American families are stricken by fear about finances, but not enough to change their savings behavior, according to Bankrate's new survey.
And although the markets have shaken their faith in certain bedrock financial principles, the American dream of homeownership remains alive and well.
Bankrate commissioned Princeton Survey Research Associates International to gauge the attitudes of Americans about finances and family life and discovered several surprises.
Among the findings:
- About nine out of 10 (92 percent) survey respondents believe that a home is a good investment for the future. But nearly half (48 percent) of Americans worry about losing their home or being unable to afford the home they live in.
- Americans are split about whether stocks and mutual funds are good long-term investments. Four out of 10 Americans (39 percent) don't believe the stock market offers the best chance for long-term returns, while another 12 percent don't know how they feel about stocks. But 49 percent do have faith in the market.
- A whopping 70 percent of Americans are vexed about saving enough money for retirement, while 50 percent fret about their ability to afford college for a family member.
- Most survey respondents (67 percent) would postpone having children to first establish their careers and finances, but three in 10 (30 percent) would consider not having children at all because of their financial burden on the household.
- Six out of 10 Americans would put off or change their plans to marry someone if they discovered their betrothed had a lot of debt and bad credit. The same proportion (59 percent) says that if they were stuck in an unhappy marriage, they would not postpone divorce even if finances were tight. One-third (34 percent) say they would delay divorce.
- Despite the much-publicized rise in the national savings rate, many Americans haven't changed their savings habits. Just 17 percent have increased savings, while 44 percent are saving about the same amount as before and 36 percent save less. Among employed Americans, only 35 percent have adequate savings to weather a job loss lasting more than six months.
Home sweet investment?Most Americans (92 percent) either strongly or somewhat believe that a house makes a good investment, contrasted with 49 percent of Americans who believe that equity investments, including stocks and stock funds, offer the best chance for good long-term returns.
Preferring homes as investments over the stock market seems off base, given their respective historical returns. A study to be published this fall in the Journal of Portfolio Management compares the average return of real estate investments with U.S. stocks and other asset classes.
The authors found that in the last three decades, the average annual return on residential real estate was 5.92 percent versus 12.33 percent for the stock market, as measured by the Standard & Poor's 500.
"Over time, the stock market is more liquid with a higher rate of return, but in the short term much more volatile," says Jack Clark Francis, professor of finance and economics at Baruch College and a co-author of the study called "Contrasting Real Estate with Comparable Investments, 1978-2008."
Last fall the stock market proved just how volatile investing can be. The S&P 500 lost about 42 percent of its value between the end of August and Nov. 20, 2008. Bankrate's Senior Financial Analyst Greg McBride says investors may have been frightened off by the market's tumult.
"In the past 10 years, many investors have been burned by the stock market twice and have been scared out of equities as a result," he says.
Yet why do so many Americans believe that homes are good investments, despite the hits taken lately by the real estate market? One-quarter of American homeowners are "underwater," owing more on their mortgage than their homes are worth, according to Moody's Economy.com. A report by Deutsche Bank predicts that number will nearly double to 48 percent before the housing recession ends.
Most Americans (77 percent) say insurance is an important way to ensure financial security. Yet most also express concern about having enough coverage themselves. More than half (53 percent) worry about having enough life insurance. Nearly two-thirds (65 percent) worry about having enough health insurance or funds to cover health care costs for their family. And six out of 10 (62 percent) express anxiety about having enough money or insurance to cover long-term care costs for an elderly family member.
"Most people are not selling their homes, so they don't see the possible illiquidity that is in the market or any of the negatives that are on that side," says Jeffrey D'Italia, senior financial professional at Firstrust Financial Resources in Philadelphia. "But they do see the negativity on the stocks and funds side because it is jammed down your throat on the nightly news."
Also, people track their investments more closely than they follow the value of their home, and fluctuations in the account can feel threatening to their future security -- particularly if they have invested too aggressively or don't understand their investing strategy.Though homes do offer some financial benefits, experts emphasize that they're not the ideal investment vehicle.
"Houses are homes first and investments a distant second," says McBride.
"Even then, housing is a long-term investment and not a get-rich-quick scheme. What makes homeownership attractive is that over time it can rebate some of the costs, unlike renting," he says.