General
Planning Leads to Greater Wealth
Recent studies conducted by the TIAA-CREF Institute reveal that planning and increased wealth go hand-in-hand. John Ameriks, an economist with the Institute, led a research project that came to this conclusion: individuals who plan have significantly higher wealth than their counterparts who fail to plan.
Ameriks and his fellow researchers worked off of survey responses from TIAA-CREF participants. The survey included a wide-range of questions all designed to gauge the extent to which the participants engaged in planning for their financial future. The results supported the long-held theory that planning does play a role in wealth accumulation. The results can also help to explain the large disparities of wealth accumulation in this country, even among those people with similar incomes and resources at their disposal.
The researchers found a strong correlation between the act of planning and level of wealth. Additionally, the study showed a connection between the amount of time a person spent developing a financial plan and the overall accuracy of his or her estimates. Among a group consisting of retirees, the ones who had engaged in and spent more time planning had fewer negative surprises in retirement than those who did not.
Perhaps most revealing was the indication of just how much planning can impact a person's net worth. Survey participants were asked to respond to the statement, 'I have spent a great deal of time developing a financial plan,' using a number between 1 and 6, where 1 indicated that the participant strongly disagreed and 6 indicated that the participant strongly agreed. The researchers found that a one-point increase in the numerical response from participants corresponded to a full 16% increase in net worth. Based on this information, the difference between a response of 1 and a response of 6 could correlate to an 80% difference in net worth.
The recent study included several other findings as well. It was found that people with a high propensity to plan are more likely to save than those who lack a propensity to plan. Additionally, the act of budgeting seems to have an important relationship to a person's propensity to plan, to that person actually planning, and to saving.
The observation that some people plan while others fail to plan is not a new one. However, now a growing body of research is illuminating the importance of financial education and planning as key components to a financially secure future. It pays to plan, literally.
The ability to plan comes more naturally to some individuals than to others. For some, planning is a pleasurable activity while for others it is downright painful.
At Pleasanton Financial Advisors, we help both eager planners and reluctant ones. We generally tailor our services to provide maximum value by focusing on areas for which the client lacks the time, interest, or expertise to cover adequately. We can take control of parts of the planning effort, or we can consult as needed with a client who enjoys the role of chief financial organizer.