Barbara O’Neill, Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension
The Benefits of Being a Future-Minded Planner
Want to be a successful investor? Develop your future-mindedness. That is the conclusion of a recent study that found a connection between positive financial behaviors, such as saving and investing, and impulsiveness and materialism.
When people focus on their future they tend to be less impulsive spenders, regardless of their level of financial literacy. In fact, the strongest predictor of good financial decisions in the study was not financial literacy, but focus on the future. Other studies have found similar results, which is not surprising because personality traits affect patterns of thinking and behaving and are relatively stable over time.
A 2015 study found that having a long planning horizon plays an important role in explaining household asset accumulation and financial security. In addition, the study found that households with an older white male head, married spouses, and people who have more years of education had higher odds of having a longer planning horizon.
The annual Savings Survey conducted by the Consumer Federation of America has consistently found that people with a “savings plan with specific goals” save more successfully than those without a plan. People who are planners are goal-oriented, careful about spending money, and more likely than non-planners to make savings progress and have sufficient savings for emergencies and retirement. Many people who are planners make “to-do” lists to keep track of the tasks they plan to accomplish, meet deadlines, and schedule time wisely.
A 2003 study explored the financial impacts of a household’s “propensity to plan” and found that those with a higher planning propensity spend more time developing financial plans and that this planning is associated with increased wealth. The authors noted that “planners” may be better able to control their spending, and thereby achieve their goal of wealth accumulation. A very strong relationship was uncovered between people’s propensity to plan and budgeting behavior. Another study found that people who reported frequent planning behavior also performed a variety of positive health and financial practices more frequently.
Additional evidence of the positive impact of planning was found in a study of the retirement preparation of two age cohorts at two points in time. Planners in both cohorts arrived close to retirement with much higher wealth levels and displayed higher financial literacy than non-planners, even after controlling for many sociodemographic factors. The co-authors concluded that differences in planning behavior helped explain why household retirement assets differed and why some people have very little or no wealth close to retirement.
Several organizations have recently conducted research to classify people according to their financial practices in an attempt to identify attributes of financially successful people. Each entity has used a different term to describe a positive constellation of financial behaviors: Financial Well-Being (Consumer Financial Protection Bureau or CFPB), Financial Health (Center for Financial Services Innovation or CFSI), and Financial Capability (FINRA Investor Education Foundation).
All of these groups include goal-setting and future planning in their descriptions of financially successful people. For example, people with financial well-being “are setting goals that are important to them and working toward those goals whether or not they have a formal financial plan,” according to the CFPB, and “planning ahead for predictable life events” (e.g., emergencies, retirement, college) is a key component of financial capability according to the FINRAIEF. The CFSI classified consumers into three financial health tiers: healthy, coping, and vulnerable. The former has three segments (thriving, focused, and stable), all of which have a long-term savings outlook associated with planning behavior.
Want to be successful financially? Become a planner by defining your future goals and planning horizon. A good place to start is with the Rutgers Cooperative Extension Financial Goal-Setting Worksheet. Use it as a tool to determine the timeline and cost of your financial goals and to develop an action plan to achieve them.
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