The recent recession has left many American families struggling to make ends meet and to save for the future, according to a recent report by Consumer Federation of America (CFA) and Certified Financial Planner Board of Standards, Inc. (CFP Board). At the same time, the 2012 Household Financial Planning Survey shows that those who have prepared a personal financial plan feel more confident and report more success managing money, savings and investments than those who have not.
About 38 percent of the household financial decision-makers surveyed said they live paycheck to paycheck; 30 percent indicated they felt comfortable financially; and 34 percent think they can afford to retire by age 65.
Yet, according to several measures of financial well-being, those with a financial plan report faring better than those without one. A few highlights from the survey, conducted by Princeton Survey Research Associates International (PSRAI), include:
- Only 31 percent of respondents said they had a comprehensive financial plan, while 65 percent indicated they follow a plan for at least one of their savings goals;
- By a margin of 50 percent to 32 percent, and for all but the lowest income bracket (under $25,000) where few have a comprehensive plan, planners 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 an even larger margin of 52 percent to 30 percent, and across all income brackets, planners are more likely to feel “very confident” about managing money, savings and investments;
- By a margin of 48 percent to 22 percent, planners are more likely than non-planners to describe themselves as living comfortably;
- For those in these two highest income brackets, planners report saving a higher percentage of income and having built greater wealth than non-planners. For example, planners with incomes $50,000-$99,999 are more likely to report they save 10 percent or more of their income (57 percent vs. 39 percent) and to have accumulated at least $100,000 in investments (37percent vs. 19 percent); and
- For those in the two lowest income brackets, planners with credit cards report being much more likely to pay credit card bills in full.
“Our survey clearly shows that having a personal financial plan helps both rich and poor achieve their financial goals,” said Stephen Brobeck, CFA’s executive director. “Having a financial plan increases one’s confidence and effectiveness in managing, borrowing and saving money.”
The survey utilized a number of questions asked by a 1997 CFA-NationsBank survey also developed with and administered by PSRAI. This made possible a comparison of consumer attitudes and habits in 1997, when unemployment was lower and consumers were more optimistic, with attitudes and habits today in the aftermath of the worst recession since the Great Depression.
- In 1997, only 38 percent felt behind in saving for retirement compared to 51 percent this year.
- In 1997, 50 percent said they thought they could retire by age 65 compared to only 34 percent this year.
- In 1997, more families with college-bound children were saving for higher education (56%) compared to this year (48%).
The 2012 survey also revealed that slightly more than half of respondents “to me investing seems complicated” and “I’m worried about losing my money if I invest it.” This is a significant increase from the 45 percent who expressed similar worries in 1997. However, these findings are not especially surprising in light of the financial crisis and its aftermath.
“Consumers understandably are more nervous about investing their money given recent revelations about financial fraud, manipulation and abuse of clients,” said Kevin Keller, CEO of CFP Board. “This doesn’t mean that people shouldn’t create a financial plan and be prepared. We encourage consumers to do their homework and find a financial professional who always puts the clients’ best interests first and abides by a fiduciary standard of care.”