The evidence seems clear that having a written financial plan helps people stay on track and reach their financial goals, yet only one in four Americans has a plan, according to new research.
As for the top roadblock, Charles Schwab’s Modern Wealth Index study says it’s because they don’t think they have enough money to merit a formal plan, with 45% of those without a written plan saying so. Meanwhile, 20% say getting a financial plan simply never occurred to them and another 20% say they wouldn’t know how to go about getting a plan.
“The idea that financial planning and wealth management are just for millionaires is one of the biggest misconceptions among Americans and one of the most damaging,” says Joe Vietri, senior vice president and head of Schwab’s retail branch network. “Whether people think they don’t have enough money, believe it would be too expensive, or just find the whole concept too complicated, the longer they wait the harder it is to achieve long-term success.”
The index surveyed 1,000 Americans aged 21 to 75, assessing participants’ scores between 1-100 based on how well they manage their money and investments across four factors:
Not surprisingly, those who do have a written financial plan exhibit positive investing and saving behavior. The index shows that those who have written plans are more likely to stay engaged with their investments, be aware of the fees they are paying and have confidence about reaching their goals:
“When we look at the top 10 percentile of overall performers in our Modern Wealth Index, there’s a consistent theme that they’re diligent planners — three in four say they have a written financial plan,” says Terri Kallsen, executive vice president and head of Schwab Investor Services. “It’s like establishing an exercise regimen to get in shape — we need to take the same approach to keep our finances in good health and on track.”
Schwab also asked people to think about personal definitions of wealth in their lives and how much they believe they need to be financially comfortable. Interestingly, two of the top three most popular descriptors for their personal definition of wealth were not about money at all. When asked to focus just on numbers, survey respondents believe it takes $1.4 million to be considered financially comfortable, but to be considered truly “wealthy,” that number increases to $2.4 million.
Millennials Leading the Way
Schwab’s index also finds that Millennials are in many cases more focused on saving, investing and financial planning than older generations:
“What we see with younger investors is they aren’t just saving and investing for retirement, which has been the primary focus of previous generations,” Vietri adds. “They know they need to save for longer-term goals, but they also save and invest to fund near-term passions like travel and life experiences.”
As for the top roadblock, Charles Schwab’s Modern Wealth Index study says it’s because they don’t think they have enough money to merit a formal plan, with 45% of those without a written plan saying so. Meanwhile, 20% say getting a financial plan simply never occurred to them and another 20% say they wouldn’t know how to go about getting a plan.
“The idea that financial planning and wealth management are just for millionaires is one of the biggest misconceptions among Americans and one of the most damaging,” says Joe Vietri, senior vice president and head of Schwab’s retail branch network. “Whether people think they don’t have enough money, believe it would be too expensive, or just find the whole concept too complicated, the longer they wait the harder it is to achieve long-term success.”
The index surveyed 1,000 Americans aged 21 to 75, assessing participants’ scores between 1-100 based on how well they manage their money and investments across four factors:
- goal setting and financial planning
- saving and investing
- staying on track
- confidence in reaching financial goals
Not surprisingly, those who do have a written financial plan exhibit positive investing and saving behavior. The index shows that those who have written plans are more likely to stay engaged with their investments, be aware of the fees they are paying and have confidence about reaching their goals:
| Planners | Non- Planners |
All | |
| Consider tolerance when investing | 82% | 55% | 65% |
| Aware of fees and investment costs | 78% | 44% | 56% |
| Regularly rebalance portfolio | 72% | 31% | 46% |
| Feel 'very confident' about reaching financial goals | 54% | 17% | 30% |
| Measure progress against goals instead of performance | 47% | 41% | 43% |
| Have a diversified portfolio | 22% | 8% | 13% |
“When we look at the top 10 percentile of overall performers in our Modern Wealth Index, there’s a consistent theme that they’re diligent planners — three in four say they have a written financial plan,” says Terri Kallsen, executive vice president and head of Schwab Investor Services. “It’s like establishing an exercise regimen to get in shape — we need to take the same approach to keep our finances in good health and on track.”
Schwab also asked people to think about personal definitions of wealth in their lives and how much they believe they need to be financially comfortable. Interestingly, two of the top three most popular descriptors for their personal definition of wealth were not about money at all. When asked to focus just on numbers, survey respondents believe it takes $1.4 million to be considered financially comfortable, but to be considered truly “wealthy,” that number increases to $2.4 million.
Millennials Leading the Way
Schwab’s index also finds that Millennials are in many cases more focused on saving, investing and financial planning than older generations:
- 31% have a written financial plan compared to 20% of Gen X and 22% of Boomers
- 36% have specific savings goals compared to 25% of Gen X and 17% of Boomers
- Nearly 75% regularly rebalance their investment portfolios compared to 66% of Gen X and 64% of Boomers
- Millennials and Boomers show a similar likelihood of working with a financial advisor (22% and 25%, respectively), while Gen X lags (16%)
- 64% of Millennials believe they will become wealthy in their lifetime
“What we see with younger investors is they aren’t just saving and investing for retirement, which has been the primary focus of previous generations,” Vietri adds. “They know they need to save for longer-term goals, but they also save and invest to fund near-term passions like travel and life experiences.”
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