Survey finds big differences in financial planning among Americans

By National Underwriter

National Underwriter

By Warren S. Hersch

Close to nine in ten American households do formal or informal financial planning but the extent of this planning varies greatly, according to new research.

Sponsored by the Consumer Federation of America (CFA) and Certified Financial Planner Board of Standards, the research shows that only one in five household decision-makers (19 percent) are comprehensive planners, who take a methodical approach to financial planning, while one in ten (10 percent) do virtually no financial planning at all. The research further identifies nearly two-fifths of households (38 percent) as basic planners and one-third of households (33 percent) as limited planners.

While higher income households are more likely than lower income households to plan, more than half (54 percent) of comprehensive planners have annual incomes below $100,000, the report adds.

“Those families with the lowest incomes are the ones who would benefit the most from financial planning,” says CFA’s Executive Director Stephen Brobeck in a statement. “Households with the fewest financial resources benefit the most from carefully planning spending, saving and debt management. Marshaling limited financial resources to meet essential needs represents a huge challenge for these households.”

The CFA and CFP Board undertook the research with assistance from Princeton Survey Research Associates International (PSRAI), which surveyed a representative sample of 1,002 financial decision makers nationwide from April 12 to 24, 2013. The survey includes more than 60 questions and has a margin of error of plus or minus three percentage points.

“This research reaffirms the value of financial planning for all households and also the value of receiving assistance from a financial professional who always puts the clients’ best interest first and abides by a fiduciary standard of care,” said CFP Board CEO Kevin R. Keller, CAE.

Among the report’s additional findings:

  • Comprehensive planners (19 percent): Two-thirds (67 percent) of comprehensive planners use a financial professional with fiduciary accountability, specifically a certified financial planner (CFP) or a Registered Investment Advisor (RIA), to help prepare a plan. Nearly nine in 10 (88 percent) of these households have a plan for retirement and 80 percent having a plan for emergency savings.

  • Basic Planners (38 percent): The large majority of basic planners (80 percent) have a plan for one or more savings goals, though only 35 percent have a comprehensive plan that organizes these plans, with another 31 percent saying they are likely to make a plan in the coming year. While two-thirds (66 percent) say they have a household budget, fewer than half (41 percent) say that budget is written down or stored in electronic format.

  • Limited Planners (33 percent): A large majority of limited planners (69 percent) either have a household budget or a plan to address at least one individual savings goal -- typically for retirement savings -- but not both. And very few limited planners (11 percent) think they will make a comprehensive plan in the next year. But most (91 percent) either have no credit card debt or have a plan to pay off this debt.

    Survey Items included in the Household Financial Planning Index
    TotalComprehensive PlannersBasic PlannersLimited PlannersNon-Planners
    Have a comprehensive financial plan32%100%35%1%0%
    Likely to get a comprehensive financial plan in next 12 months16%0%31%11%1%
    Have updated/will update plan in previous/next 12 months23%84%18%0%0%
    Plan is written down or in computer/electronic file26%95%22%0%0%
    Spent 2 hours or more preparing or reviewing plan21%77%18%1%0%
    Had any professional help or used computer/online tool in creating plan28%91%30%0%0%
    Had a financial professional with fiduciary responsibility create plan, specifically Certified Financial Planner™ professional or Registered Investment Advisor19%67%17%0%0%
    Current plan has 5 or more key planning elements, or future plan will have 5 or more key planning elements[1]43%96%58%7%0%
    Have a household budget57%88%66%44%6%
    Household budget is written down32%63%41%15%0%
    Planning for current or future retirement[2] 52%88%64%31%8%
    Planning for emergencies32%80%38%7%1%
    Planning for any other financial goal (e.g. child’s college, down payment on house, major purchase, parent’s medical expenses)26%60%33%7%0%
    No credit card or pay off bill in full each month47%62%53%45%0%
    [1] Planning elements include nine areas of financial planning: identifying financial goals, analyzing spending, budgeting, reviewing investments, debt management, saving for emergencies and retirement, insurance coverage, setting up wills or trusts.

    [2] Retirement in this table includes both those planning for future retirement among those not yet retired and those currently retired who were asked if they have ever calculated how much money they can withdraw each year from savings and investments and still have enough to last the rest of their lifetime.

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