Do you want to save more money? A recent survey shows that if you want more cash in your pocket, you’ll need to have a solid plan. This was one of the findings in a study sponsored by the Consumer Federation of America and the Certified Financial Planner Board of Standards. In an effort to assess the state of household financial planning in the United States, the CFA and the CFP Board of Standards surveyed more than 1,000 financial decision makers in households across the nation. This year’s study is a follow-up to their 2012 Household Financial Planning Survey.
Using questions based on the key elements of financial planning that are most likely to lead to favorable outcomes, a household financial planning index was created to score households based on various behaviors and activities. The scores were then used to divide households into four groups that represent different levels of financial planning. In addition, a financial preparedness index was created to analyze the relationship between planning and financial outcomes.
The study found that of the more than 1,000 U.S. households surveyed, about nine in 10 conduct some type of financial planning. The level of planning ranges from following an unwritten household budget to setting up a retirement account and working with a financial professional.
Four groups were identified that represent different levels of financial planning common in the United States: comprehensive planners, basic planners, limited planners, and non-planners.
- Comprehensive planners make a serious effort to have a financial plan in place. They tend to follow the principles of financial planning and are confident in their money management skills. They are financially prepared and have an asset protection plan. About 19% of survey respondents were in this group.
- The majority of the household decision makers surveyed (38%) were basic planners. According to the study, the typical American household falls within this group. Basic planners tend to be middle income and have a plan for specific savings goals (such as retirement or college), but do not have a solid strategy for putting these plans into action.
- Limited planners (33% of respondents) have a household budget or an individual savings plan, but not both.
- Non-planners (about 10%) do almost no financial planning at all.
Those who have a detailed plan for their household finances are more likely to save, invest, and effectively manage credit card debt than those who do not have a plan. About 61% of comprehensive planners save 10% or more of their annual income compared to only 6% of non-planners.
Here are some other key findings:
- About 60% of comprehensive planners pay their credit card balance in full each month. None of the non-planners surveyed pay their balance off each month.
- 42% of non-planners have $1,000 or more in credit card debt compared to 37% of comprehensive planners.
If you want to save more money and get on the right financial path, start by devising a plan. Work with an experienced financial planner to help you get started.