The confidence gap: Why financially vulnerable borrowers don’t prepare for hardship

Financial wellness used to mean getting ahead. Today, for many Americans, it means staying afloat.

While measures of financial well-being have improved for some households, many Americans continue to feel the strain of rising costs, economic uncertainty and competing financial priorities.¹ For these consumers, financial wellness is less about building wealth and more about maintaining stability.

Yet even as financial pressures persist, many borrowers remain confident they could manage an unexpected setback. That’s where the problem begins.

Many borrowers recognize financial risks. They worry about job loss, rising expenses and disruptions that could impact their ability to make payments. But recognizing a risk and preparing for it are not the same thing.

In fact, half of borrowers say they could sustain loan payments for only three months or less if they lost their income.² Despite that vulnerability, many continue to delay decisions that could help them build a financial safety net.

This disconnect is what we call the confidence gap: the difference between how prepared borrowers feel and how prepared they actually are. The confidence gap emerged as one of several key findings in Securian Financial’s latest lending environment research, "Trust under pressure: 4 barriers stalling payment protection adoption."

Awareness isn’t the problem

Consumers aren’t ignoring economic realities. They understand that financial setbacks happen. They know unexpected expenses can disrupt even the most carefully planned budgets. Many also recognize the value of protection products designed to help during difficult times. More than three-quarters of borrowers say payment protection provides meaningful financial security.²

Yet recognition rarely guarantees action. Research across financial services shows a similar pattern. Consumers often acknowledge the need for protection but postpone decisions because of competing priorities, affordability concerns, uncertainty or simple procrastination.³

The challenge isn’t lack of awareness, rather it’s the tendency to believe preparation can wait.

When confidence outpaces preparedness

One of the most interesting findings from our research is that concern and confidence often exist side by side. Borrowers may worry about the possibility of financial hardship while simultaneously believing they could manage it if it occurred. Younger borrowers, in particular, report significant concern about job loss and rising expenses while also expressing confidence in their ability to weather those challenges.²

The result is a dangerous assumption: that future resilience will somehow compensate for limited preparation today.

But hardships rarely arrive on schedule. Job loss, illness, injury and unexpected expenses don’t wait until a household feels financially ready. They arrive when they arrive.

When preparation is delayed, confidence can create a false sense of security.

The preparedness paradox

This creates a challenge for lenders.

The borrowers who could benefit most from financial protection are often under the greatest financial pressure. Those pressures make it harder to think beyond immediate needs and prioritize long-term preparedness.

As household budgets tighten, today’s expenses naturally take precedence over tomorrow’s uncertainties. Payment protection becomes something borrowers intend to revisit later.

The problem is that later often comes too late. Preparing for hardship is rarely driven by logic alone. It’s influenced by emotions, competing priorities and perceptions about risk. That’s why education by itself isn’t always enough. Borrowers need help connecting potential risks to their own financial reality.

Help borrowers close the gap

Financial institutions have an opportunity to play an important role in closing the confidence gap. The goal isn’t to create fear or persuade borrowers to expect the worst. It’s to help them make realistic assessments about their financial resilience and understand the options available to protect what matters most.

That starts with better conversations. Instead of focusing solely on products and features, lenders can help borrowers think through real-life scenarios:

• How long could you maintain payments if your income was disrupted?
• What would happen if a medical issue kept you out of work?
• How would your household manage an unexpected financial disruption?

These conversations shift the focus from selling protection to building preparedness. And preparedness is ultimately what financial wellness is all about.

Confidence isn’t a strategy

The biggest obstacle facing financially vulnerable borrowers may not be a lack of information. Many understand the risks around them. Many see value in financial protection. Yet they continue to rely on confidence that things will work out rather than a plan for when they don’t.

For lenders, closing the confidence gap requires more than transparency and education. It requires helping borrowers move from awareness to action, from optimism to preparedness.

Because when hardship strikes, preparation matters far more than confidence.

Securian Financial is here to help

Helping borrowers prepare for uncertainty starts with understanding what stands in the way. Whether you’re looking to strengthen borrower education, improve lending conversations or create more effective payment protection experiences, Securian Financial can help. Explore our latest research, tools and resources designed to help financial institutions build trust, support financial wellness and close the gap between awareness and preparedness.

Want to learn more? Read our research, “Trust under pressure: 4 barriers stalling payment protection adoption,” or contact our team to start a conversation.