Financial Security

On Financial Well-Being

“Be Brilliant”

I stumbled across a clever TV commercial the other day.  Ameriprise Financial created a set of “Passions” commercials which highlights people doing what they love which was made possible by good financial planning.  In one commercial, people are living their “next chapters” as an architect turned boat builder, attorney turned potter, programmer turned beekeeper and accountant turned volunteer.  Ameriprise’s tagline is “When you have the right financial advisor, life can be brilliant.”  In essence, they highlight how financial well-being can influence other dimensions of well-being, including purpose.

Financial Management in a New Era of Longevity

It’s one thing to create a catchy commercial but quite another to actually execute a viable personal financial plan, especially in an era of increasing longevity.  Experts suggest that the first person to live to 150 years of age is alive today.  What must that person’s financial plan look like?!?

The truth is that we probably don’t know. We know that financial security – the perception that you have more than enough money to do what you want to do — has three times the impact of your income alone on overall wellbeing.  We also know that creating healthy defaults, such as having corporate retirement accounts pre-checked for employees which has been found to have achieve more than 80% participation, is important.  (Similar to the defaults for physical well-being that we explored last month.)  And, in a world where pensions are less common and social security is destined to get restructured, it seems highly likely that people will need to work longer.

Financial Management in the Shared Economy and Future of Home Ownership

What also may happen is that people of all ages, not just Millennials, will rethink what they have to own versus rent when they need a given product or service.  Of course, we are already seeing this in transportation with the growth of Uber and the advent of the autonomous vehicle.  But, what about other parts of our lives?

What about home ownership?  Home ownership in the US fell to 62.9% in the second quarter, the lowest level in more than 50 years and down from its peak of 69.2% in 2004.  Affordability and tightening credit standards are certainly key drivers impacting this trend.

On the other hand, maybe home ownership is not necessarily the best option, even for those who can afford it.  Single family houses, especially older ones, are expensive to maintain. They are subject to unexpected or substantial one-time costs like the replacement of a roof. They are also inefficient to heat and cool and costly to cover insurance and real estate taxes.  Also, people tend to overlook the opportunity cost of equity in their home.  And, for those more concerned about managing downside risk, the Great Recession was a reminder of the challenges of selling a home at an attractive price when the market turns the wrong direction.  For these reasons, it is perhaps not surprising that there is a growing market of “renters by choice.”

Role for New Housing Models that Improve Financial Well-Being

While apartment activity has been robust in recent years – unit starts have quadrupled to nearly 400,000 since 2009 – many industry experts expect this activity to continue, particularly if low interest rates persist.  At Smart Living 360, we see an opportunity to focus some of this development on creating communities that elevate personal well-being, including financial well-being.  For those with the resources to own homes, a number of people – including empty nesters – may find that renting is less expensive and a better financial decision, in addition to enjoying other benefits such as walkability to services, in-house amenities and developing rich social connections.  In fact, at The Stories at Congressional Plaza, we have seen a number of residents make this choice to rent for exactly these reasons.

A Great Day to Feel Alive

The Ameriprise commercial features the pop song “Day to Feel Alive.”  The lyrics make mention of the ups and downs of life but point to the fact at any stage it’s “Good to know, there’s so much to live for.”  Indeed, with good financial well-being, it is easier to feel alive and pursue those things of greatest importance.