Hanna, S. (1997).
The Backward Art Of Managing Money. Financial Counseling and Planning,
The Backward Art Of Managing Money
In the early years of this
century, the eminent economist Wesley Mitchell (1912) contrasted the expertise
increasingly being applied to business decisions to the lack of expertise
in many households in spending money. Mitchell stated:
Perhaps we may solve
the problem by developing a professional class of Doctors of Domestic Science,
who will be employed in organizing households, giving expert counsel to
the newly wed, holding free dispensaries of advice for the indigent, assisting
in divers municipal ventures in welfare work, and the like.
Although the Cooperative Extension
Service attempts to do what Mitchell proposed, its resources are not sufficient
for the task today. Many consumers possess the art of spending money, although
not always wisely. Clearly, though, many consumers are lacking in the art
of managing money. A new record for bankruptcy filings in the United States
was set in 1997 (American Bankruptcy Institute, 1998). Merrill Lynch’s
(1996) Baby Boom Retirement Index claims that Americans are only saving
36% of what they need to maintain their standard of living in retirement.
The personal savings rate in the United States in the fourth quarter of
1997 was about 3.8% (Bureau of Economic Analysis, 1998).
The Association for Financial
Counseling and Planning Education exists to help address the problems households
have in managing money, by improving the education of financial professionals,
and by supporting research through its annual conference and this journal.
This issue of the journal includes two articles related to how individuals
might get help: through the workplace (Garman) and in seeking a financial
planner (Bae & Sandager). The latter article includes a result that
should please those of us with graduate programs: almost half of the consumers
surveyed preferred a financial planner with a graduate degree.
All nine of the articles
in this issue have something to do with retirement, in terms of planning,
investing, or education. Clearly retirement is important, but many households
have more immediate financial concerns. I would like to see more manuscripts
submitted on budgeting and counseling issues.
There are three articles
with a focus on risk tolerance: Hanna and Chen, Wang and Hanna, and Embrey
and Fox. This is an important topic, especially with the increasing need
for workers to choose their retirement funds. The Embrey and Fox article
is notable because of its analysis of single men and women, thus allowing
for analysis of a pure gender effect on risk tolerance.
I have included a little
essay of my own, titled What Should Every Student Know? I hope to
encourage future contributions on this theme. It would be particularly
useful to have an essay on what students of financial counseling should
In 1996, I started putting
some supplementary material on the journal web site. With this issue, several
articles have supplementary materials, such as a survey instrument, statistical
results, and additional graphs.
There were 18 regular articles
published in Volume 8. Since Volume 7, we have received 73 submissions.
Clearly, reviewers and authors have been working hard to make this a useful
and relevant journal. Given the need to improve the backward art of managing
money, this is an important task.
American Bankruptcy Institute
(1998, March 2). Bankruptcies increased by 19 Percent in 1997 to a record
high of 1.4 million filings. Press release. [WWW document] URL:
Bureau of Economic Analysis
(1998, February 27). Press release. [WWW document] URL:
Merrill Lynch (1996). The
1996 Merrill Lynch Baby Boom Retirement Index. [WWW document] URL:
Mitchell, W. C. (1912). The
backward art of spending money, American Economic Review 2,
(2), 269-281. (Available on the web through the URL