Workers and Retirees Tighten Their Belts, According to Latest Principal Financial Well-Being Index
March 12, 2007 (Des Moines, Iowa) — With the clock ticking before the April 17th tax filing deadline, a majority of workers say they are counting on receiving a federal or state tax refund for 2006, according to the latest Principal Financial Well-Being IndexSM. Among those who have a feeling for whether or not they will receive a federal or state tax refund for 2006, over three quarters of workers (83 percent) and less than half of retirees (40 percent) are expecting a refund this year. The index, which surveys American working adults at growing businesses with 10 to 1,000 employees, is released each quarter by the Principal Financial Group® and conducted by Harris Interactive®. It also surveys retired Americans in acknowledgement of the retiring Baby Boom generation.
Penny Wise
Workers and retirees have different plans for their tax windfalls, but both groups show signs of financial conservatism. Nearly half of workers (44 percent), but only 15 percent of retirees, say they will pay down or pay off short-term debts. A significant portion of both workers (43 percent) and retirees (41 percent) plan to save or invest the refund. Despite the temptation, few American workers said they will spend their refund on a big ticket item (5 percent). In addition, fewer American workers say they'll spend the refund on consumer products, clothing or electronics compared to last year (12 percent, down from 16 percent in first quarter 2006).
"This belt-tightening shows a swing toward financial resolve by Americans," said Dan Houston, executive vice president, Retirement and Investor Services, The Principal®. "Controlling debt, increasing saving, and resisting the temptation to spend new-found dollars, are critical behaviors toward achieving financial well-being."
Bonus Points
Workers who are rewarded with corporate bonuses in 2006 also appear to have taken the fiscally disciplined path. This year, about three in 10 workers (31 percent) said they received a corporate bonus, compared to one in four (25 percent) in first quarter 2006. When asked how they used their bonus, more than a third (36 percent) said that they paid down or paid off short-term debts. More than one fourth (28 percent) said they used their bonus to purchase gifts during the holiday season; while another 27 percent said they saved or invested the bonus.
Against the backdrop of a strong economy, 65 percent of workers have already or expect to receive a raise from their employer in 2007. Most workers (44 percent) anticipate receiving a three to four percent increase.
Belts are a Tighten-in'
Workers and retirees curtailed their recent spending activity despite better financial prospects from bonuses, anticipated salary increases, and expected tax refunds. The index found that only 12 percent of workers and seven percent of retirees have increased their overall spending, while 39 percent of workers and 41 percent of retirees have decreased their spending a little to greatly.
Houston added, "There is no doubt that workers and retirees are aiming to get ahead of the financial curve. Pragmatism is ruling the day with financial decision making. Another factor that may be guiding behavior -- the index reveals that 41 percent of workers and 35% of retirees feel very or somewhat insecure in today's current economy."
D.C., and DC plans
Workers and retirees were asked how the new Congress' legislative agenda will impact their personal financial well-being. Middle class tax cuts were cited most frequently as having a positive impact on financial well-being (64 percent of workers and 47 percent of retirees). Working Americans also said lower interest rates on student loans would have a positive impact (28 percent). Surprisingly, more retirees (50 percent) said Medicare prescription drug reform would have little or no impact on their financial well-being, than those retirees who felt it would have a positive impact on finances (42 percent), or a negative impact (eight percent). While some workers (19 percent) feel raising the minimum wage would have a positive financial impact, the majority (64 percent), said it would have little to no impact.
The index also asked workers who have a 401(k) plan whether they'd rather choose a bump in pay or a higher employer match in their 401(k). The response revealed a fairly balanced split with over half (58 percent) preferring a wage increase, while 42 percent said they would take a higher employer match.
Methodology
The Principal Financial Group®, the nation's 401(k) leader, commissioned Harris Interactive® to conduct online research with employees (ages 18+) of small and mid-sized (SMB) U.S. businesses (firm size 10 - 1,000 employees) about their attitudes and perceptions regarding their financial well being and their current employee benefits. To compare responses, Harris Interactive also interviewed a group of retirees. Harris Interactive conducted The Principal Financial Well-Being Index survey online among 1,181 employees and 536 retirees from January 24 to February 5, 2007. Data were weighted to be representative of the entire population of adult employees working for small to midsized U.S. businesses and retirees on the basis of age by gender, age, education, race/ethnicity, region, income and propensity to be online. With a probability sample size of 1,181 and 536, one can say with 95% probability that the overall results would have a sampling error of +/- 2.85 percentage points and +/- 4.23 percentage points respectively. Sampling error for data based on sub-samples may be higher and may vary. However, that does not take other sources of error into account. This online survey is not based on a probability sample and therefore no theoretical sampling error can be calculated. This is one in a series of quarterly studies to identify and track changes in the workplace of small and mid-sized (growing) businesses. The first Principal Financial Well-Being IndexSM survey was conducted in the United States in 2000.
About the Principal Financial Group
The Principal Financial Group® (The Principal®)1 is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance and banking through its diverse family of financial services companies and national network of financial professionals. A member of the Fortune 500, the Principal Financial Group has $256.9 billion in assets under management2 and serves some 17.6 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
About Harris Interactive
Harris Interactive is the 12th largest and fastest-growing market research firm in the world. The company provides innovative research, insights and strategic advice to help its clients make more confident decisions which lead to measurable and enduring improvements in performance. Harris Interactive is widely known for The Harris Poll, one of the longest running, independent opinion polls and for pioneering online market research methods. The company has built what it believes to be the world's largest panel of survey respondents, the Harris Poll Online. Harris Interactive serves clients worldwide through its United States, Europe and Asia offices, its wholly-owned subsidiary Novatris in France and through a global network of independent market research firms. The service bureau, HISB, provides its market research industry clients with mixed-mode data collection, panel development services as well as syndicated and tracking research consultation. More information about Harris Interactive may be obtained at www.harrisinteractive.com.
To become a member of the Harris Poll Online and be invited to participate in online surveys, register at http://www.harrispollonline.com/.
1) "The Principal Financial Group" and "The Principal" are registered trademarks of Principal Financial Services, Inc., a member of the Principal Financial Group.
2) As of December 31, 2006.
