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The Role of Propensity to Plan on Retirement


Savings and Asset Accumulation

Article in Family and Consumer Sciences Research Journal · September 2016


DOI: 10.1111/fcsr.12179

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The Role of Propensity to Plan on Retirement Savings and Asset Accumulation


ABSTRACT

This study used the 2013 Survey of Consumer Finances (SCF) dataset to identify the role of the

propensity to plan on retirement savings and asset accumulation. Based on the theory of

propensity to plan, this study proposed two comprehensive indices for the concept through

principal components analysis. Results from Ordinary Least Squares regressions indicated that

both retirement savings and net worth increased as the level of propensity to plan increased.

This study provides empirical evidence of and implications for the role of the propensity to plan

on retirement savings and wealth accumulation.

Keywords: propensity to plan; retirement savings; wealth accumulation; Survey of Consumer

Finances
INTRODUCTION

Why do households with similar socio-demographic characteristics tend to accumulate

different levels of assets? In the context of the life-cycle hypothesis, differences in asset

accumulation could be explained by diverse preferences when economic and demographic

characteristics of households are controlled. Although preference-based explanations of

differences in wealth accumulation support the theoretical premise, previous studies have found

that differences in preference parameters (i.e., discount factor, rate of risk aversion, bequest

motives) have little empirical value in explaining differential wealth accumulation (Barsky,

Kimball, Juster & Shapiro, 1997; Bernheim, Skinner, & Weinberg, 2001). Some studies have

noted human capital as a major determinant of different saving behaviors. Furnham (1985)

found that the most educated group tended to save more than less educated and intermediated

groups. Similarly, Fisher and Montalto (2010) found that educational attainment had a positive

effect on the likelihood of savings. They also incorporated one’s health condition as an

important human capital on saving behavior: households in poor health were less likely to save

regularly than those in excellent health.

The propensity to plan theory has suggested that different levels of management efforts

in savings have considerable empirical power to explain differential levels of asset accumulation

(Ameriks, Caplin, & Leahy, 2003). One of the main underlying assumptions is that, based on

different aptitudes and attitudes, individual efforts to control the discount on future utilities or

the problem of matching long-term goals with current choices can help improve decisions in

asset accumulation (Becker & Mulligan, 1997). Intentional efforts to plan and relevant

consumer search activities in the decision making process have been found to enhance the

probability of achieving the desired goals by regulating one’s natural inclination for immediate
gratification (Ameriks, Caplin, Leahy, & Tyler, 2007; Baumeister, 2002; O’Donoghue & Rabin,

1999). Households that invest additional effort in their own financial decisions have a greater

chance to review their decisions, which may lead to a higher level of asset accumulation across

households with similar demographic characteristics (Ajzen, 1991; Ariely & Wertenbroch,

2002; Gollwitzer, 1999).

Given these theoretical and empirical considerations, this study is aimed to identify the

role of propensity to plan on financial decisions. Specifically, this study redefined the propensity

to plan more broadly including any effortful self-control or attention either to borrowing or

saving/investment decisions and the incorporation of related attitudes or skills, such as locating

information, seeking professional help, and setting regular rules for saving decisions. In other

words, the propensity to plan reflects management efforts in financial decisions, which are

related to how much effort a household exerts to make a financial decision.

This study expected that households with a greater propensity to plan would accumulate

more wealth and participate more actively in retirement savings than those with a lower

propensity to plan. Previous studies using nationally representative datasets have not used a

direct measurement of propensity to plan to explain its role on household financial decisions.

Studies have focused on theoretical development and justification of patience formation using

macro level findings, such as consumption growth and asset inequality across countries (Becker

& Mulligan, 1997), or conducted micro level survey to measure individual effort (Ameriks et

al., 2003).

This study, therefore, was designed to construct a propensity to plan index created from

variables available in the Survey of Consumer Finances (SCF). The SCF dataset was selected to

estimate empirically the role of the propensity to plan on household financial outcomes, and to
determine whether the empirical results support the theoretical assumptions. This study provides

two contributions into the existing household finance literature. First, this study attempts to

measure the propensity to plan as a comprehensive factor using variables in the SCF that are

related closely to financial management efforts. This comprehensive proxy that measure the

propensity to plan could be applied and extended to various financial contexts. Second, this

research examined the role of the propensity to plan on a household’s financial decisions,

especially for asset accumulation and retirement savings. Empirical results from the 2013 SCF

could provide empirical evidence of practical ways to improve the accumulation of retirement

assets.

REVIEW OF LITERATURE

Propensity to Plan

Goal setting is often defined as a commitment to control time inconsistent preferences

and processes in order to enhance the productivity and satisfaction of goal holders (Gómez-

Miñambres, 2012), including better learning, job performance, mental health, and even saving

decisions (Lee & Hanna, 2015). However, even if people commit to setting a goal, the intention

itself does not guarantee successful goal achievement because there is a discrepancy between

goal setting and actual implementation (Soman & Zhao, 2011). Thus, a distinction needs to be

made between the intention alone and the intention to implement a goal, or propensity to plan,

which can consist of the process of pursuing a goal (Gollwitzer, 1999). According to Gollwitzer

(1999), exercising or forming implementation intentions implies a decision about, and practice

of what and how to select an effective goal-directed behavior in a given situational context in

which people can begin and persist towards achieving a goal. Goal attainment is promoted by
such a planning tendency, which specifies when, where, and how each reaction leads to actual

initiation. Propensity to plan is also seen as a tendency to make efforts to pursue the goal by

using reminders and prompts to reduce possible distractions. This tendency goes beyond goal

setting and can play a role in preparing for any unanticipated interruption in, or conflicts

between, competing goals (Lynch, Netemeyer, Spiller, & Zammit, 2010).

The studies above have indicated that not everyone plans in the same way, or with the

same effort. How much effort people invest in such planning varies among individuals and

contexts. Individual differences in planning, or individual differences in the propensity to plan,

affect the probability of goal achievement. Eventually, these goal-directed intentions can be

converted to less effortful responses that contribute to a greater likelihood of attaining the

desired outcome. Thus, goal-directed behavior can be triggered without conscious effort when

people next encounter that situation or context (Gollwitzer, 1999). This is why propensity to

plan can be both an important short- and long-term vehicle to goal attainment.

Propensity to Plan and Financial Decisions

Propensity to plan has been extended to explain differences in financial status, such as

wealth accumulation and retirement saving decisions. In the realm of personal finance and

economics, the propensity to plan has been defined as a set of attitudes and skills that affect the

way a household addresses the task of financial planning (Ameriks et al., 2003; Ameriks et al.,

2007; Khwaja, Silverman, Sloan, & Wang, 2007). Individual differences in the propensity to

plan refer to individual variability in attitudes and aptitudes that control distractions or impose

constraints. Those who are willing and able to engage actively in managing their financial

affairs, and attend constantly and carefully to their consumption patterns, have a greater
tendency to review and resolve problems such as excessive spending (Ameriks et al., 2003).

The intensity of planning activity was measured as the amount of time spent making

financial plans and was regressed on asset accumulation (Ameriks et al., 2003; Ameriks et al.,

2007; Khwaja et al., 2007). It was also measured as a general tendency to make financial plans

in different time frames, short-term or long-term, including: (1) setting a financial goal; (2)

having a spending plan; (3) practicing self-regulated activity; (4) establishing and reviewing a

budget, and (5) checking emotional comfort or satisfaction with future financial plans (Bearden

& Haws, 2012; Lynch et al., 2010). Propensity to plan was often assumed to have a positive

effect on financial decisions and outcomes; however, findings on the hypothesized relationship

vary depending on studies: some have found that households with a greater propensity to plan

tend to have higher levels of asset accumulation (Ameriks et al., 2003; Khwaja et al., 2007), but

Bearden and Haws (2012) found that the propensity to plan was not related significantly to

levels of contribution to retirement saving, allocation (%), or amount ($).

Propensity to Plan Theory

Propensity to plan is a concept in psychology (Ameriks et al., 2003; Gollwitzer, 1999).

Ameriks et al. (2003) used the concept to structure the propensity to plan theory in financial

decision making to explain the differences in patterns and status of wealth accumulation across

households. For example, differences in asset accumulation have been attributed to various

preferences, such as discount factor, rate of risk aversion, and bequest motives, that affect

different asset accumulation decisions. However, these approaches are limited in their empirical

ability to explain different levels of wealth accumulation when the socioeconomic

characteristics of households are controlled (Barsky et al., 1997; Bernheim et al., 2001).
On the other hand, studies that have used the theory of propensity to plan (Ameriks et

al., 2003; Lynch et al., 2010) have suggested that different levels of management effort in

saving and investment are related to differential levels of asset accumulation. According to the

propensity to plan theory, households have (1) control problems in matching long-term motives

and current actions, and (2) different attitudes and aptitudes valuable in overcoming those

control problems. Thus, the propensity to plan is a reflection of control skills that shows which

people are more willing and able to engage in financial management, which give careful

attention to patterns of spending, and which will be able to notice and overcome problems more

quickly or easily. The propensity to plan theory assumes that a specific set of attitudes and skills

affect household financial planning, and can assist in achieving long-term goals, such as

accumulation of wealth. Thus, the theory refers to the intentional efforts made to reduce the

conflict between future utilities and present satisfaction.

Ameriks et al. (2003) tested the propensity to plan theory empirically by comparing it to

other possible approaches, such as classical preferences parameters, planning, and uncertainty

reduction, and concluded that their theory was better able to explain the differences in wealth

accumulation patterns: households with a high propensity to plan noticed and corrected patterns

or problems of overspending earlier and more easily. Other studies have found that effortful

decision makers are more likely to achieve their long-term goals by reviewing their decision

processes regularly (Ariely & Wertenbroch, 2002; Gollwitzer, 1999).

METHODOLOGY

Data and Sample Selection

This study used the 2013 Survey of Consumer Finances (SCF) sponsored by the Federal
Reserve Board. The SCF dataset has been collected triennially since 1983, and has been known

to provide reliable and detailed information on various aspects of the financial status of

households (Bricker, Kennickell, Moore, & Sabelhaus, 2012). All households included in the

2013 SCF (N=6,015) were used for this study.

Propensity to Plan Variable

Because the SCF does not include a specific question designed to measure an

individual’s propensity to plan in making financial decisions, this study constructed propensity

to plan variables as Huston, Finke, and Smith (2012) proposed an index variable of financial

sophistication in the SCF. However, this study presented more methodological justifications in

addition to the previously suggested reduction technique. In particular, this study discussed how

to deal with non-continuous data for principal components analysis (PCA) and the selection of

the number of principal components.

Propensity to plan is associated with how much a household engages in managing its

financial affairs and attends constantly and carefully to consumption patterns. The propensity to

plan reflects how a household controls its financial resources and practices its control over the

resources for better financial decisions. Thus, identifying the different levels of attitudes and

aptitudes in dealing with borrowing/saving decisions is important to measure and analyze the

propensity to plan as described in the propensity to plan theory.

The level of planning activity includes the amount of time spent or the self-assessed

level of efforts in making financial decisions (Ameriks et al., 2003; Ameriks et al., 2007;

Khwaja et al., 2007) and a general tendency on financial decisions, for example, different

planning horizon (Bearden & Haws, 2012; Lynch et al., 2010). Therefore, what can be included
in the measurement is how much attention is exerted either to borrowing or saving/investment

decisions, or to the type of the incorporation with related attitudes or skills, such as locating

information, seeking professional help, and setting a regular rule for saving decisions.

Based on the definition and related literature on the propensity to plan (Ameriks et al.,

2003; Lynch et al., 2010), a total of eight questions related to a household’s attention to, or

individual management efforts with respect to, borrowing and saving/investment decisions were

included initially: (1) level of efforts in borrowing decisions, (2) level of efforts in

saving/investment decisions, (3) planning horizon, (4) save regularly by putting money aside

each month saving rules, (5) use of financial planner for borrowing, (6) use of financial planner

saving/investment, (7) Internet use for borrowing, and (8) Internet use for saving/investment.

Measurements of the propensity to plan variables are described in the Appendix.

To reduce the number of variables, a principal component analysis (PCA) was

performed. PCA is a data reduction technique designed to summarize the information contained

in a series of measured variables using a smaller number of observed component scores. PCA

was originally developed to find the linear combinations of variables with maximum variance,

thus it is best used with multivariate normal variables (Kolenikov & Angeles, 2009). When the

data are discrete, however, this distributional assumption is practically violated. Considering all

of the questions are discrete, this study used polychoric correlations of the question variables for

PCA. Polychoric correlations are known as the maximum likelihood estimates of the correlation

between the unobserved normally distributed continuous latent variables from observed discrete

variables (Kolenikov & Angeles, 2009; Olssen, 1979). The polychoric correlation coefficients

are calculated from the ordinal transformation of bivariate normal variables and used to provide

unbiased estimates of the correlation between the original bivariate normal variables (Olssen,
1979; Rigdon & Ferguson, 1991). Another point to be considered when using PCA is to select

the number of principal components extracted from it, which is often defined by the common

method of selecting components with eigenvalue greater than one (Vyas & Kumaranayake,

2006). Components associated with eigenvalues less than one are not considered to be stable

since they explain less variability than does a single variable before it is retained in PCA

(Girden, 2001).

The first and second principal components accounted for approximately 60% of the total

variation in the responses to propensity to plan questions. Based on the results of the analysis,

this study used the first two components as indices to measure the propensity to plan factor as

shown in Table 1. The first component gave positive weight to the four question variables (level

of efforts in borrowing decisions, level of efforts in saving decision, planning horizon, and

regular saving rule) and two questions on the level of effort loaded relatively heavily in

measuring this first component. This study considers this component the “effort for financial

decision.” The second principal component that results from the analysis appears to be large for

respondents who find financial planning services to get sources of information and named it as

the “seeking for financial advice.” All these components reflect a household’s attention to, or

individual management efforts on, their financial decisions. A variable in each principal

component with a positive component score is associated with higher propensity to plan, and a

variable with a negative component score is associated with lower propensity to plan.

Two principal components reflect specific aptitudes and attitudes about borrowing and

saving/investment that constitute the ways in which households manage the task of making

financial decisions (Ameriks et al., 2003). As the theory of the propensity to plan posits, asset

accumulation can be captured differently if different levels of propensity to plan exist across
households. This study calculated the factor scores of the propensity to plan above for each

household, and then used a single, aggregated score to generate quartiles of the propensity to

plan. Thus, this research analyzed the relationship between financial outcomes and the level of

propensity to plan.

[Table 1]

Dependent Variables

This study examined the role of the propensity to plan on both retirement savings and net

worth of households. Retirement savings are comprised of IRAs, Keogh accounts, and other

pension accounts from which the owner can make withdrawals or take out loans (e.g., 401k

accounts). The value of the retirement account was transformed by natural log, which measured

the percentage of a household’s total assets that have been invested in a designated retirement

account.

Net worth was calculated by subtracting the total value of household liabilities from total

household assets. Household assets include both financial assets, such as checking and savings

accounts and other financial investments, and non-financial assets, such as vehicles, residential

real estate, other real estate, and business equity. Household liabilities include all of the

liabilities from mortgages, home equity loans, vehicle loans, and credit cards.

Many studies have used a log transformation on highly skewed distributions. However,

use of the log transformation is not appropriate for non-positive values, because non-positive

values are not defined in a log transformation (Kim, 2014). Instead, this study used an inverse

hyperbolic sine (IHS) transformation to handle properly a number of households in the dataset

that had negative values of net worth. The IHS transformation approximates the natural
logarithm, but is defined for both positive and non-positive values (Burbidge, Magee, & Robb,

1988; Pence, 2006). The transformation of net worth can be represented as follows:
1⁄
𝑆𝑖𝑛−1 (𝜃𝑤) = 𝜃 −1 ln(𝜃𝑤 + (𝜃 2 𝑤 2 + 1) 2 )/𝜃

where:

𝜃 = a scaling parameter

w = net worth of households

The IHS transformation of net worth using a value of 𝜃 =1 can be simplified as follows (Cobb-

Clark & Hildebrand, 2006; Maynard & Qiu, 2009):


1⁄
𝑆𝑖𝑛−1 (𝑤) = ln(𝑤 + (𝑤 2 + 1) 2)

Control Variables

In addition to propensity to plan variables, various sociodemographic variables were

included in the model. Following previous studies on propensity to plan (Ameriks et al., 2003;

Khwaja et al., 2007) and retirement adequacy (e.g., Kim & Hanna, 2015), age of the respondent,

the highest level of education (less than high school, high school, some college, bachelor’s

degree, post-bachelor’s degree), employment status (salaried workers, self-employed, retired,

not working), marital status (married, single male, single female, partner), race/ethnicity (White,

Black, Hispanic, Asian/others), presence of children under 18, and log of income were selected.

Categories and the reference category of each variable are presented in Table 3.

Analyses

To analyze factors related to the amount of retirement assets and net worth, Ordinary
Least Squares (OLS) regression was utilized. The repeated-imputation inference (RII) technique

was used to better estimate the true variance (Montalto & Sung, 1996; Lindamood, Hanna & Bi,

2007). Additionally, this study incorporated methodological concerns related to the inclusion of

complex sampling design information into analyses addressed by Nielsen and Seay (2014).

Shin and Hanna (2016) discussed comparisons of weighted and unweighted SCF analyses using

bootstrap weights, and suggested that the model with population weights and bootstrapping

provides more efficient estimate for OLS regression. Therefore, the multivariate analyses were

weighted with both population and bootstrap weights.

𝑌𝑖 = 𝛽0 + 𝛽1 𝑥1 + 𝛽2 𝑥2 + 𝛽3 𝑥3 + ⋯ + 𝛽𝑖 𝑥𝑖 + 𝜀𝑖 = 𝑋𝛽 + 𝜀𝑖

where:

𝑌𝑖 = the logarithm of retirement assets (study 1), the IHS transformation of net worth (study 2)

for ith household

𝑋= a vector of a household’s characteristics, such as propensity to plan indices and other control

variables

𝛽 = a vector of the coefficients to be estimated

𝜀𝑖 = the error term, which is independent and identically distributed

RESULTS

Descriptive Results

Table 2 shows the descriptive statistics for the selected variables of two indices of

propensity to plan by quartiles. Net worth increased monotonically with the level of propensity
to plan. In particular, mean net worth was highest in the top quartile of the two propensity to plan

variables ($923,955, and $873,534, respectively), and lowest in the bottom quartile ($227,480,

and $377,517, respectively). Similarly, those in the top quartile of the two propensity to plan

variables had the highest amount of mean retirement assets and mean household incomes. The

mean age of the respondents in all quartiles of propensity to plan variables ranged from 45.9 to

55.8 years.

The household demographic characteristics for effort in financial decision and search for

financial advice differed slightly. Many households in the highest quartile of effort invested

completed a bachelor’s degree or higher (49.0%), were married (57.0%), salaried workers

(58.6%), White (74.3%), and had a child under 18 (45.4%), while many households in the

lowest quartile of effort invested completed a bachelor’s degree or higher (16.3%), were married

(36.9%), salaried workers (45.5%), White (65.7%), and had a child under 18 (37.2%). On the

other hand, many households in the highest quartile of seeking financial advice completed a

bachelor’s degree or higher (34.5%), were married (47.7%), salaried workers (47.9%), White

(76.2%), and had a child under 18 (34.5%), while many households in the lowest quartile of

seeking financial advice completed a bachelor’s degree or higher (35.6%), were married

(51.2%), salaried workers (60.3%), White (68.8%), and had a child under 18 (50.0%).

[Table 2]

Multivariate Results

Study 1. Propensity to plan and retirement assets

The first three columns in Table 3 present the results of OLS regression analyses of the

natural log of the amount of retirement assets. Both of the index variables of propensity to plan
were related positively to the amount of retirement assets, when other household characteristics

were controlled. Specifically, an increase of one unit in the level of effort in financial decision

yielded a 89.5% increase in retirement assets, while an increase of one unit in the source of

financial information led to a 121.6% increase in retirement assets. With respect to control

variables, age and income also were related positively to the amount of retirement assets. A one-

year increase in age increased the amount of retirement assets by 4.5%. Similarly, a 1% increase

in household income yielded a 1.6% increase in retirement assets. The amount of retirement

assets increased gradually as the level of education increased. Further, salaried workers had

higher amounts of retirement assets than did those in other categories of employment, and

married couples and Whites had higher amounts of retirement assets than did the other categories

of each variable.

Study 2. Propensity to plan and net worth

Results from the OLS regression of the IHS transformed net worth showed a similar

pattern to that for retirement assets (last three columns in Table 3). Similar to the results of Study

1, both of the indices of propensity to plan were related positively to the amount of retirement

assets, when other household characteristics were controlled. An increase of one unit in the level

of effort in financial decision and the source of financial information yielded a 73.7% and

108.1% increase in a household’s net worth, respectively. A one-year increase in age and 1%

increase in income yielded 12.8% and 1% increases in net worth, respectively. With respect to

other variables, households with heads who completed some college degree had a lower net

worth compared to those with less than a high school diploma; further, married and White

respondents had greater net worth than did other types of households in each variable. Self-
employed households and those with a dependent child under age 18 had higher levels of net

worth than did the reference households (i.e., salaried workers and no dependent child under 18,

respectively).

[Table 3]

Explanatory power of propensity to plan

This study assumed implicitly that the inclusion of propensity to plan variables would

increase the explanatory power of one’s savings behavior beyond that of basic household

characteristics. To test the additional explanatory power that the inclusion of propensity to plan

variables provides, this study constructed a hierarchical model for each study, as shown in Table

4.

In the Reduced Model, all explanatory variables, including demographic, economic

status, and financial attitude variables were included. In the Full Model, propensity to plan

variables were added to Model 1. This study performed an F-test, with the null hypothesis that

the regression coefficients of propensity to plan variables are zero. For study 1 (retirement

assets), when propensity to plan variables were added to the Full Model, F = 242.65, p < 0.0001,

indicating that this study can reject the null hypothesis. Similarly, F = 185.71, p < 0.0001 in the

Full Model of Study 2 (net worth). Overall, the results implied that the explanatory power of

both regression models of retirement savings and wealth accumulation increased when

propensity to plan variables were included.

[Table 4]

DISCUSSION
This study proposed two new indices for propensity to plan and employed a principal

components analysis (PCA) with the 2013 SCF. The different intensity of investing effort and

checking their decisions were measured to determine how much effort a household invests in

making financial decisions (Ameriks et al., 2003; Ameriks et al., 2007; Khwaja et al., 2007), in

addition their general attitude about financial decisions, such as planning horizon (Bearden &

Haws, 2012; Lynch et al., 2010). The results of empirical tests of retirement savings and asset

accumulation indicated that the propensity to plan is an important predictor of the success of

financial decision-making. In particular, households with higher levels of propensity to plan,

such as intensive effort in borrowing and saving/investing decisions, or seeking financial advice,

tended to invest more assets in their retirement accounts and accumulated more wealth as a

result. One of the indices, seeking financial advice, reflected the importance of sources that can

enhance and guide the direction of their efforts. Compared to easy-to-access internet information,

households that used financial planning services loaded a positive weight to the propensity to

plan, which was related as well to higher levels of net worth and retirement assets. Discussion

about locating information needs to be broadened to emphasize the importance of access to the

right information. Not only how much effort they exert, but also the type of effort invested in

locating information determined a household’s financial status at present, and in what direction

they were proceeding. The significance of the propensity to plan on different levels of retirement

and asset accumulation implied that households behave differently with respect to financial

resource management, and this difference in management effort plays an important role in

accumulating wealth across households with similar demographic characteristics (Ameriks et al.,

2007; Baumeister, 2002).

Further, because there was a difference between the intention to implement a financial
plan and the action required to do so, households that intend to implement a plan do not

necessarily initiate the actions required (Gollwitzer, 1999). Thus, to reduce the potential gap

between intention and action, and to measure the role of the propensity to plan effectively, this

study used questions that incorporated actual behavior and efforts, rather than stated intentions or

goals. It was evident that the propensity to plan can be viewed as a comprehensive and voluntary

response or willingness to make better financial decisions. The findings provided empirical

evidence of the positive role of the propensity to plan, in the form of behavioral effort and

implementation, on asset accumulation, as suggested by the propensity to plan theory.

There is a growing demand for the ability to manage one’s retirement plan and asset

accumulation more effectively. With the recent shift from defined benefit to defined contribution

pension plans, workers have become more responsible for managing their retirement savings.

However, many households seem to struggle to make disciplined decisions to save for retirement

and therefore manage their savings inadequately. More than half of workers (54%) had

discrepancies between their subjective perceptions and objective assessments of their retirement

resources (Kim & Hanna, 2015). Apart from debates about rationality or decision-making

problems, such substantial differences imply the need for various interventions that may help

households avoid consequent failure in their retirement planning (i.e., insufficient retirement

resources).

One of the suggestions is that through training programs that address practical aspects

and offer guides to investing conscious effort in financial decision-making, households can

develop and practice a higher level of propensity to plan. Such programs will be most beneficial

for households employed currently that need to establish and monitor their own retirement plans.

For example, employer-sponsored or supported programs that provide employees with regular
consultations (e.g., one-on-one vs. group consultations, voluntary vs. mandatory sessions) can

expand employees’ ability to discuss retirement with a professional, review their accounts, or

obtain information about their plans. Similarly, employees can monitor their plans regularly

through consultations with financial professionals in the workplace, all of which can increase the

propensity to plan as an important retirement savings vehicle that may foster adequate

preparation for retirement.

When households seek financial information and advice, obtaining the right information

from financial planners had a significant positive influence on the propensity to plan, which also

led to positive financial outcomes. If financial service professionals inform and guide households

properly, they will build and maintain retirement assets and net worth more effectively. With the

information overload on the internet, households can access many different types of information

related to daily financial matters easily. However, increased access itself does not necessarily

guarantee the success of their decisions, because they might have limited understanding of the

information or limited ability to determine which information is reliable.

This study can be extended in multiple ways, given the fact that the comprehensive proxy

of propensity to plan has not been investigated to date with a nationally representative dataset.

The findings and proposed measures of propensity to plan can be tested as an important indicator

of other financial behaviors in the field of household finance, such as savings, investment, credit

use, and borrowing decisions. In addition, this study was designed primarily to test the effect of

propensity to plan. Thus, identifying contributing factors related to propensity to plan itself is

another important subject for future work.


LIMITATIONS

While this study contributed to the existing literature in household finance, this study

must note two limitations. Because the SCF dataset has no direct measurement of the propensity

to plan, this study proposed a comprehensive proxy for that variable, which included certain

aspects of management efforts. Although this study deduced the propensity to plan according to

a methodological justification, the propensity to plan variables may not have captured all aspects

of financial management effort. Future study will extend the realm of the propensity to plan by

including wider aspects of efforts in financial resource management.

Further, this study tested the effect of propensity to plan on retirement assets and net

worth based on cross-sectional design. This may raise significant concerns, as the propensity to

plan may reasonably be expected to vary over time. Although this study assumed implicitly that

the propensity to plan is consistent over time, ideally, longitudinal datasets would allow the

researchers to conduct more sophisticated analyses. This longitudinal framework also would

provide benefit of dealing with potential endogeneity problem on the empirical relationship (i.e.,

use of financial services and retirement assets or net worth). Future research based on

longitudinal datasets might provide additional insights into the relationship between propensity

to plan and financial outcomes with the additional concern of potential endogeneity issue.
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Table 1. Results from the principal component analysis of propensity to plan, 2013 SCF

Effort in Search for


Variable Financial Financial
Decision Advice
Level of efforts in borrowing decisions 0.3981 -0.1671
Level of efforts in saving/investment decisions 0.4157 -0.0886
Planning horizon 0.2615 0.2094
Save regularly by putting money aside each month saving
0.2917 0.0663
rules
Use of financial planner saving/investment 0.3340 0.5426
Use of financial planner for borrowing 0.3493 0.4958
Internet use for saving/investment 0.3757 -0.4491
Internet use for borrowing 0.3747 -0.4173
Eigenvalue 2.9159 1.6204
Proportion of variance explained by component 0.3645 0.2025
Note: Total sample size = 6,015
Table 2. Descriptive statistics of selected household characteristics, 2013 SCF

Effort in Financial Decision Search for Financial Advice


Total 4th Quartile 3rd Quartile 2ndQuartile 1st Quartile 4th Quartile 3rd Quartile 2ndQuartile 1st Quartile
Variables
Sample (N=1,714) (N=1,526) (N=1,473) (N=1,302) (N=1,719) (N=1,424) (N=1,468) (N=1,404)
Mean age of
51.2 49.2 49.5 50.9 55.0 55.8 53.2 49.8 45.9
respondent
Education (%)
Less than high
11.0 3.98 8.9 12.9 18.3 10.1 13.9 12.1 7.9
school
High school
31.3 21.4 28.0 33.2 42.7 32.1 35.5 30.6 27.1
diploma
Some college 25.6 25.8 26.1 27.5 22.8 23.4 22.6 26.9 29.4
Bachelor 19.6 27.9 22.4 18.1 10.2 20.7 16.0 19.7 22.2
Post-bachelor 12.5 20.9 14.6 8.3 6.1 13.8 12.0 10.7 13.4
Marital status (%)
Married 47.6 57.0 51.0 45.5 36.9 47.7 43.2 48.2 51.2
Single male 15.4 12.2 14.7 16.1 18.4 16.3 15.9 13.8 15.5
Single female 28.0 21.9 24.8 29.1 36.2 28.7 31.4 28.8 23.1
Partner 9.0 8.9 9.5 9.3 8.6 7.4 9.5 9.2 10.2
Employment status (%)
Salary workers 54.5 58.6 59.1 54.8 45.5 47.9 51.8 58.0 60.3
Self-employed 8.7 11.4 9.2 8.5 5.7 9.8 7.6 7.3 10.1
Retired 20.2 16.4 16.8 20.9 26.7 27.4 23.2 17.6 12.7
Not working 16.6 13.6 59.1 15.8 22.2 14.8 17.5 17.2 17.0
Effort in Financial Decision Search for Financial Advice
Total 4th Quartile 3rd Quartile 2ndQuartile 1st Quartile 4th Quartile 3rd Quartile 2ndQuartile 1st Quartile
Variables
Sample (N=1,714) (N=1,526) (N=1,473) (N=1,302) (N=1,719) (N=1,424) (N=1,468) (N=1,404)
Race/ethnicity (%)
White 70.1 74.3 72.1 68.2 65.7 76.2 68.0 67.5 68.8
Black 14.6 12.2 13.9 16.5 15.9 11.2 17.0 15.0 15.3
Hispanic 10.6 7.3 9.0 11.7 14.7 9.1 10.8 12.6 10.1
Asian/Others 4.7 6.2 5.0 3.7 3.8 3.6 4.2 4.9 5.9
Presence of a
child under age 42.6 45.4 44.5 43.4 37.2 34.5 37.9 47.9 50.0
18 (%)
Mean household
86,596 132,062.3 93,275.5 72483.4 48,339.8 107,320.8 80,607.0 77,829.7 80,742.8
Income ($)
Mean retirement
99,027 188,402.3 109,719.2 67,856.4 29,716.3 151,368.4 82,151.8 80,676.5 82,105.1
asset ($)
Mean household
528,421 923,955.0 548,046.7 412,269.9 227,480.1 873,533.5 447,660.4 416,578.1 377,517.0
net worth ($)
Note: Total sample size = 6,015. Weighted proportion
Table 3. Ordinary Least Squares (OLS) regression results, 2013 SCF

Study 1: Natural log of the amount of


Study 2: IHS transformation of net worth
retirement assets
Standard Standard
Variables Coefficient P-value Coefficient P-value
Error Error
Propensity to plan
Effort in financial decision 0.8945 0.0636 <.0001 0.7368 0.0628 <.0001
Search for financial advice 1.2156 0.1191 <.0001 1.0808 0.1106 <.0001
Age of respondent 0.0445 0.0055 <.0001 0.1283 0.0067 <.0001
Education (Reference: Less than high school)
High school 1.8411 0.2009 <.0001 0.0430 0.2634 0.870
Some college 2.8691 0.2201 <.0001 -0.6312 0.2354 0.007
Bachelor degree 4.9346 0.2763 <.0001 -0.2075 0.3220 0.519
Post-bachelor degree 5.6257 0.3701 <.0001 0.0555 0.3532 0.875
Marital Status (Reference: Married)
Single male -2.3099 0.2241 <.0001 -0.8578 0.2151 <.0001
Single female -1.6276 0.1892 <.0001 -1.7541 0.2129 <.0001
Partner -1.3807 0.2671 <.0001 -0.5662 0.2859 0.048
Employment status (Reference: Salary workers)
Self-employed -2.2858 0.2168 <.0001 1.0738 0.2374 <.0001
Not working -3.4067 0.1823 <.0001 -1.0102 0.2482 <.0001
Study 1: Natural log of the amount of
Study 2: IHS transformation of net worth
retirement assets
Standard Standard
Variables Coefficient P-value Coefficient P-value
Error Error
Retired -3.0320 0.2367 <.0001 -.3670 0.1844 0.047
Race/Ethnicity (Reference: White)
Black -1.3316 0.2001 <.0001 -2.8414 0.2289 <.0001
Hispanic -2.1609 0.2115 <.0001 -0.9642 0.2759 <.0001
Asian and other -1.2599 0.2810 <.0001 0.2508 0.3667 0.494
Presence of Children under 18
-0.2086 0. 1438 0.1470 0.5164 0.1385 0.004
(Reference: No)
Log of income 1.6324 0.1845 <.0001 0.9531 0.1813 <.0001
Intercept -19.9224 1.8043 <.0001 -8.5715 1.5447 <.0001
Model Fit
Adj. R-square 0.3860 0.2269
F-value 209.44 (<.0001) 99.04 (<.0001)
Note: Total sample size = 6,015. RII analysis with population and bootstrap weights.
Table 4. Model fit: Reduced model versus Full model, 2013 SCF

Study 1: Natural log of the Study 2: IHS transformation of


amount of retirement assets net worth
Reduced model Full model Reduced model Full model
Adj. R-square 0.3620 0.3860 0.2113 0.2269
F-value 212.69 209.44 100.46 99.04
F-test for
propensity to - 242.65 (<.0001) - 185.71 (<.0001)
plan induces
Note: Total sample size = 6,015. RII analysis with population and bootstrap weights
Appendix. Variables related to the propensity to plan in the Survey of Consumer Finances

Variable Questionnaire
“When making major decisions about borrowing money or
obtaining credit, some people search for the very best
(1) Level of efforts in terms while others don't. On a scale from one to five, where
borrowing decisions one is almost no searching, three is moderate searching, and
five is a great deal of searching, where would (you/your
family) be on the scale?”
“When making saving and investment decisions, some people
shop search for the very best terms while others don't. On a
(2) Level of efforts in
scale from one to five, where one is almost no searching,
saving/investment decisions
three is moderate searching, and five is a great deal of
searching, where would (you/your family) be on the scale?”

“In planning or budgeting your (family's) saving and


(3) Planning horizon spending, which of the time periods listed on this page is
most important to you (and your family living here)?”
(4) Save regularly by putting
money aside each month “Save regularly by putting money aside each month”
saving rules
“What sources of information do you (and your family) use to
(5) Use of financial planner
make decisions about saving and investments? Do you get
saving/investment
advice from financial planner?”

“What sources of information do you (and your family) use to


(6) Use of financial planner
make decisions about borrowing or credit? Do you get advice
for borrowing
from financial planner?”

(7) Internet use as a source of “What sources of information do you (and your family) use to
information for borrowing make decisions about saving and investments? Do you use
decisions information from the internet?”

(8) Internet use as a source of “What sources of information do you (and your family) use to
information for make decisions about borrowing or credit? Do you use
saving/investment decisions information from the internet?”

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