Name a strategy that household decision makers use to improve their lifestyles.

Survey says: financial planning!

Planning helps people build savings for life goals, makes them comfortable with their lifestyle and more confident in managing their money, and better prepared to face the future. It doesn’t necessarily take a lot of money to garner these benefits, and both high- and low-income individuals find that the footwork involved in financial planning is worth the effort and leaves them better off financially.

These are among the important conclusions of the latest version of a comprehensive study, Financial Profiles of American Households: The 2013 Household Financial Planning Survey and Index, released by the CFP Board and the Consumer Federation of America. The two public-serving organizations released the first Household Financial Planning Survey in 2012, and modified it in 2013 to corroborate and further analyze the findings. 

This year’s study went a step further to develop a Household Financial Planning Index (HPI) comprised of planning activities and behaviors that Certified Financial Planner™ professionals deem as essential components of prudent financial management. Approximately 1,000 household decision makers were interviewed for the 2013 survey and assigned Household Financial Planning Index (HPI) scores based on their responses. The distribution of these scores provides a broad and revealing overview of the status of financial planning among American households.

The study finds that some sort of financial planning is undertaken by nearly 90 percent of U.S. households. The level and depth of this planning varies considerably, however, ranging from having a budget “in mind” but not in print, to setting aside funds for one or more future goals, to having a comprehensive, written financial plan and working with a fiduciary advisor.

Four distinct profiles of household planners emerged from the HPI results:

  • Comprehensive Planners:  Members of this segment, which accounts for 19 percent of households surveyed, have a number of financial goals they work toward. They go beyond budgeting to save for retirement and to manage risk through purchasing insurance and creating emergency savings. A significant majority of this group also works with a fiduciary financial advisor to create a written, multi-goal plan.

  • Basic PlannersThis was the largest group to emerge from the survey, representing 38 percent of all decision makers. From this group, approximately 80 percent have a plan to save for one or more financial goals, such as retirement or children’s education.  Two-thirds live by a budget, but most lack a comprehensive plan or have sufficient reserves for emergencies.

  • Limited Planners: Financial planning by this group is at most cursory. These planners focus either on using a budget, or having a plan to meet a savings goal, but not both.  Retirement is the primary concern among Limited Planners, leaving emergency savings and other financial goals largely neglected.

  • Non-Planners:  Members of this group, which represents 10 percent of American households, are the most consistent of all four profiles, in that they do virtually no planning of any kind, and almost no budgeting. None has a written spending plan. Their biggest problem is credit card debt, but only half are thinking of ways to reduce it.

As a consumer, you can use these profiles in several ways. By benchmarking your own planning activities against an array of American households, you can see where you currently stand with respect to your financial management.  

You can also determine what is possible.  You can see what steps are necessary to rise to the level of a Comprehensive Planner, thereby achieving a sense of financial control, lifestyle satisfaction and increased savings that this group so clearly enjoys.

In 2014, the CFP Board and CFA plan to use the 2013 survey and HPI index to develop consumer tools and infographics to help consumers improve both the level and success of their financial planning efforts.