This Valentine’s Day, singles looking for happily ever after should give themselves a written financial plan — something they’re about half as likely to do as couples — to get a boost in life. savings and other benefits.
That’s according to a new research report from Hearts & Wallets, the firm specializing in consumer, investment and financial advice.
As noted in the report, four in five US households (82%) plan to achieve long-term financial goals, with half (54%) having a plan. But only a third of households with plans report having written plans.
Benefits of diets
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 the 18 financial tasks tracked by Hearts & Wallets than consumers without a plan, she said.
The biggest differences observed are:
- Determine retirement income withdrawal strategies (a difference of 13 percentage points)
- Choose the right investments (a difference of 12 percentage points)
- Balancing short-term and long-term financial goals (a difference of 11 percentage points)
- Have a higher savings rate. Nationally, more than half (52%) of households with written plans save 10% of their income or more, according to Varas. In comparison, more than 1 in 3 households (36%) with unwritten plans save 10% or more of their annual income. For non-planning households who think of goals but do not have a plan, the most common behavior for them is to save modestly at 1% to 5% of income (29%). And about a quarter of these households do not save at all.
- Have 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 are on track than households without plans (37% vs. 17% nationally), Vargas said.
–Plan owners feel confident making investment and savings decisions. Households with plans are 20 percentage points more likely to feel confident than households without plans (43% vs. 23%).
–Plan owners have better-allocated investment portfolios. Households with plans avoid the extremes in cash and equity allocations seen among households that don’t think about goals. “For example,” Varas pointed out, “nationally, households without a plan allocate 35% of their assets to investing in cash, compared to 14% for households with a written plan.”
–Plan holders have higher asset-to-income ratios. Households with written plans have an average asset-to-income ratio of 4.9, compared to just 1.3 for households without a plan.
Plan ownership is higher in relationships
The report also pointed out that more Americans in couples have financial plans than those who are single, divorced or widowed.
“Domestic partnership naturally involves more conversations about money, especially short-term spending,” Varas explained. “About 40% of couples actively engage in long-term planning, such as retirement. There are others who can inspire planning for couples and singles, especially among affluent households.”
In married/coupled households with assets over $2 million, advisors are more likely to be planning inspiration than partners (27% partners vs. 37% advisors), found -she adds.
Single/divorced/widowed consumers with over $2 million are also less likely to be inspired by advisors than couples, although 29% of these affluent singles cite an advisor as an influence.
“For advisors, offering written plans can be a great way to increase partnership for Americans of all relationship statuses,” Varas said.
Persuading Americans to have written plans
Advisors can take a few steps to persuade consumers to write down their plans, Varas said. Consumers who make plans on their own tend to have unwritten plans, she pointed out.
They often see themselves as inexperienced or experienced investors. Software/tools and collaboration with third parties, such as companies or employer-sponsored programs, are more likely to result in written plans.
Advisors also need to understand the different motivations and resources consumers use to think about financial goals and plans, Varas added. For example, consumers who are thinking about goals — but don’t have a plan — might articulate goals and desired timelines.
Those who say they have an unwritten plan might commit elements of their plan to writing with the encouragement of a counselor.
“Think younger than you used to be,” Varas said. “Young consumers, especially those between the ages of 21 and 27 who have reached a level of financial stability, are ripe for projects. New parents are also particularly open to planning.
“Most importantly,” she said, “be very clear in communicating the wide range of benefits of a plan. Emphasize that the plans are linked to higher savings rates, better asset allocation and a better sense of financial security.
It’s sometimes difficult to talk to low- to middle-income consumers about the need for a financial plan when they often use most of their income for day-to-day expenses. In approaching this group, advisors may wish to supplement asset-based pricing with options to pay more support planning by offering paid software or programs, Varas suggested.
Such options can be combined with timed messages to encourage these consumers to stick to their plans.
Additionally, she added, many fintech companies are trying to fill this gap, and employer-sponsored plans can be leveraged to build plans for these groups. Young consumers, in particular, use workplace programs for planning.
The report, “The Power of Planning: Proven Benefits That Transform Consumers’ Financial Outcomes,” analyzes the state of financial goal planning among U.S. households and draws on the quantitative investor database Hearts & Wallets.
Ayo Mseka has over 30 years of experience reporting on the financial services industry. She was previously editor of NAIFA’s Advisor Today magazine. Contact her at [email protected]