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2012 Household Financial Planning Survey

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2012 Household Financial Planning Survey 2012 HOUSEHOLD FINANCIAL PLANNING SURVEY A Summary of Key Findings July 23, 2012 Prepared for: Certified Financial Planner Board of Standards, Inc. and the Consumer Federation of America Prepared by: Princeton Survey Research Associates International Contents EXECUTIVE SUMMARY .................................................................................................................................. 3 Key Findings .............................................................................................................................................. 3 A Much Tougher Economic Landscape for American Families ............................................................. 3 Most People Find Managing Finances Daunting................................................................................... 4 Fewer Having Savings for Emergencies and Child’s College ................................................................. 5 Majority Have a Plan for Spending Goal, but Few have a Financial Plan ............................................. 5 Planners More Confident About Handling their Finances, Feel Better about their Progress............... 6 Planning Benefits All Income Levels, not just the Wealthy .................................................................. 7 About the Survey ...................................................................................................................................... 7 SECTION 1: CURRENT ECONOMIC LANDSCAPE ............................................................................................ 8 SECTION 2: SAVING AND PLANNING TO MEET FINANCIAL GOALS ............................................................... 9 Saving and Planning for Emergencies ..................................................................................................... 13 Saving and Planning for Retirement ....................................................................................................... 14 Pre‐retirement .................................................................................................................................... 14 During Retirement .............................................................................................................................. 16 Saving to Send a Child to College ............................................................................................................ 16 Saving and Planning for Other Financial Goals ....................................................................................... 16 SECTION 3: CREDIT CARD DEBT................................................................................................................... 18 SECTION 4: THE IMPORTANCE OF FINANCIAL PLANNING .......................................................................... 20 Emergency and Retirement Planning ..................................................................................................... 20 Comprehensive Financial Planning ......................................................................................................... 22 APPENDIX .................................................................................................................................................... 26 SAVERS ANALYSIS ................................................................................................................................ 26 METHODOLOGY ...................................................................................................................................... 30 Design and Data Collection Procedures .............................................................................................. 30 Weighting and Analysis ....................................................................................................................... 32 TOPLINE................................................................................................................................................... 38 2 EXECUTIVE SUMMARY Key Findings Still feeling the effects of the Great Recession, many American families today struggle just to make ends meet. The CFP Board/Consumer Federation of America Household Financial Planning survey finds people today facing tougher choices about how to allocate more limited financial resources. Saving enough money for future goals like retirement and kids’ college – while also maintaining an adequate emergency fund and staying out of serious debt – has always been a challenge. This was true even in the more favorable economic climate of 1997, when Princeton Survey Research Associates International first surveyed household decision‐makers about these topics. In 2012, with high unemployment, stagnant incomes and reduced net worth, those challenges are even greater. While the economic climate has changed, financial planning remains a critical factor in separating those who are on track to meet their financial goals from those who are falling behind. The new survey finds people who plan feel more confident about their financial decision‐making, manage to save more money, and feel better about their progress to date in saving for financial goals. Planners score higher in financial preparedness than non‐planners across income groups. The benefits are not limited to those who are better off. Too few American families are taking advantage of this valuable tool to help protect their families from the vagaries of an uncertain economic environment. The percentage of American families who have made a comprehensive financial plan – either on their own or with professional help – has not changed significantly from 15 years ago. Overall, only about a third (31%) of decision‐makers today report having ever put together such a plan. And just 35 percent of decision‐makers report having a plan in place to save for emergencies, down from 39 percent in 1997. A Much Tougher Economic Landscape for American Families Recent reports from the Federal Reserve show the devastating effects of financial crisis on the middle class. The median family, richer than half of all American families and poorer than the other half, had a net worth of $77,300 in 2010 compared with $126,400 in 2007 according to the Fed. This means the average family has no more wealth today than it did in the early 1990s, wiping out nearly two decades of economic gains.1 Our new survey documents the economic pain people are feeling. In 2012, households where people live from paycheck to paycheck outnumber those where people feel 1 “Family Net Worth Drops to Level of Early 90’s, Fed Says,” by Binyamin Applebaum, The New York Times, June 11, 2012. 3 financially comfortable (38% vs. 30%). Fifteen years ago, when economic conditions were much more positive, these numbers were reversed – fewer people described themselves as financially struggling than said they were living the good life (31% vs. 38%). For most Americans, their home has been their biggest financial asset, but the crash of housing prices has been the single biggest factor that has reduced people’s wealth. Today, one‐quarter (23%) of those with a mortgage say it is underwater, i.e., the money required to pay it off is greater than what the property could sell for on the open market. Looking ahead, 20 percent of non‐retired home owners think they will still be making mortgage payments when they retire, up from 14 percent in 1997. Speaking of retirement, people’s expectations for how early they will be able to retire have been scaled back considerably. Fifteen years ago, half (50%) of non‐retirees told us that they expected to retire before they turned 65. Now, only a third (34%) believes they will be able to retire this early. More than a quarter (27%) think they will not be able to retire before age 70, if ever. This compares with 15 percent in 1997. In fact, 13 percent of those not yet retired today volunteer that they won’t ever be able to stop working, compared with 4 percent who were this pessimistic about their retirement prospects 15 years ago. Most People Find Managing Finances Daunting As the economic environment has changed for the worse, people’s comfort level with financial matters has not improved. Advances in technology have made accessing and analyzing financial information much easier, but lack of understanding about savings and investments options and how to best manage household finances remains a serious obstacle to Americans’ financial preparedness. • 55% say “it’s hard for me to know who to trust for financial advice.” • 52% say “to me investing seems complicated.” • 55% say “I’m worried about losing my money if I invest it,” a significant increase from 1997 (45%) reflecting growing uncertainty in response to the stock market turbulence of recent years. In addition to these barriers to sound money management, half of household decision‐makers believe they “just don’t earn enough money to save regularly.” Majorities of those in the under $25,000 (61%) and $25,000‐$49,999 (64%) income brackets feel discouraged from saving for this reason. Even in the $50,000‐$99,999 category, half (50%) feel their income level is a barrier to saving regularly. And one‐ quarter (26%) in the $100,000 or more category are inclined to believe that their income is insufficient to allow them to save on a regular basis. 4 Fewer Having Savings for Emergencies and Child’s College Feeling more financial pressure today than in 1997, American families today are less likely to be saving for their financial goals and taking steps to keep their family financially
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