Study Demonstrates Importance of Financial Planning

A study just released by the Consumer Federation of America (www.consumerfed.org) and the Certified Financial Planner Board of Standards (www.cfp.net) indicates that families who have taken the time to create a personal financial plan feel more confident about meeting their financial goals, are less stressed, and are more successful managing their financial affairs than those who do not plan.

Those who plan are more confident in their financial situation. According to the study 50 percent of those who have prepared a personal financial plan report feeling on track to meet their financial goals, compared to only 32 percent of non planner. Fifty-two percent of "planners" report feeling very confident about managing money, savings and investments, while only 30 percent of non planners express confidence. 

Planners with less money are more comfortable than wealthier non-planners. Interestingly, planning may be more effective than higher salary in reducing financial stress. Among those in the $50,000-$99,000 income bracket, 50 percent of those who had developed a plan reported that they lived comfortably.  This is actually a higher percentage living in comfort than non-planners in the $100,000 plus income group!

The study results were also compared to a similar study released in 1997 and found some interesting changes. 

Retirement expectations curtailed. In 1997, 50 percent of respondents expected to retire by the age of 65. In the 2012 study, only 34 percent expressed such confidence. In contrast, 15 percent of 1997 respondents expected to work until 70 or older, while in 2012 27 percent expected to work into their golden years. This result shouldn't be a surprise. In the late 90s the stock market was soaring, and we all expected that earning 10 percent or more on our money was one of our inalienable rights. Many workers were still covered under employer pension plans.  What a difference 15 years, two recessions, two stock market crashes and a burst housing bubble can make! 

Low confidence in financial decision making ability. The report also seems to reveal increasing angst over financial decisions. Fifty-five percent of family financial decision makers report that they "don't know who to trust" for financial advice while 55% report that "I'm worried about losing my money if I invest it." Thanks for that, Mr. Madoff! 

The full survey results can be viewed on the CFP board website www.cfp.net.