Financial Wellness Census, the nation is almost evenly split between people who are doing well financially (46 percent) and those who are struggling (54 percent). Roughly 30 percent of respondents have an inaccurate perception of their financial state, according to the report.
Good financial health was measured in the way a bank might do a mortgage calculation, focusing on a debt to asset ratio and savings liquidity. The study evaluated the health of each respondent’s finances based on their household income, total amount in savings, total debt (including mortgage, student loans, credit cards, etc.), and total savings each month as a percentage of income, according to Prudential.
The study found that 17 percent of Americans believe their finances are in good shape but aren’t (defined as Idealists in the study), and 12 percent of respondents are actually doing well financially but don’t believe it (Pessimists).
Thirty-four percent are financially fit, and know it (Confidents), while the largest percentage of respondents, 37 percent are not doing well financially and recognize it (Discouraged).
The Financial Wellness Census is part of the company’s “The State of US” campaign, which aims to explore and better understand the relationship between Americans and their money.
According to the report, financial advisors can help clients bridge the gap between their perception of their financial health and reality, improving financial confidence in clients.
Working with a financial advisor correlates with a positive outlook on financial health, the study found.
“It’s important for advisors to not just focus on the numbers, but also how their clients feel about where they are. Discussing the trends from this study can serve as a great conversation starter with clients, and then turn into a relationship-building tool as you drill down deeper into an individual client’s situation,” said Salene Hitchcock-Gear, President, Individual Life Insurance & Prudential Advisors.
“Finding a financial professional who understands your situation, and can help design solutions for your day-to-day financial concerns, can go a long way towards building financial peace of mind,” she added.