Poster from research study presented at February 2017 CFP Board Academic Research Colloquium for Financial Planning and Related Disciplines.

1. Jing Jian Xiao, University of Rhode Island
Barbara O’Neill, Rutgers University
Propensity to Plan, Financial Capability, and Financial Satisfaction
Background
Financial planning is considered a desirable financial behavior, an
indicator of financial capability that is positively associated with
subjective financial wellbeing (Xiao, Chen, & Chen, 2014). Previous
research on financial planning behavior demonstrates that financial
planning contributes to financial wellbeing. Further understanding
financial planning behavior will help financial service professionals to
better serve their clients and help improve their clients’ quality of life.
The purpose of this study was to examine factors associated with
financial planning and associations between financial planning,
financial capability, and financial satisfaction. Compared to previous
research, this study used a large, nationally representative sample in
the U.S., and examined socioeconomic factors associated with
financial planning behavior and potential effects of financial planning
on financial capability and financial satisfaction.
Abstract
Propensity to plan is considered a desirable financial behavior
associated with consumer financial capability. The purposes of this
study were threefold: to examine factors associated with propensity to
plan, the association between propensity to plan and financial
capability, and the association between propensity to plan and financial
satisfaction. Propensity to plan is measured by categorizing consumers
as planners and non-planners based on their responses to a survey
question about long-term planning. Data from the 2015 U.S. National
Financial Capability Study show that planners have unique
demographic and financial characteristics compared to non-planners.
Propensity to plan is positively associated with four financial
capability indicators: objective financial literacy, subjective financial
literacy, desirable financial behavior, and perceived financial
capability. Finally, propensity to plan is positively associated with
financial satisfaction.
Method
Data. Data used in this study were from the 2015 National Financial Capability
Study (NFCS), which was modeled after similar studies conducted in 2009 and
2012. In consultation with the U.S. Department of the Treasury and the
President’s Advisory Council on Financial Capability, the FINRA Investor
Education Foundation commissioned the 2015 NFCS that included 27,564
American adults (roughly 500 per state, plus the District of Columbia) and 1,000
military service members through online surveys (Lin et al., 2016).
Variables. Following previous research (Xiao & O’Neill, 2016), financial
capability variables included four indicators. The four indicators are objective
financial literacy, subjective financial literacy, desirable financial behavior, and
perceived financial capability. Objective financial literacy is the quiz score of six
financial knowledge questions ranging from 0 to 6. Subjective financial literacy is
a self-assessment of financial knowledge with a range of 1-7 (7=very high).
Perceived financial capability is a self-assessment of money management ability
with a range of 1-7 (7=very high). Desirable financial behavior is the number of
positive financial behaviors performed and reported by the respondents with a
range of 0-4 (4=all four behaviors are performed). Financial planning is a binary
variable (1=planner). Financial satisfaction was measured with a 10-point scale
variable (10=extremely satisfied).
Data analyses. Both bivariate and multivariate analyses were conducted to test the
three hypotheses. Specifically, Chi-square tests and logistic regression were used
to test H1. T-tests and OLS regressions were used to test H2 and H3.
Results
Characteristics of self planners. Results of the logistic regression show
that self planners tend to be male, nonwhite, married, have dependent
children, are working, younger, home owners, with higher income, and
with higher education. They tend to have savings accounts, 401(k) plans,
IRAs, health insurance, credit cards, and high cost loans. Consumers
with mortgages, auto loans, unpaid medical bills, and credit card debts
are less likely to be a planner.
Propensity to plan is positively associated with financial capability
variables. Results of multiple OLS regressions on four financial
capability variables support H2. For objective financial literacy, being a
planner contributed to the model by explaining .2% more of the
variance. For subjective financial literacy, desirable financial behavior,
and perceived financial capability, being a planner explained 4.8%,
7.6%, and 3.0%, respectively, more of the variance.
Propensity to plan is positively associated with financial satisfaction.
The results show that, after controlling for socioeconomic and financial
capability variables, being a planner still explained 1.2% more of
variance for financial satisfaction, supporting H3.
Implications
The findings of this study have implications for consumer financial
service professionals to better serve their clients’ needs. The results
about different characteristics of planners and non-planners may be used
by financial professionals to identify their clients’ intention to plan and
develop different strategies to work with them. For consumers who are
planners, financial professionals may focus more on how to help them
develop appropriate financial plans. For non-planners, besides working
with their financial plans, financial professionals may also need to
explain the benefits of long-term planning and help clients recognize the
importance of goal-setting and goal attainment.
Hypotheses
H1. There are differences in socioeconomic characteristics between
planners and non-planners.
H2. Financial planning is positively associated with financial
capability variables.
H3. Financial planning is positively associated with financial
satisfaction.
0.38
0.45
0.64
0.72
0.77 0.81
0.89
1.08 1.09 1.10 1.13 1.16 1.17
1.22 1.26 1.26
1.36
1.46
1.58
1.69
1.73
2.33
Who is More Likely to Be a Planner?
Indicated by Odds Ratios
References
Lin, J. T. Bumcrot, C., Ulicny, T., Lusardi, A., Mottola, G., Kieffer, C., & Walsh, G.
(2016). Financial capability in the United States 2016. Washington, DC: FINRA
Investor Education Foundation.
Xiao, J. J., & O’Neill, B. (2016). Consumer financial education and financial
capability. International Journal of Consumer Studies, 40(6), 712-721.
Xiao, J. J., Chen, C., & Chen, F. (2014). Consumer financial capability and financial
satisfaction. Social Indicators Research, 118(1), 415-432.