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America's Affluent: Satisfying Their Needs in an Era of Uncertainty 2002-03 Affluent MacroMonitor Report Introduction Table of Contents Download the contents and introduction Download the complete report Introduction The market events of the past two years have changed the financial landscape for institutions and consumers. This report examines the current state of the Affluent market and analyzes Affluent consumers' financial needs, behaviors, and attitudes in the context of a dynamic and rapidly changing environment. To be "Affluent" for inclusion in the MacroMonitor's segmentation requires that a household have either a total annual income of at least $100,000 or total assets, excluding the primary residence, of $500,000 or more. Our analyses are based on eight key populations within the overall Affluent group. Definitions of the two larger groups—Mass Affluent and Millionaires households—are based on total household net worth, with the dividing line at $1 million. The six smaller groups represent populations that we have defined consistently since 1992; they allow us to analyze the financial needs and attitudes of Affluent households in the United States that share fundamental wealth attributes that are predictive of financial needs and reflect a combination of preferences for certain types of assets and their wealth-accumulation/distribution status. Figure 1 shows the present and recent past distribution of Mass Affluent and Millionaires households in the United States. What are some of the forces that drove this dramatic shift in the composition of the Affluent market? How can we gain a better understanding of how consumers' reactions to those defining forces manifest themselves and change the shape of the Affluent population? What are the effects on the behaviors and attitudes of Affluent households as they react to new financial challenges and opportunities? To answer these and other important questions, while developing a meaningful context to advance our understanding of what affluence means in terms of the opportunity to provide financial services to this population, we look at the Affluent population also through the lens of our proprietary segmentation. The Consumer Financial Decisions (CFD) Affluent Segmentation graphic illustrates and provides definitions for the Affluent population segments that we have been tracking and analyzing for the past decade. THE CFD AFFLUENT SEGMENTATION The Consumer Financial Decisions (CFD) segmentation algorithm incorporates demographic, psychographic, life-stage, and behavioral variables to select, cluster, and assess household behavior. It focuses on households with total income equal to or greater than $100,000 or with assets of $500,000 or more (excluding the primary residence). At present, this upscale market comprises 16.5 million Affluent American households. The proprietary model divides the Affluent market into six mutually exclusive household types. We define retired households (under Wealthy Retired) and business owners (under Entrepreneurs) first. We then define the remaining segments on the basis of the value of their primary home and their financial assets. Balanced Builders are households with high levels of both real and financial assets. They have financial assets of $300,000 or more, and their home value is $200,000 or more. Focused Builders hold high financial assets equal to or greater than $300,000 but have home values lower than $200,000. Real Asset Builders invest primarily in real estate. Their real estate assets are worth $200,000 or more, but their financial assets total less than $300,000. The Emerging Affluent have both a low level of financial assets (less than $300,000) and low home values (less than $200,000). In Wealthy Retired households, the primary head of household either is retired or is 65 years old or older and works fewer than 20 hours per week. Entrepreneurs are households in which the household head's primary occupation is the ownership of or partnership in a business or professional practice. Figure 2 shows how our Affluent segments are distributed in the Mass Affluent and Millionaires populations. If one is focusing on the Mass Affluent market, the main focus will be on the households characterized by the Real Asset Builders, Focused Builders, and Emerging Affluent segments because more than 70% of the households in each segment fall into the Mass Affluent group. If, on the other hand, one is pursuing the Millionaires market, the Wealthy Retired, Balanced Builders, and Entrepreneurs segments represent 90% of households that have a net worth of $1 million or more. Those three segments are also well represented in the Mass Affluent population and may represent the best opportunity in terms of growing profitability by an acquisition and retention strategy. Figure 3 puts into perspective the relative shares of each segment that qualifies as Mass Affluent or Millionaires households. The fact that all the segments represent opportunities within both the Mass Affluent and the Millionaires groups suggests the complex marketing challenge that the Affluent market represents. The key to unlocking the Affluent market opportunity is a thorough understanding of who these households are financially and how they react to changes in the overall market environment. The events of the past two years offer a unique opportunity for gaining meaningful insight into the behaviors and attitudes of the U.S. Affluent population. TABLE OF CONTENTS Introduction 1 Executive Summary 6   The Total Affluent Market 6   The Mass Affluent Market 6   Transactions 6   Protection 7   Savings and Investments 7   Credit 7   Information and Advice 8   The Millionaires Market 8   Transactions 9   Protection 9   Savings and Investments 9   Credit 10   Information and Advice 10   The Mass Affluent and Millionaires Markets 11   Mass Affluent Trend Analysis: 2000 versus 2002 16   Financial Profile 16   Financial Needs of the Mass Affluent 19   Sizing and Segmenting the Market by Age Cohort and Life Stage 19   The Role of Recent Life Events in Shaping the Mass Affluent Market 21   Transactions 24   Protection 28   Savings and Investments 31   Credit 35   Information and Advice 38   Millionaires Trend Analysis: 2000 versus 2002 42   Financial Profile 42   Financial Needs of the Millionaires Population 46   Sizing and Segmenting the Market by Age Cohort and Life Stage 46   Transactions 49   Protection 54   Savings and Investments 56   Credit 60   Information and Advice 64 Segment Profiles Balanced Builders 68   Highlights 68   Demographics 68   Savings and Investments 68   Credit 68   Protection 69   Information and Advice 69   Attitudinal Profile 75   Demographics 77   Savings and Investments 79   Credit 81   Protection 82   Transactions 82   Information and Advice 83   Personal-Computer and Internet Use 83   Trend Analysis: 2000 versus 2002 85 Focused Builders 92   Highlights 92   Demographics 92   Savings and Investments 92   Credit 92   Protection 92   Information and Advice 93   Attitudinal Profile 99   Demographics 101   Savings and Investments 103   Credit 104   Protection 105   Transactions 105   Information and Advice 106   Personal-Computer and Internet Use 108   Trend Analysis: 2000 versus 2002 109 Real Asset Builders 117   Highlights 117   Demographics 117   Savings and Investments 117   Credit 117   Protection 118   Information and Advice 118   Attitudinal Profile 124   Demographics 127   Savings and Investments 129   Credit 132   Protection 133   Transactions 134   Information and Advice 134   Personal-Computer and Internet Use 135   Trend Analysis: 2000 versus 2002 137 Emerging Affluent 144   Highlights 144   Demographics 144   Savings and Investments 144   Credit 144   Protection 145   Information and Advice 145   Attitudinal Profile 150   Demographics 155   Savings and Investments 156   Credit 158   Protection 160   Transactions 161   Information and Advice 163   Personal-Computer and Internet Use 165   Trend Analysis: 2000 versus 2002 167 Wealthy Retired 175   Highlights 175   Demographics 175   Savings and Investments 175   Credit 175   Protection 175   Information and Advice 176   Personal-Computer and Internet Use 176   Attitudinal Profile 181   Demographics 186   Savings and Investments 188   Credit 190   Protection 190   Transactions 191   Information and Advice 192   Personal-Computer and Internet Use 193   Trend Analysis: 2000 versus 2002 195 Entrepreneurs 202   Highlights 202   Demographics 202   Savings and Investments 202   Credit 202   Protection 202   Information and Advice 203   Personal-Computer and Internet Use 203   Attitudinal Profile 209   Demographics 212   Savings and Investments 215   Credit 216   Protection 217   Transactions 217   Information and Advice 218   Personal-Computer and Internet Use 220   Trend Analysis: 2000 versus 2002 222 Tables Mass Affluent   Market Size and Balance-Sheet Trends 16 Asset-Class Incidence and Balance Trends 17 Millionaires   Market Size and Balance-Sheet Trends 43 Asset-Class Incidence and Balance Trends 44 Balanced Builders   Demographic Profile 70 Balance Sheet 72 Insurance Product Ownership Profile 74 Balanced Builders: Market Size and Balance-Sheet Trends 85 Balanced Builders: Asset-Class Incidence and Balance Trends 87 Focused Builders   Demographic Profile 94 Balance Sheet 96 Insurance Product Ownership Profile 98 Focused Builders: Market Size and Balance-Sheet Trends 109 Focused Builders: Asset-Class Incidence and Balance Trends 112 Real Asset Builders   Demographic Profile 119 Balance Sheet 121 Insurance Product Ownership Profile 123 Real Asset Builders: Median Balances in Savings and Investment Products 131 Real Asset Builders: Market Size and Balance-Sheet Trends 138 Real Asset Builders: Asset-Class Incidence and Balance Trends 139 Emerging Affluent   Demographic Profile 146 Balance Sheet 148 Insurance Product Ownership Profile 150 Focused Builders: Market Size and Balance-Sheet Trends 168 Focused Builders: Asset-Class Incidence and Balance Trends 170 Wealthy Retired   Demographic Profile 177 Balance Sheet 179 Insurance Product Ownership Profile 181 Estimated Mean Number of Annual Financial Transactions 192 Wealthy Retired: Market Size and Balance-Sheet Trends 196 Wealthy Retired: Asset-Class Incidence and Balance Trends 197 Entrepreneurs   Demographic Profile 204 Balance Sheet 206 Insurance Product Ownership Profile 208 Entrepreneurs: Market Size and Balance-Sheet Trends 222 Entrepreneurs: Asset-Class Incidence and Balance Trends 223 Figures Trend in Distribution of Mass Affluent and Millionaires Households 1 Distribution of Affluent Segments among Mass Affluent and Millionaires Populations 4 Proportion of Mass Affluent versus Millionaires Households within Each CFD-Proprietary Affluent Segment 5 A Slowdown in Affluent-Market Growth 11 Trend in Distribution of Mass Affluent and Millionaires Households 12 Trend in Relative Proportions of Mass Affluent versus Millionaires 13 Trend in Number of Mass Affluent versus Millionaires Households 13 Distribution of Affluent Households by Net Worth 14 Trend in Numbers of Households Qualifying as Affluent on the Basis of Income Only, Assets Only, or Both 14 Trend in Proportions of Households Qualifying as Affluent on the Basis of Income Only, Assets Only, or Both 15 Trend in Distribution of Incidence of Ownership and Average Assets for All Affluent and Mass Affluent Households 18 Distribution of the Mass Affluent by Age Cohort 19 Distribution of Mass Affluent Households by Life Stage 20 Trend in Incidence of Recent Life Events among Mass Affluent Households 23 Trend in Distribution of Financial Institutions Named as Primary among Mass Affluent Households 24 Trend in Distribution of Preferred Type of Primary Financial Institution among Mass Affluent Households 25 Trend in Incidence of Use of Key Types of Financial Transactions among Mass Affluent Households 26 Trend in the Average Number of Key Types of Financial Transactions among Mass Affluent Households 27 Trend in Incidence of Use of Online Financial Transactions among Mass Affluent Households 28 Trend in Incidence of Insurance Ownership for Major Categories of Insurance among Mass Affluent Households 29 Trend in Incidences of Types of Property and Casualty Insurance among Mass Affluent Households 29 Trend in Group versus Individual Life Insurance Ownership Incidences and Distribution of Individual Policies by Type among Mass Affluent Households 30 Trend in Ownership Incidences of Health and Disability Insurance among Mass Affluent Households 31 Trend in Incidences of Goals for Saving and Investing among Mass Affluent Households 32 Trend in Average Distribution of Household Savings and Investments by Type of Financial Institution among Mass Affluent Households 33 Trend in Incidences of Brokerage Accounts among Mass Affluent Households 34 Trend in Level of Securities Trading Activity among Mass Affluent Households 34 Trend in Purposes for Borrowing among Mass Affluent Households 35 Trend in Incidences of Loans on Primary Residence among Mass Affluent Households 36 Trend in Consumer Loans among Mass Affluent Households 36 Trend in Incidences of Credit-Card Ownership by Type among Mass Affluent Households 37 Trend in Method of Paying Monthly Credit-Card Bill among Mass Affluent Households 38 Trend in Household Financial Strategy among Mass Affluent Households 39 Trend in Level of Confidence Regarding Financial Matters among Mass Affluent Households 39 Trend in Types of Financial Advisors Used during the Past Two Years among Mass Affluent Households 40 Trend in Types of Professional Planners and Advisors That Households Are Likely to Use Next Year among Mass Affluent Households 41 Trend in Distribution of Incidence of Ownership and Average Assets for All Affluent and Millionaires Households 45 Distribution of Millionaires by Age Cohort 46 Distribution of Millionaires by Life Stage 48 Trend in Incidence of Recent Life Events among Millionaires Households 49 Trend in Distribution of Financial Institutions Named as Primary among Millionaires Households 50 Trend in Distribution of Preferred Type of Primary Financial Institution among Millionaires Households 51 Trend in Incidence of Use of Key Types of Financial Transactions among Millionaires Households 52 Trend in the Average Number of Key Types of Financial Transactions among Millionaires Households 52 Trend in Incidence of Use of Online Financial Transactions among Millionaires Households 53 Trend in Incidence of Insurance Ownership for Major Categories of Insurance among Millionaires Households 54 Trend in Incidence of Types of Property and Casualty Insurance among Millionaires Households 55 Trend in Group versus Individual Life Insurance Ownership Incidences and Distribution of Individual Policies by Type among Millionaires Households 55 Trend in Ownership Incidences of Health and Disability Insurance among Millionaires Households 56 Trend in Incidences of Goals for Saving and Investing among Millionaires Households 57 Trend in Average Distribution of Household Savings and Investments by Type of Financial Institution among Millionaires Households 58 Trend in Incidences of Brokerage Accounts among Millionaires Households 59 Trend in Level of Securities Trading Activity among Millionaires Households 60 Trend in Purposes for Borrowing among Millionaires Households 61 Trend in Incidences of Loans on Primary Residence among Millionaires Households 61 Trend in Incidences of Consumer Loans among Millionaires Households 62 Trend in Incidences of Credit-Card Ownership by Type among Millionaires Households 63 Trend in Method of Paying Monthly Credit-Card Bill among Millionaires Households 64 Trend in Household Financial Strategy among Millionaires Households 64 Trend in Level of Confidence Regarding Financial Matters among Millionaires Households 65 Trend in Types of Financial Advisors Used during the Past Two Years among Millionaires Households 66 Trend in Types of Professional Planners and Advisors That Households Are Likely to Use Next Year among Millionaires Households 67 Balanced Builders: Savings and Investment Orientation 75 Balanced Builders: Attitudes toward Financial Institutions and Delivery of Services 76 Balanced Builders: Attitudes toward Professional Financial Advice 77 Balanced Builders, by Age Cohort 78 Balanced Builders, by Life Stage 78 Balanced Builders: Millionaires versus Mass Affluent 79 Balanced Builders: Ownership of Investment Products 80 Balanced Builders: Ownership of Retirement Products 80 Balanced Builders: Median Balance in Retirement Products 81 Balanced Builders: Reliance on Professional Financial Advisors 83 Balanced Builders: Online Financial Activities Now Use 84 Balanced Builders: Use of Financial Services on the Internet 84 Balanced Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Savings and Investments 88 Balanced Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Financial Institutions and Delivery of Services 89 Balanced Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Professional Financial Advice 90 Focused Builders: Savings and Investment Orientation 99 Focused Builders: Attitudes toward Financial Institutions and Delivery of Services 100 Focused Builders: Attitudes toward Professional Financial Advice 101 Focused Builders, by Age Cohort 102 Focused Builders, by Life Stage 102 Focused Builders: Millionaires versus Mass Affluent 103 Focused Builders: Median Balance Held in Stocks and Mutual Funds 104 Focused Builders: Ownership of Stockbrokerage Accounts 106 Focused Builders: Incidence of Having Trust in Various Types of Financial Institutions 107 Focused Builders: Acceptance of Need for Financial Advice 108 Focused Builders: Use of Financial Services on the Internet 109 Focused Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Savings and Investments 113 Focused Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Financial Institutions and Delivery of Services 115 Focused Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Professional Financial Advice 116 Real Asset Builders: Savings and Investment Orientation 124 Real Asset Builders: Attitudes toward Financial Institutions and Delivery of Services 126 Real Asset Builders: Attitudes toward Professional Financial Advice 127 Real Asset Builders, by Age Cohort 128 Real Asset Builders, by Life Stage 128 Distribution of Mass Affluent Households, by Segment 129 Real Asset Builders: Ownership of Savings and Investment Products 130 Real Asset Builders: Likelihood of Making Retirement Account Transactions in the Next 12 Months 132 Real Asset Builders: Incidence of Liabilities 133 Real Asset Builders: Online Financial Activities Now Use 136 Real Asset Builders: Use of Financial Services on the Internet 136 Real Asset Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Savings and Investments 141 Real Asset Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Financial Institutions and Delivery of Services 142 Real Asset Builders: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Professional Financial Advice 143 Emerging Affluent: Savings and Investment Orientation 151 Emerging Affluent: Attitudes toward Financial Institutions and Delivery of Services 153 Emerging Affluent: Attitudes toward Professional Financial Advice 154 Emerging Affluent, by Age Cohort 155 Emerging Affluent, by Life Stage 156 Emerging Affluent: Ownership of Savings and Investment Products 157 Emerging Affluent: Ownership of Retirement Products 157 Emerging Affluent: Risk Orientation 158 Emerging Affluent: Method of Paying Monthly Credit-Card Bills 159 Emerging Affluent: Credit Attitudes 160 Emerging Affluent: Incidence of Mortgage and Credit Insurance 160 Emerging Affluent: Life Insurance Attitudes 161 Emerging Affluent: Difference from Total Affluent in Average Number of Financial Transactions by Type 162 Emerging Affluent: Financial-Advice Attitudes 164 Emerging Affluent: Likelihood of Obtaining Professional Advice in the Next 12 Months 165 Emerging Affluent: Online Financial Activities Now Use 166 Emerging Affluent: Use of Financial Services on the Internet 167 Emerging Affluent: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Savings and Investments 171 Emerging Affluent: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Financial Institutions and Delivery of Services 173 Emerging Affluent: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Professional Financial Advice 174 Wealthy Retired: Savings and Investment Orientation 182 Wealthy Retired: Attitudes toward Financial Institutions and Delivery of Services 184 Wealthy Retired: Attitudes toward Professional Financial Advice 185 Affluent Households with Female Head of Household Only, by Segment 186 Distribution of Affluent Female-Head-Only Households, by Segment 187 Wealthy Retired: Millionaires versus Mass Affluent 188 Wealthy Retired: Risk Orientation 189 Wealthy Retired: Ownership of Financial Assets 190 Wealthy Retired: Use of Professional Financial Advisors 193 Wealthy Retired: Online Financial Activities Now Use 194 Wealthy Retired: Use of Financial Services on the Internet 195 Wealthy Retired: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Savings and Investments 199 Wealthy Retired: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Financial Institutions and Delivery of Services 200 Wealthy Retired: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Professional Financial Advice 201 Entrepreneurs: Savings and Investment Orientation 209 Entrepreneurs: Attitudes toward Financial Institutions and Delivery of Services 210 Entrepreneurs: Attitudes toward Professional Financial Advice 211 Entrepreneurs, by Age Cohort 212 Entrepreneurs, by Life Stage 213 Entrepreneurs: Millionaires versus Mass Affluent 214 Entrepreneurs: Primary Financial Decision Maker 214 Entrepreneurs: Ownership of Investment Products 215 Entrepreneurs: Participation in Traditional IRAs 216 Entrepreneurs: Use of Professional Financial Advisors 219 Entrepreneurs: Online Financial Activities Now Use 220 Entrepreneurs: Use of Financial Services on the Internet 221 Entrepreneurs: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Savings and Investments 225 Entrepreneurs: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Financial Institutions and Delivery of Services 227 Entrepreneurs: Trended Attitudinal Profile, 2000 versus 2002 Attitudes toward Professional Financial Advice 228 Boxes The CFD Affluent Segmentation 2 Appendixes A. MacroMonitor Survey Methodology A-1 B. Survey Weighting Procedures B-1 C. Affluent Segment Definitions C-1

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