July 23, 2012

Planning Betters Financial Health at All Income Levels: Study

Even lower-income households benefit from financial planning

People who have a financial plan feel more confident about their ability to manage their finances and are more likely to report themselves as “living comfortably”—even if they are in lower income brackets, according to the latest survey from the Consumer Federation of America (CFA) and the CFP Board.

It is probably not surprising that those who have a financial plan are more likely to be saving for various goals and also to be saving more than nonplanners. However, the results of the 2012 Household Financial Planning Survey also indicate that the effects of planning—whether provided by a professional or achieved around the kitchen table—benefit those with lower incomes as well.

In a conference call discussing the survey results, Kevin Keller, CEO of the Certified Financial Planner Board of Standards, and Stephen Brobeck, executive director of CFA, pointed out a number of interesting data points.

While, as might be expected, those at higher income levels who had financial plans saved more than those who had no plans, even in lower income brackets those who had a plan were more likely to have savings for emergencies and and to pay off their credit card bills each month.

Differences between planners and nonplanners making $100,000 or more were substantial—for instance, 73% of those with a plan report saving at least 10% of their income each month, compared with 60% of those without one; 69% report having $100,000 or more in savings and investments, compared with 47%; and 55% usually pay off their full credit card balance each month, compared with 41%.

The effectiveness of planning becomes clear with the differences between planners and nonplanners in lower income brackets. Those with incomes between $50,000 and $99,999 who have a plan are more likely than nonplanners to save 10% of their income or more (57% vs. 39%); they are also more likely to have accumulated at least $100,000 in investments so far (37% vs. 19%).

Among consumers in the $25,000 to $49,999 income category, 46% of planners pay off their credit card bill completely every month, while only 26% of those without a plan do. Forty-one percent of planners with even lower incomes—less than $25,000—pay off the balance each month compared with only 16% of nonplanners.

Keller said that consumers need to be educated about the benefits of financial planning. He suggested that they visit the consumer site at the CFP Board’s website, www.letsmakeaplan.org, which offers guidance on how to make a plan and how to find a CFP professional.

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