Inland Empire Wealth Study
Attitudes Toward Finances
Who makes the decisions?
Since the first administration of the Wealth Study in 2003, there has been consistency in who makes the financial decisions in respondent households. Just over half of the respondents share responsibility with another family member, typically a spouse or domestic partner. An additional 40% to 43% consider themselves to be the primary financial decision maker.
The choice to share responsibility in financial decision making does not appear to be associated with household income, however there is a significant relationship between decision making and net worth and liquidity. Those respondents with higher levels of net worth were more apt to take personal responsibility for making financial decisions, whereas those with net worth up to $1 million were more likely to be in a position of shared responsibility. This is consistent with data from 2005.
Risk aversion and financial decision making are related. Those respondents willing to take above-average risk in exchange for higher returns were more apt to accept personal responsibility for their financial decision making. Those willing to accept average risk and returns were more apt to share decision making responsibilities.
Income and Liquidity
Annual Household Income
The reported household income of respondents has shown some movement upward. In 2003, one-third of respondents had an annual income in the range of $50,001 to $100,000. Membership in that group has declined by ten percentage points in four years.
Over 28% of respondents from the Coachella Valley indicated their income was over $200,000 per year compared to 19% of their non-Valley counterparts.
How respondents perceived themselves (wealthy, upper middle class, middle class or lower middle class) was related to their annual income, net worth and liquidity. 77% of those who viewed themselves as “wealthy” had incomes exceeding $200,000. This declines to 26% for “upper middle class” and 6% for “middle class.”
Risk aversion is strongly associated with household income. One-third of the survey’s respondents with incomes exceeding $200,000 indicated they were willing to exchange higher risk for higher return. By comparison, less than 15% of those respondents with incomes up to $100,000 considered themselves risk takers. Nearly half of the respondents in the lowest income group preferred a low risk and return scenario. Conversely, less than 25% of the highest income households were risk averse.
|
|
|
|
|
$501K and Greater |
4.8% |
5.1% |
2.3% |
3.9% |
$301K to $500K |
6.7 |
5.6 |
3.9 |
5.4 |
$201K to $300K |
11.0 |
10.9 |
9.3 |
10.4 |
$101K $200K |
45.1 |
42.5 |
41.1 |
43.0 |
$50,001 to $100K |
26.3 |
30.3 |
36.2 |
30.9 |
Up to $50,000 |
6.1 |
5.6 |
7.0 |
6.3 |
Total |
100.0% |
100.0% |
100.0% |
100.0% |
N |
643 |
393 |
610 |
1,646 |
Income Sources
As in prior years, respondents to the 2007 survey attributed their financial success to several sources. Two-thirds of the 2007 survey’s respondents indicated that stocks were significant to their wealth accumulation. Real estate and corporate earnings were also attributed. Other sources mentioned were earnings from businesses owned by the respondent, earnings from professional practices (law, medicine, etc.), inheritance and gambling winnings.
Liquid Assets
In 2007, a greater percentage of respondents had liquid assets in excess of $1 million, particularly in the $1.0-$2.9 million range (20.2% vs. 11.3% in 2003). In liquid asset categories up to $1 million, there has been a downward trend since 2003.
There is an inverse relationship between the value of respondents’ liquid assets and risk aversion. 40% of respondents with liquid assets up to $500,000 categorize themselves as below-average risk takers compared to 23% of respondents with liquid assets of $2 million or more. Over 31% of the households in the high liquidity group categorized themselves as high risk takers. This compared to 17% of the households with liquid assets ranging up to $500,000. Respondents with $2.0 million or more in liquid assets, compared to those with liquid assets up to $500,000, kept a greater percentage of their portfolios in bonds and bond funds (13.8% vs. 6.9%). Respondents with liquid assets up to $500,000 kept a greater percentage in annuities (11.4% vs. 5.7% for those in the highest liquidity group).
|
|
|
|
|
$5M and Greater |
2.7% |
3.9% |
1.5% |
2.5% |
$3.0M to $4.9M |
4.0 |
3.4 |
1.8 |
3.0 |
$1.0M to $2.9M |
20.2 |
16.5 |
11.3 |
16.0 |
$501K $999K |
18.6 |
25.3 |
25.0 |
22.6 |
Up to $500K |
54.4 |
51.0 |
60.4 |
55.9 |
Total |
100.0% |
100.0% |
100.0% |
100.0% |
N |
630 |
392 |
605 |
1,627 |
Use of Retirement Plans
A question about retirement planning was added to the 2007 survey. Over half (57%) of respondents have at least a portion of their assets in IRA plans. Three out of 10 have assets in 401(k) plans. IRA use is positively associated with net worth, liquidity and stock market optimism. Use of 401(k) accounts is positively associated with education, higher rates of after-tax savings and household income. An inverse relationship exists between age and use of 401(k) accounts as they are associated with employment.
|
|
IRA |
57.2% |
401(k) |
29.2 |
SEP |
7.8 |
Keough |
4.4 |
ESOP |
1.3 |
Issues of Financial Concern
Providing for retirement funding continues to be the most important issue facing the region’s affluent followed by tax reduction and estate planning. Charitable giving rose in importance between 2003 and 2007.
There are some variations based on age. Respondents age 60 and under are finding saving for retirement to be of greater importance than those who have crossed that age barrier (up to 60: 85%; 61-70: 71%; 71 and older: 63%). The same is true for paying the college tuition of children and grandchildren. Establishing trust funds and giving back to the community are more important to those over age 60.
Financial Issue Importance*
|
|
|
|
Retirement |
69.4% |
71.0% |
66.8% |
Tax reduction |
46.8 |
53.5 |
51.9 |
Estate planning |
37.4 |
43.6 |
36.8 |
Charitable giving |
17.1 |
16.2 |
11.3 |
Trust funds |
16.5 |
18.3 |
18.6 |
Paying for college |
7.1 |
6.3 |
6.8 |
Selling a business |
5.0 |
2.6 |
3.7 |
Paying for a wedding |
2.4 |
2.3 |
1.9 |
Purchasing a business |
2.1 |
1.8 |
0.8 |
* Respondents were allowed to select all that applied.
