Roses, Chocolates And … A Financial Plan? Couples Love Security: Study

This Valentine’s Day, singles seeking happily ever after should gift themselves a written financial plan--something they are about half as likely to do as couples—in order to receive a saving boost and other benefits.

This is according to a new research report by Hearts & Wallets, the firm that specializes in consumer, investing and financial advice.

As noted in the report, four of five U.S. households (82%) think about working toward long-term financial goals, with half (54%) having a plan. But only one-third of households with plans report having written plans.

Benefits Of Plans

However, those with financial plans enjoy a wide range of benefits, noted Laura Vargas, CEO and Founder of Hearts & Wallets. Consumers with a plan (written or unwritten) have less difficulty with all 18 financial tasks tracked by Hearts & Wallets than consumers without a plan, she said.

The biggest differences seen are:

• Determining retirement income withdrawal strategies (a 13 percentage point difference)
• Choosing appropriate investments (a 12 percentage point difference)
• Balancing short- and long-term financial goals (an11 percentage point difference)
• Having a higher saving rate. Nationally, over half (52%) of households with written plans save 10% of income or more, according to Varas. In comparison, over 1 in 3 (36%) households with unwritten plans save 10% or more of their annual income. For non-planner households who think about goals but don’t have a plan, the most common behavior for them is to save modestly at 1% to 5% of income (29%). And about one in four of those households do not save at all.
• Having more emotional security. Plans have emotional benefits that can be quantified, including:
  --Plan owners feel on track with their retirement savings. Households with plans are 20 percentage points more likely to say they’re on track than households without plans (37% vs. 17% nationally), Vargas said.
  --Plan owners feel confident in making investing and saving decisions. Households with plans are 20 percentage points more likely to say they feel confident than households without plans (43% vs. 23%).
  --Plan owners have more appropriately allocated investment portfolios. Households with plans avoid the extremes in cash and equity allocations observed among households who don’t think about goals. “For example,” Varas pointed out, “nationally, households without plans allocate 35% of their investable assets to cash, vs. 14% for households with a written plan.”
  --Plan owners have higher assets-to-income ratios. Households with written plans have an average assets-to-income ratio of 4.9, compared to only 1.3 for households without a plan.

Plan Ownership Higher In Relationships

The report also pointed out that more Americans in relationships have financial plans than those who are single, divorced or widowed.

“Domestic partnership naturally involves more conversations about money, especially short-term spending,” explained Varas. “About 40% of couples actively engage in long-term planning, such as for retirement. There are others who may inspire planning for both couples and singles, especially among wealthy households."

In married/partnered households with assets of $2M+, advisors are more likely to be the inspiration for planning than partners (27% partner vs. 37% advisor), she added.

Single/divorced/widowed consumers with $2M+ are also less likely to be inspired by advisors than couples, although 29% of these wealthy singles cite an advisor as an influence.

“For advisors, proposing written plans can be a good way to increase partnership for Americans of all relationship status,” Varas said.

Persuading Americans To Have Written Plans

There are a few steps advisors can take to persuade consumers to write down their plans, Varas said. Consumers who develop plans on their own tend to have unwritten plans, she pointed out.

They often see themselves as inexperienced vs. experienced investors. Software/tools and working with third parties, such as firms or employer-sponsored programs, are more likely to result in written plans.

Advisors should also understand the different motivations and resources that consumers use in thinking about financial goals and plans, Varas added. For example, consumers who think about goals – but don’t have a plan – could articulate goals and desired timeframes.

Those who say they have an unwritten plan could commit elements of their plan to writing with the encouragement of an advisor.

“Think younger than in the past,” Varas said. “Younger consumers, especially those ages 21-27 who have achieved a level of financial stability, are ripe for plans. New parents are also notably open to planning.

“Most importantly,” she said, “be very clear in communicating the wide range of benefits of a plan. Emphasize how plans are tied to higher saving rates, better asset allocations, and better feelings of financial security.”

It is sometimes challenging to talk to low- or moderate-income consumers about the need for a financial plan when they are often using most of their income for day-to-day expenses. In approaching this group, advisors may want to supplement asset-based pricing with options to pay for more support planning by either offering software or fee-based programs, Varas suggested.

Such options can be combined with scheduled messaging to encourage these consumers to stick to their plans.

Also, she added, many fintech firms are trying to fill this gap, and employer-sponsored plans can be tapped to build plans for these groups. Younger consumers, in particular, use workplace programs for planning.

The report, “The Power of Planning: Proven Benefits That Transform Consumer Financial Outcomes, “ analyzes the state of financial goal planning among U.S. households and draws upon the Hearts & Wallets Investor Quantitative Database.

Ayo Mseka has more than 30 years of experience reporting on the financial-services industry. She formerly served as Editor-In-Chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].