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Those with a financial plan fare better, survey says

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Financial planning is not just for the rich. Experts say having a plan is essential -- no matter how much money you make.

A survey conducted by Princeton Survey Research Associates International (PSRAI) of 1,508 household financial decision-makers found that nearly 38 percent said they live paycheck to paycheck. Less than one-third (30 percent) said they feel financially comfortable, and only another one-third (34 percent) said they think they could afford to retire by age 65.

The report, released in July, 2012 by the Consumer Federation of America (CFA) and the Certified Financial Planner Board of Standards (CFP Board), revealed that those with a financial plan fare better than those who do not. Among some of their findings are:

Financial planning important for all income brackets
  • Household financial planners are more likely to feel "very confident" about managing money, savings and investment than non-planners by a margin of 52 to 30 percent across all income brackets.
  • Planners say they live more comfortably than non-planners by a margin of 48 to 22 percent.
  • Just as many planners in the $50,000 to $99,999 income bracket say they live as comfortably as non-planners in the $100,000 and above bracket.
  • Of those in the highest two income brackets, planners said they saved a higher percentage of income and built greater wealth than non-planners. For example, 57 percent of planners in the $50,000 to $99,999 bracket report saving 10 percent or more of their income, compared to only 39 percent of non-planners who save as much.
  • Of those in the lower income brackets, planners who own credit cards are more likely to pay their credit card bills in full than non-planners. In the $25,000 to $49,999 income bracket, 46 percent of planners pay in full compared to 26 percent of non-planners. For those with incomes less than $25,000, 41 percent of planners pay in full compared to 16 percent of non-planners.

In a press teleconference, Stephen Brobeck, executive director of the CFA and Kevin Keller, CEO of the CFP Board said financial planning is essential for everyone, even those who cannot afford a financial planner.

"It is understood that planning can be useful even if a family does not secure the services of a trained professional," Brobeck said, explaining that just sitting down and thinking about one's finances and developing some goals is beneficial. "Developing a comprehensive plan requires one to think seriously about one's finances," he said.

According to Keller, even those in a lower-income bracket should have some sort of financial plan. "There is a big misconception among some that financial planning is only for the rich," he said.

Additionally, the CFA and CFP Board compared these 2012 results with results from another PSRAI-administered survey from 1997, when unemployment was lower and consumers were more optimistic. Notable conclusions from this comparison include:

  • 31 percent of consumers surveyed said they lived paycheck to paycheck in 1997, compared to 38 percent this year.
  • Compared to the 51 percent of consumers who felt behind in saving for retirement this year, only 38 percent felt behind in 1997.
  • Half of the consumers surveyed in 1997 said they thought they could retire by age 65; only 34 percent of consumers thought the same this year.
  • More families with college-bound children were saving for higher education (56 percent) in 1997 than they were this year (48 percent).

Respondents of the 2012 survey also felt that it is hard for them to know who to trust for financial advice (55 percent), that investing seems complicated (52 percent), and that they are worried about losing money to investing (55 percent). Keller said these results are reasonable.

"Consumers understandably are more nervous about investing their money given recent revelations about financial fraud, manipulation and abuse of clients," Keller said. "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."

In light of the survey's findings, both Keller and Brobeck emphasize the significance of financial planning through whatever method suits the individual; they each said the mere act of seriously thinking about one's own finances will have a positive effect.

See related: How to shape up your finances in 12 months, 7 low-cost ways to get financially organized

Published: August 15, 2012


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