The truth about Americans' financial planning

By Ryan Parker

Bankers Annuity Brokerage


The experts may say the Great Recession is behind us, but it's what people see around them — not economic forecasts or the words of so-called experts — that serves as reality.

If you're truly a great advisor, one of the reasons you're so passionate about what you do is that it allows you to help real people affect real, positive changes in their lives. And it all starts with developing a plan. That's what makes the recent "Financial Planning and Progress Study" from Northwestern Mutual Life Insurance Co. so interesting.

The first in a series of studies from the Milwaukee-based carrier to study “the state of planning in America” reveals how Americans approach their financial planning, as well as their approach to investing and saving.

When independent research firm Ipsos polled some 1,015 Americans older than age 25 on behalf of Northwestern Mutual, the data were mixed, as almost half of Americans take what can best be described as a casual approach to planning; however, the vast majority indicate a desire to improve their planning efforts.

“This research reflects that most Americans see the value in setting financial goals, but a large number don't know how they'll get there,” says Northwestern Mutual Executive Vice President Greg Oberland. “Developing a plan to reach your goals is just as important as having a goal in the first place, whether it pertains to your health, your career or your financial security.”

While it seems that the majority of Americans do, at least, have a financial goal they aspire to reach, it is rather alarming that when asked to describe what type of planner they are, a full 38 percent indicated they were “informal” planners. According to the study's verbiage, this means that although they do have a general sense of their financial goals and what to do to meet them, they have no “specific” plan to achieve these goals. What's really worrisome is that a further 7 percent indicated they don't even have specific financial goals, let alone a plan to meet them.

Despite these bleak figures, the general sense is that finances are never far from most Americans' minds. Furthermore, the majority, at 59 percent, acknowledge or otherwise feel that their financial planning needs some improvement.

This should translate to opportunity in most advisors' eyes, as it's clear that what people seem to need most is a clear sense of direction in what otherwise can seem to be a chaotic and overwhelming economy. Indeed, the study also found that people are still very cautious when it comes to risk, but who could blame them? When queried about their aversion to risk, just 25 percent of respondents said they “strongly prefer” the opportunity to gain higher returns with higher risk compared to a whopping 40 percent of respondents who indicate a “strong preference” for safer strategies with lower returns and very low risk. This disparity demonstrates the true scope of market uncertainty, as well as an opportunity for you to help formulate a strong plan that assuages some of their anxiety.

Another alarming problem the study illuminates is that the majority of Americans are even more cautious when in comes to savings and investments. The top approach, chosen by 36 percent of respondents, is “slow and steady wins the race.” Interestingly, a full 21 percent of respondents said, “I'd like to be more cautious but I have a lot of catching up to do.” This is yet another crucial component to a solid financial plan, and should be addressed accordingly.

There is one particularly heartening findings of the study: the majority of Americans are taking positive steps to improve their financial health.
  • 62 percent are working toward paying down their debt
  • 61 percent are taking steps to develop a budget
  • 58 percent are making an effort to save part of their paychecks regularly
  • 58 percent are building up an emergency fund
  • 56 percent are working on organizing their financial documents
The experts may say the Great Recession is behind us, but it's what people see around them that serves as reality — not economic forecasts or the words of so-called experts. There's just so much uncertainty, as the "Financial Planning and Progress Study" confirms, and the majority of Americans need someone to sort things out, give them some perspective and most of all, help them develop a plan. And there's no reason that someone shouldn't be you.