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Financial Planning Critical Regardless of Wealth: Survey

Advisors trying to persuade prospects about the benefits of planning can point to a new study of household financial decision-makers that shows those who have taken the time to put together a plan feel more confident and report more success managing savings and investments.

“Some people believe that financial planning is only for the rich,” CFP Board CEO Kevin Keller says. However, “those with a comprehensive plan, regardless of what their socioeconomic [status] may be, are both feeling better and doing better because of having that plan [whether or not] it’s a plan they paid for or if it’s something they did on their own.”

According to a survey of 1,508 financial decision makers in households nationally, 38% said they live paycheck to paycheck, while less than 30% indicated they felt comfortable financially and only about a third, or 34%, think they can afford to retire by age 65.

The survey is part of a 60-page report released today by Consumer Federation of America and CFP Board. The survey was conducted by Washington D.C.-based Princeton Survey Research Associates International. According to several measures of financial well-being, those with a financial plan report faring better than those without one:

  • Those with plans are more likely to feel they are on pace to meet all of their financial goals, such as saving for retirement or for emergencies, by a margin of 50% to 32% and for all but the lowest income bracket (those making less than $25,000 a year);
  • Those with plans are more likely to feel “very confident” about managing money, savings and investments, by a margin of 52% to 30% and across all income brackets;
  • Those with plans are more likely to describe themselves as living comfortably by a margin of 48% to 22%. In addition, as many people who plan and who make $50,000 to $99,999 a year say that they live comfortably as non-planners in the $100,000 and above income bracket;
  • Among respondents in the two highest income brackets, those with plans report saving a higher percentage of income and having built greater wealth than those without them. For example, people with plans who have incomes between $50,000 and $99,999 are more likely to report they save 10% or more of their income (57% vs. 39%) and to have accumulated at least $100,000 in investments (37% versus 19%);
  • For those in the two lowest income brackets, people with plans who use credit cards report being much more likely to pay credit card bills in full. That is true both for those who make $25,000 to $49,999 – 46% for people with plans and 26% for those without them – and for those with incomes under $25,000: 41% for people with plans and 16% for those without them; and
  • Overall, only 31% of respondents said they have a comprehensive financial plan, while about two-thirds or 65% indicated they follow a plan for at least one of their savings goals.

“Our survey clearly shows that having a personal financial plan helps both rich and poor achieve their financial goals," Stephen Brobeck, the Consumer Federation’s Executive Director, said in a statement. "Having a financial plan increases one's confidence and effectiveness in managing, borrowing and saving money. 
Comparing Results

The survey utilized a number of questions asked by a 1997 survey conducted by the Consumer Federation of America and NationsBank, which also was developed with and administered by Princeton Survey Research Associates International.  This made it possible to compare consumer attitudes and habits today – in the aftermath of the worst recession since the Great Depression – with those back in 1997, when unemployment was lower and consumers were more optimistic.

The findings include the following: 

  • In 1997, only 31% of respondents said they lived paycheck to paycheck, compared to 38% this year. At the same time, the percentage who indicated they felt comfortable financially has fallen from 38% in 1997 to 30% in 2012.
  • In 1997, only 38% felt behind in saving for retirement compared to 51% this year.
  • In 1997, 50% said they thought they could retire by age 65 compared to only 34% this year.
  • In 1997, more families with college-bound children were saving for higher education, at 56%, compared to this year, at 48%.
  • However, the proportion of those who say they have a retirement investment plan in place is about the same: 51% in 1997 and 49% this year.

The 2012 survey also revealed that slightly more than half of respondents, or 55%, said “it’s hard for me to know who to trust for financial advice,” and 52% said “to me investing seems complicated.” More than half, at 55% said, “I’m worried about losing my money if I invest it,” which represents a significant increase from the 45% who said they felt the same thing in 1997. 
“Consumers understandably are more nervous about investing their money given recent revelations about financial fraud, manipulation and abuse of clients,” Keller said in a statement. “This doesn’t mean that people shouldn’t create a financial plan and be prepared.”

Both The Consumer Federation and CFP Board suggest a useful tool for consumers who want to make a plan is the website LetsMakeaPlan.org.

Survey Methodology

The Consumer Federation of America and CFP Board developed the survey with Princeton Survey, which called respondents on their landlines or cell phones. Interviews were conducted between May 7 and May 20. The margin of sampling error on the total sample at the 95% level of confidence is plus or minus three percentage points. The report only includes statistically significant differences at the 95% level of confidence.

The full survey report and detailed results can be found at consumerfed.org or cfp.net

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