4 Financial Planning Profiles That Determine Future Success

In something of a surprise, new research sponsored by the Consumer Federation of America and Certified Financial Planner Board of Standards finds close to nine in ten American households are engaged in some type of formal or informal financial planning.

However, the extent of this planning varies greatly, and will generally fall into one on four behavioral areas identified by the organizations: comprehensive planners, basic planners, limited planners and non-planners.

The research shows that only one in five household decision makers are comprehensive planners, or those who take a methodical approach to financial planning, while one in ten do virtually no financial planning at all. The research further identifies nearly two-fifths of households as basic planners and one-third of households as limited planners.  

“I was most surprised by the number of Americans involved in planning,” said Stephen Brobeck, CFA’s executive director. “Yes, the degree to which they’re planning does vary, but I thought the number of people that do not do any planning would be much higher.”

One of the most compelling findings, according to Brobeck, is that the more extensively households plan, the better prepared they are financially in terms of their likelihood of saving, investing and managing credit card debt. That in turn leads to higher effectiveness in saving, investing, and debt management, as well as higher confidence in managing their finances.

Additionally, while higher income households are more likely than lower income households to plan, more than half of comprehensive planners have annual incomes below $100,000.

“Low to moderate income workers usually don’t have access to employer-sponsored plans,” Brobeck noted. “But they do have access to saving accounts. Even if it’s $25 a month, it will greatly help them. It’s not about the amount so much as it is the behavior.”

Extensive analysis of the four distinct financial planning profiles includes: 

The higher one’s household income and level of education, the more likely one is to engage in financial planning, the survey finds. Among comprehensive planners, close to half report annual household incomes of at least $100,000 and about half have a four-year college degree. Among non-planners, more than half half have incomes under $25,000 while more than two-thirds have a high school education or less.

But these correlations are far from perfect, the survey adds.  The majority of comprehensive planners are middle class, it notes. In fact, a quarter have incomes below $50,000.

“The failure of middle-class incomes to grow is as big a problem as any facing the country today,” Brobeck concluded.