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Protecting the Financial Needs of Today’s Households

Protecting the Financial Needs of Today’s Households

Summary

It is crucial to understand the lifestyles and finances of families and households in order to understand their protection needs and how to target them. The key to this has changed from analyzing customers on an individual basis to assessing them based on their life stage and household. Individuals are rarely financially independent:often they will have a partner, children, or parents with whom their finances are linked. This report holistically analyzes the finances of different life stages to discuss their different protection needs, and suggests how to target them.

By segmenting customers this report highlights that product design and financial advice are lacking at every stage of a consumer’s life. More propositions are needed that target specific life stages, from advice on how to save to buy a house right through to retirement and minimizing the impact of inheritance tax. Opportunities exist for all financial services players to enhance and develop propositions that fit today’s needs.

Key finding include in this report -

  • There are 26.7million families in the UK, all of which have different financial needs.
  • House buying is key for targeting younger consumers; however, protecting dependents becomes more important when they have children. When approaching retirement age, targeting should focus on retirement and family wealth planning.
  • The top financial concern for households is paying monthly bills and housing costs, but with age consumers become more focused on saving for a comfortable retirement.
The report Protecting the Financial Needs of Today’s Households, helps to understand the protection needs of today’s households. Respondents are categorized into eight life stages based on type of household and lifestyle, for instance whether they are young and have not yet had a family; have a family with dependent children; are older parents with adult children still living at home; or are adults who have had a family and are now in retirement.

Scope
  • There are 26.7 million families in the UK, all of which have different financial needs.
  • House buying is key for targeting younger consumers; however, protecting dependents becomes more important when they have children. When approaching retirement age, targeting should focus on retirement and family wealth planning.
  • The top financial concern for households is paying monthly bills and housing costs, but with age consumers become more focused on saving for a comfortable retirement.
Reasons to buy
  • Understand how lifestage is influential in product marketing.
  • Gain insight into how to target customer lifestages based on their unique financial needs, concerns, and lifestyles.
  • Adjust your strategy to appeal to more customers by providing more targeted products and services.


EXECUTIVE SUMMARY 1
1.1. Protection insurance must appeal to customers’ financial concerns 1
1.2. Key findings 1
1.3. Critical success factors 1
2. DEFINING LIFESTAGES 8
2.1. Introduction 8
2.2. Assessing the wider family and household dynamics of individuals 9
2.2.1. Moving from the financial and protection needs of individuals to families 9
2.2.2. There are 26.7 million families in the UK according to the ONS 10
2.2.3. Lifestage is a combined outcome of four factors 10
2.2.4. Lifestage demographics provide greater understanding of lifestyle 11
2.2.5. House buying and settling down to start a family is occurring later in life 11
2.2.6. Retirement age is increasing, meaning individuals will have to work later into life 13
2.2.7. Household income is higher for families with children 13
2.3. Households with children must manage work and childcare 16
2.3.1. Adults can play different employment and care roles within the household 16
2.3.2. It is common for both adults in a household with children to be working full-time 16
2.3.3. The stay-at-home parent transitions to working part-time as children get older 16
2.3.4. Parents of adult children are less likely to work as they approach retirement 17
2.3.5. How parents balance childcare and work depends on the number of children 17
2.3.6. Elderly dependents are also a responsibility 18
3. THE HOLDING OF FINANCIAL PRODUCTS 20
3.1. Bank accounts and cards 20
3.1.1. Current accounts, savings accounts, and credit cards are the most common financial products 20
3.1.2. Product penetration of banking accounts and card products 21
3.1.3. A higher value of money is stored in savings as opposed to current accounts 22
3.1.4. The average value held in current accounts is steady across all lifestages 23
3.2. Property, mortgages, and loans 24
3.2.1. Property purchase increases by lifestage, as does outright ownership 24
3.2.2. Average house values are highest for families with dependent children 25
3.2.3. Inheritance and help to buy play an important role in getting on the property ladder 25
3.2.4. Gifting is the most common way to provide help to buy a property 27
3.2.5. Inheritance money is mainly stored in savings accounts or investments 28
3.2.6. Earlier lifestages are receiving regular help from family to pay for monthly expenses 30
3.2.7. Property is an asset that can be used to fund retirement 31
3.2.8. Those with dependent children are most likely to have an investment property 33
3.2.9. The government is cracking down on buy-to-let landlords 33
3.2.10. Loans and motor finance 35
3.3. Investment products 35
3.3.1. There are four main types of investments 35
3.3.2. Consumers can have a lack of understanding about investments 36
3.3.3. Equities (stocks and shares) are the most popular type of investment product 36
3.3.4. Uptake of investment products reflects affluence 37
3.3.5. Different lifestages have different behaviors when it comes to investment products 37
3.4. Pensions 43
3.4.1. Earlier lifestages are more focused on family and home buying 43
3.4.2. Pensions are the main way of funding retirement 43
3.4.3. Those in later lifestages have a better idea of how they will fund their retirement 44
3.4.4. The use of pensions to fund retirement increases by lifestage 45
3.4.5. Pension freedoms have increased the popularity of income drawdown 45
3.4.6. Part-time employment can supplement income from a pension in retirement 45
3.4.7. More are withdrawing from their pensions following the pension freedoms 46
3.4.8. Parents with adult children at home are using their pensions to help their children 48
3.5. Protection insurance products 49
3.5.1. Life insurance was the most popular protection product purchased 49
3.5.2. Lifestages with dependent children are most likely to purchase protection 49
3.5.3. Buying a house, having children, and paying for funerals are life insurance triggers 50
3.5.4. Buying a house and having a child are the top triggers for buying income protection 51
3.5.5. Having a child, poor family medical history, and changing jobs are triggers for buying PMI 52
3.5.6. Buying or moving house is the top trigger for buying critical illness insurance 53
3.5.7. Paying monthly bills and saving for retirement are the top financial concerns 53
4. HOW TO TARGET LIFESTAGES WITH PROTECTION 55
4.1. Key success factors for targeting lifestages 55
4.1.1. The young/pre-family lifestage want digital and affordable propositions 55
4.1.2. Child-free professionals must be targeted when buying a house 56
4.1.3. Lifestages with dependent children are focused on protecting their families 57
4.1.4. Targeting households with adult children must focus on retirement and the bank of mum and dad 59
4.1.5. Targeting those who are post-family and still working should focus around retirement 60
4.1.6. Targeting the retired post-family segment should focus on retirement and inheritance planning 61
4.1.7. Conclusion 63
5. APPENDIX 64
5.1. Abbreviations and acronyms 64
5.2. Bibliography 64
5.3. Methodology 65
5.3.1. GlobalData’s 2017 UK General Insurance Consumer Survey 65
5.4. Further reading 65
List of Tables
Table 1: Demographics by lifestage (%), 2017 14
Table 2: Uptake (%), average value (£) and number of different investment product types held (%), by lifestage, 2017 41
List of Figures
Figure 1: The finances of families and households are interlinked 9
Figure 2: Individuals can be segmented into lifestages reflective of their household dynamics 11
Figure 3: Lifestage is reflective of age but is determined by lifestyle 12
Figure 4: Home ownership increases by lifestage 13
Figure 5: Household income is highest for lifestages with children living in the household 14
Figure 6: It is common for both adults in households with children to be working full-time 17
Figure 7: How parents balance childcare depends on the number of children 18
Figure 8: Most elderly dependents do not live in the same household as their children 18
Figure 9: Customers are most likely to have bank accounts and credit cards 20
Figure 10: Current accounts, savings accounts, and credit cards have high uptake 21
Figure 11: Most have under £2,000 in a current account and less than £10,000 in savings 22
Figure 12: The average value held in current accounts is £2,000 and £36,000 for savings 23
Figure 13: Outright home ownership increases by lifestage as mortgages are paid off 24
Figure 14: Average house values rise when starting a family, and fall when downsizing in later lifestages 25
Figure 15: Inheritance and help to buy is important in house purchasing for earlier lifestages 26
Figure 16: The proportion of individuals receiving help to buy is highest among the earlier lifestages 28
Figure 17: Inheritance is mainly stored in savings accounts 30
Figure 18: Earlier lifestages are also getting help for day-to-day expenses 31
Figure 19: Downsizing is the main way property is expected to be used to fund retirement 32
Figure 20: Parents may be left with an empty property when they move in together, which can be used for investment 34
Figure 21: Lifestages with pre-school age children have the highes- value investment properties 34
Figure 22: Personal loans are most common among lifestages with dependent children 35
Figure 23: Exchange-traded funds have the lowest penetration but the highest average value of money invested 37
Figure 24: Different lifestages have different behaviors when it comes to investment products 40
Figure 25: Lifestages with dependent children are the most likely to have more than one type of investment product 41
Figure 26: The value held in investment products differs by lifestage 42
Figure 27: Private pensions have higher uptake among later lifestages 43
Figure 28: Pensions are the main way to fund retirement 44
Figure 29: Pensions are the main way to fund retirement among all lifestages 46
Figure 30: Withdrawing from a pension is becoming increasingly popular due to pension freedoms 47
Figure 31: Money withdrawn from pensions has different uses 48
Figure 32: Lifestages with dependent children are most likely to have purchased protection insurance in the last year 49
Figure 33: The top triggers to buy life insurance are dependent on lifestage 50
Figure 34: Buying or moving house and having a child are the top triggers for buying income protection insurance 51
Figure 35: Having a child, poor family medical history, and changing jobs are triggers for purchasing PMI 52
Figure 36: Critical illness is often sold alongside life insurance for protecting a mortgage 53
Figure 37: Saving for retirement increases as a financial concern with age 54
Figure 38: Summary and critical success factors for targeting young/pre-family households 55
Figure 39: Summary and critical success factors for targeting child-free professionals 56
Figure 40: Summary and critical success factors for targeting households with dependent children 58
Figure 41: Summary and critical success factors for targeting households with adult children 59
Figure 42: Summary and critical success factors for targeting post-family households which are still working 60
Figure 43: Summary and critical success factors for targeting post-family households which are retired 62

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