October 1996 Issue of AFCPE Newsletter

AFCPE Newsletter. Vol. 13, No. 4, October 1996

Table of Contents
Financial Planning Practitioners and Educators
Arrive at a Consensus Regarding Measures of
Financial Well-Being.

Practitioner’s Corner

Consumer Credit Counseling Services
Extension Service

Author’s Corner
Literature Review


Bulletin Board


Financial Planning Practitioners and Educators
Arrive at a Consensus Regarding Measures of
Financial Well-Being.
Karrol Kitt, Sue Alexander Greninger, & Vickie Hampton The University of Texas at Austin

Agreement is found! This
could be the byline for a Delphi
research project funded by the
Certified Financial Planner Board
of Standards that addressed the
question, “Is there consensus
between financial planning practitioners and educators regarding
benchmarks for measuring financial well-being of individuals/
families?” A random sample of
practitioners and educators
(AFCPE members ) were asked to
identify and refine useful ratios
and benchmarks for measuring
financial well-being. Respondents were asked to respond to
three survey rounds. Findings
from earlier surveys were reported to respondents, thus
providing them an opportunity to
reevaluate their original answers.

The final round was completed
by 85 practitioners and 71
educators, a 60% response rate.
Practitioners were primarily male
(77%) and the average age was 47.
Almost all of the planners were
CFP licensees (94%) and two-thirds received at least part of their
income from commissions. The
most common educa tion level for
planners was a bachelor’s degree or less (55%).
Educators were primarily female
(60%), and the average age was
49. Forty-four percent of
educators were CFP Licensees, but
only 3% received any income from
commissions. A majority of
educators (58%) held a doctorate
or juris doctorate degree.

Benchmark values for seven
areas of personal finance
(liquidity, savings, inflation
protection, asset allocation, tax
burden, housing expenses, and
insolvency/credit) were
determined. Consensus was found
for 20 of the 22 benchmarks. The
preferred ratios tended to be less
complex and more easily measured
than those reported in previous

Ratios were developed to
measure both liquidity and
savings. Of the two liquidity
ratios developed in the study,
liquid assets รท money expenses,
had a median suggested ratio of
300%, or three times monthly
expenses. For the second liquidity
ratio, experts agreed that liquid
assets should be 50% of current
debts. The median recommendation for savings was 10% of
either gross or net income.

Three benchmarks each were
developed to assess asset
allocation and inflation
protection. Two of the asset
allocation ratios looked at the
relationship of liquid assets and
net investment assets to net worth.
Experts agreed that liquid assets
should comprise 14% of net worth
and net investment assets should
be 50% of net worth. The one
asset allocation ratio where
agreement was not found dealt
with the percentage of an
investment portfolio that should be
in foreign investments. Planners
recommended 15% while
educators preferred 10%.

Three ratios were developed to
measure inflation protection.
Experts agreed that change in net
worth and change in investment
assets should both equal two times
the inflation rate. For the third
inflation protection ratio, experts
advised that equity investments
should comprise 60% of total

In developing tax burden ratios,
two gross income levels ($31,000
and $100,000) and two tax
definitions (payroll taxes and
payroll taxes + property taxes)
were used. The four ratios
advocated followed a logical
sequence. At the $31,000 income
level, experts felt that payroll taxes
that were 20% of gross income and
payroll + property taxes that were
25% of gross income were
reasonable tax burdens. At the
higher income, reasonable tax
burdens were increased by 10
percentage points for each tax
definition, 30% and 35%

The second ratio was not found
in the housing expense area.
Planners felt renter’s expenses of
31% of gross income were
reasonable while educators
advocated a lower ratio of 28%.
Agreement was found regarding
homeowner’s expenses as a percent
of gross income. The experts felt
that median homeowner’s expenses
of 35% were reasonable.

Insolvency and credit ratios were
examined with respect to both
“reasonable” and “danger-point”
concepts for common debt ratios.
The ratios were non-mortgage
debt payments, total debt
payments, and total expenses in
relation to after-tax income.
Experts recommended as “reasonable” a 10% median for non-
mortgage debt payments and a
median of 20% as the “danger-point” for this measure. When
total debt payments were
reviewed, experts felt a median of
35% was “reasonable” and 45%
was the “danger-point.” For the
final debt ratio, total expenses in
relation to after-tax income,
experts suggested 80% as a
“reasonable” ratio and again added
10% percentage points for a
“danger-point” of 90%.

More complete findings,
including the perceived usefulness
of various ratios, greater detail
about the benchmarks, and a
financial well-being profile, are
reported in a recent issue of
Financial Services Review

, 5(1):
57-70, 1996, published by the
Academy of Financial Services.

Practitioner’s Forum

Consumer Credit
Counseling Services

Educating the Community

About Money Management

The member agencies of the
National Foundation for Consumer
Credit recognize that
learning to handle money wisely is
as “important as learning how to
read.” NFCC educators teach
students, employees or any
organinization’s constituents how
credit works and how to budget so
that they may become financially

Agencies, many of which are
known as Consumer Credit Counseling Service, have programs for
all ages. Elementary students are
taught about basic money concepts. High school students learn
about renting an apartment, buying
a car, or establishing credit and
using it wisely. Adult groups are
provided instruction on budgeting
and credit, and if requested, how
to handle credit problems.

In visits to schools, businesses
and community groups, the NFCC
provides educational materials for
the use of the agency’s education
director. Recently, the
organization developed Your
Ticket to Ride
, a comprehensive
educational program designed to
help prepare high school students
for their first car purchase.
Created to instruct students about
how to budget and make wise
choices for using credit through
the car buying process, the five
unit resource teaches teenagers
how to make the appropriate

With the increase in NFCC
member locations, its public
information and education
programs have grown dramatically over the past decade. Every
year education directors make
more that 40,000 presentations to
community groups. In addition to
community education NFCC
agencies provide individual
budget and credit counseling.

Members serve individuals and
family in nearly 1200 communities in the United States, Puerto
Rico and Canada with locations in
almost every community with a
population greater than 50,000.

Local agencies can be located by
calling (800) 388-2227 and
identified through the NFCC
member seal.

Judith Cohart

National Foundation for Consumer Credit,
Silver Spring, MD

Extension Service

Improve Household Finances
Through Voluntary

At the recent University of
Maryland “Seminar For Financial
Counseling Professionals,” a
speaker from the Seattle-based
“New Road Map Foundation”
discussed improving household
finances through “voluntary
simplicity.” The foundation was
started by Joe Dominguez and
Vicki Robin, authors of the book
Your Money or Your Life.

The premise of the book, and the
foundation, is that one’s quality of
life can be improved through
decreased consumption and work
hours required to finance
spending. Persons who
“downshift” their lives often report
reduced stress levels due to a less-hectic lifestyle and more time for
hobbies and family activities.
Household expenses and debt
levels are also reduced in the

According to the New Road Map
Foundation, items that were
considered luxuries in the past are
often deemed “essentials” today.
Many people who supposedly
“have it all” report that they are
unhappy with their hectic life-
styles. Three out of four purchases made today at malls are
unplanned. Shopping consumes
six hours a week on average.

The foundation representative,
Monica Wood, discussed several
key concepts from the book. The
first is that money should be
viewed as something people spend
their “life energy” on. For
example someone earning $600
weekly ($31,200 a year) may
really earn only $300 weekly after
taxes, commuting, and other
expenses like clothing, meals, and
child care are subtracted.

The person earning the $600,
who has a 40 hour work week,
might really “work” 60 hours.
Wood added on hours for commuting, dressing, and other work-related activities. She then divided
$300 (“real” earning) by 60 (“real”
time) and suggested the result ($5
an hour) is a more accurate figure
for what a person is earning.
“Once people realize this, they
often ask, ” Is it worth it?” she

The second key point from the
book that was emphasized is that
there comes a point in people’s
lives where more spending brings
less fulfillment and happiness.
Dominguez and Robin call this
point “enough.” They classify
purchases into four categories:
“survival (e.g., food, shelter),”
“comforts,” “luxuries,” and
“clutter.” Purchases beyond
“enough” are called “clutter”
because they bring less satisfaction for the time and money
spent to purchase them. Opinions
about what items fall into each
category can vary “One person’s
“clutter” might be another’s

It should be pointed out that the
authors, Dominguez and Robin,
and many others who espouse
voluntary simplicity (a.k.a.
“downshifting” or “simple living”)
once had lucrative jobs which
allowed them to accumulate assets
which now supplement their
reduced incomes. Many people
living “paycheck to paycheck”
simply can’t afford to do this.

The voluntary simplicity
movement also appears to be
spearheaded by aging baby
boomers who are quite naturally
questioning their priorities at mid-life. An article (September 21,
1995) in The New York Times
noted, however, “the seemingly
unnatural choice to slow down and
cut down shows signs of going
broadly mainstream, across age
groups and class lines.”

While many people can’t reduce
their work hours, questions raised
by the New Road Map Foundation
are intriguing. Their call for
reduced household spending and
debt is in line with that of many
financial experts. Knowing one’s
“real hourly wage” can be useful
(e.g., in job-transfer decisions), as
are the concepts of “enough” and
“clutter” when making spending

Barbara O’Neill

Rutgers (Newton, NJ)

Cooperative Extension Service


The National Association of Securities
Dealers (NASD) recently
clarified a number of regulatory
issues concerning electronic
media communications by the
financial services industry.

1. Electronic communications
should be treated the same as
other advertising and/or sales
literature, and must be supervised
and used only under the same
parameters. Each is subject to the
approval, record keeping, and
filing requirements in the NASD
Rule of Fair Practice. A member
may have to repeat disclosures in
multiple Internet sections to ensure
that the information is available to
all potential users.

2. Information posted by NASD
members or their associated persons on electronic bulletin boards
is considered advertising and must,
therefore, be approved by a
registered principal before use.

3. An electronic message sent to
multiple individuals is considered
sales literature subject to the prior
written approval of a registered

4. If personalized letters sent to
clients electronically pertain to the
solicitation or execution of
securities transactions, the letters
must be reviewed and endorsed by
a registered principal. The review
may occur after letters are mailed.
Individual e-mail transmissions
don’t have to meet filing

5. Chat rooms are not considered
to be correspondence or
advertising. But registered persons
and member firms are accountable
for what they say.

6. Securities Investor Protection
Corporation (SIPC) disclosure
generally must be included in an
Internet or commercial online site.

Mutual Fund News (July, 1996), 18(1),2.

Author’s Corner

Janet Beckman (1996). For
the Love of Money.
Includes 13-minute video and a facilitator’s
guide which has activities for
participants for 2-hour program.
Describes various factors that
influence how people manage
money and highlights different
money management systems.
Target audience is people
interested in learning more

about financial management and
decision-making. Order from the
Purdue University Media
Distribution Center, 301 South 2nd
St., Lafayette, IN 47901-1232.
$30. (317) 494-6794; FAX (317)

Sample copies of the following
three publications can be ordered
from Ronald Wall, Extension
Specialist in Family Economics &
Management, 2515 Campus Road,
University of Hawaii, Honolulu,
HI 96822.

Overcoming Financial
This workbook was
developed at the request of the
Hawaii State Employment Service
for use with unemployed,
underemployed, soon-to-be
furloughed, and other financially
distraught individuals. It attempts
to restore client confidence and
provide practical guidance on
income, employment and financial
management issues. You can
request a copy if you want to
approach groups such as
employment or human service
agencies about a similar program.
The Financial Sound System.

The program provides an
integrated system of financially
sound community workshops,
counselor training sessions, and
promotional products geared to the
promotion of sound educational
knowledge and practice among
credit union members, staff, and
the communities they serve. It
uses a life-cycle approach to
financial programs. Also includes
professional counselor training and
support for staff to extend
consumer and client-oriented
financial education and
counseling. You can request a
copy to approach your state’s

Investing for Your Life. This
Family Economics in Brief
addresses major concerns of
average investors. It is aimed at
helping the average person become
better associated with various
portfolios. You can request a
master copy for duplication.

Russell, Lynn & Urich, Judith
R. (1996).
Estate Planning
Cooperative Extension Service,
University of Arkansas. Discusses the difference between a
gross estate, probate estate and a
taxable estate. 4p. One free copy
available from either author.

Fred Waddell (1996). Money
Mastery in Just Minutes A Day.

Written for people who feel
powerless over their financial
situations, Waddell helps readers
reverse negative spending and
saving habits by delving into the
psychological barriers preventing
them from controlling their
finances. First, the book helps
readers examine their financial
lives. Second, readers are
encourage to perform practical,
hands-on exercises to help them
develop an effective plan.
Dearborn Financial Publishing,
Inc., 197 p. $16.95 + $3 S/H. To
order: Genesis Press, 1031 Sanders
St., Auburn, AL 36830-2635,

Fred Waddell (1996). Solution
Focused Financial Counseling.

Revised and updated, covers topics
such as financial counseling by
telephone, for compulsive
spenders, for compulsive
gamblers, for military personnel,
housing counseling, resolving
financial problems due to large
church contributions, determining
successful counseling results.
244p. $49.95 + $3S/H.

Genesis Press, 1031 Sanders St.,
Auburn, AL 36830-2635.

Robin Leonard (1996).

Money Troubles: Legal
Strategies to Cope with Your
Debt (4th Edition).
Covers all
debt including credit cards, student
loans, car loans, dealing with
collection agencies, lawsuits, and
rebuilding credit. An excellent
debt strategy primer that belongs
in a counselor’s reference library.
Not only will she tell you what
you can do, but Leonard offers
insights about what the other
players, e.g., collectors or lenders,
bottom line objectives are in the
debt repayment game. Contains
sample letters to collections
agencies, student loans
departments credit reporting
agencies. The last chapter guides
the reader who needs help beyond
the book. Glossary. Appendix
listing state by state bankruptcy
exemptions. Index. 360p. $19.95.
Nolo Press, 950 Parker St.,
Berkeley, CA 94710. (800) 992-6656.

Literature Review

Bad Timing and Long-Term
Good returns can still
come out of bad timing decisions
if an investor sticks to a long-term
buy-and-hold investment program.
The study examined four bad
timing decisions — investing all at
the yearly market high, only on
January 1 of each year, at the
average for the year, at the average
low for the year. Even with bad
timing, long-term results were
better than Treasury bills and
results would have outpaced
inflation. Journal of American
Association of Individual Investors
(AAII) 1996, XVIII, (6), 19.

Catastrophe Risk Financial

Instruments-A New Financial
Product for Investors.
relatively new instruments
securitize property catastrophe risk
and enable insurers to reduce that
risk by passing it on to investors,
who take positions on the
occurrence and cost of
catastrophes. It is expected
financial products marketed to
investors will provide higher
returns than U.S. Treasury

For more, see Federal Reserve
Bank of New York, Current
, Volume 2, Number 9,
August 1996. Subscriptions are
free from Public Information
Department, FRBNY, 33 Liberty
St., NY, NY 10045-0001, Web site

WWW.$$$.Com. Rassi, E. &
Roha, R.R. (1996, October).
, 69-74. Reviews 34
financial sites on the world wide
web. For a hypetext link to each
site, visit the Kiplinger home page,
http://www.kiplinger.com. Topics
include investing, charities, your
car and home, insurance, travel,
yields, rates, consumer watchdogs,
government, jobs, college


The Under 40 Financial
Planning Guide.
Cornelius P.

McCarthy (1996). 398p. $19.95.
Merrit Publishing, 1661 Ninth
Street, Santa Monica, CA 90404.

Practical, easy-to-read approach to
the basics of financial management — budgeting, credit, taxes,
insurance, buying a car and home,
investments, estate planning.
Under 40s with access to the
internet will appreciate the WEB site information. Index.

Master Your Future: A Program on Financial Responsibility. The program, for high
school students, consists of a 15-minute video and 12-page
teacher’s guide and covers
budgeting, checking and savings,
credit and credit history. Free.
Contact Master Card, 1-(800)
MC4-YOUTH or (800)-624-9688.

Will the Dollars Stretch?
Sudie Pollock (1996). $ 6.95, plus
10% shipping and handling;
Teacher’s Guide, $2.50. Morning
Glory Press, 6595 San Haroldo
Way, Buena Park, CA 90620.
Four stories provide the virtual
reality of lives of teen parents who
choose to live on their own. Each
story provides enough financial
information for a check writing
(and balancing the account)
exercise. The author, a teacher in
an alternative school, uses as
examples a teen parent living
alone with her baby and trying to
survive on welfare and food
stamps, teen parents moving into
an apartment and finding earnings
from a full-time job doesn’t pay
the bills, a teen father whose part-time job earnings go for diapers,
not car repair, a teen mom who
starts her own business (to be at
home with her child). Bottom line-the realistic stories, honed in class
assignments, may provide enough
reality therapy to inspire non-parents to postpone parenthood
until he or she is financially ready.

Expectations & Reality. Jeanne
Warren Lindsay (1996). 190p.
$14.95. Morning Glory Press,
6595 San Haroldo Way,

Buena Park, CA 90620. The
author used two data sets from

1983 and 1993 about teenagers

expectations on living together,

roles, work, etc. The 1993 study

also included interviews with teens
living with a partner (realities).
Persons who work with teens can
increase their understanding of the
world of teenage couples. While
most of the survey does not
directly involve money, teenage
decisions have financial

Teenage Couples: Coping With
Jeanne Warren Lindsay
(1995). 190p. $9.95. Morning
Glory Press, 6595 San Haroldo
Way, Buena Park, CA 90520.
Based on interviews with teen
couples, author discusses the
reality of marriage as told by a
culturally diverse group of
teenagers. Several chapters on
money management issues, for
example, “You need to sit down
and talk about all the responsibility
of moving in together–the bills,
having money for food, spending

The Smith Barney IRA
Distribution Manual.
retirees with rollover IRAs or
those who have been diligent IRA
contributors from the beginning
will want to think through the
ramifications of IRA mandatory
withdrawals before age 70 1/2. As
with many new ideas, the rules
vary and companies that offer
IRAs do not have consistent
withdrawal rules. Articles are

starting to appear. The above
guide for investors who wish to
begin taking funds out of their
existing IRAs is a good,
comprehensive beginning. 28p.
Free.(800) 233-7833.

Divorce & Money: How to

Make the Best Financial

Decisions During Divorce (2nd
Violet Woodhouse &
Victoria Felton-Collins with M.C.
Blakeman (1996).

Nolo press, 950 Parker, Berekely,
CA 94710. $21.95. Helps reader
make sense of the financial
realities of divorce while still
dealing with the emotional aspects
of divorce. From dividing debt
responsibilities to dividing up
retirement accounts, this book
helps the ready for divorce to stay
on financial targets.

The Copyright Handbook:
How to Protect and Use Written
Works (3rd Edition).
Fishman (1996). Nolo Press, 950
Parker, Berekely, CA 94710.
$24.95. Writers, publishers,
editors, and librarians know they
must understand copyright law,
but so also do AFCPE members.
Even if you are not a writer,
chapters on copyright basics,
copyright durations, and copyright
infringement should be of interest
to all who teach and use copying
machines. Chapters on
international copyright protection
and electronic publishing.
Appendix has sample forms used
to obtain a copyright.

The Investing Kit. Bay Gruber
(1996). 230p. Dearborn Financial
Publishing, Inc., 155 North
Wacker Drive, Chicago, IL 60606-1719. $19.95. Written by a former
investment trainer for a national
brokerage firm, the

author provides a systematic, easy-to-read process for learning
investment basics, poses questions
for the reader at the end of each
chapter to apply the information,
and offers investor tips which

summarize the key points in each
chapter. Chapters on stocks,

bonds, annuities, closed and open-end mutual funds, life insurance,
unit investment trusts, etc. Two
appendices: The first is an in-depth
discussion of selected financial concepts; the second has
forms to help you organize financial particulars for tax forms.

Homeowners Insurance for
Home Purchase Counselors and
Manual is an 11-part comprehensive consumer
education course on homeowners
insurance developed by representatives from the Illinois
Department of Insurance,
insurance industry and the University of
Illinois Cooperative Extension
Service. Two editions are available
– one for Illinois, one a generic
version. Your organization can
order one free copy. Free
informative brochures and
consumer Quote Guide are
available in quantities. Contact
Susie Smith, Illinois Department
of Insurance, 320 W. Washington
St., Springfield, IL 62767.

Get A Life: You Don’t Need A
Million to Retire Well.
Warner (1996). 250p. $18.95.
NOLO Press, 950 Parker St.,
Berkeley, CA 94710. The advice, based on interviews from
successful retirees, is to find
balance and invest in yourself and
not just your stock portfolio.
While the author says knowing
your net worth and retirement
benefits is important (and financial
information from budgeting to
investing to estate planning is
given throughout), many boomers you. The author provides
numerous short quizzes to help
you decide if you want a fixer-upper to what level of fixer you
can handle to how to negotiate and
structure a good deal. The author,
a real estate broker with extensive
experience with fixer uppers, gives
numerous insider tips. Whether
you rehab a house for yourself or
for an investment, this book will
give you a head start.

The Personal Finance Kit.
Ellen Norris Gruber (1996). 178p.
8 1/2″ x 11″. $15.95. Dearborn
Financial Publishing, Inc., 155
North Wacker Drive, Chicago, IL
60606-1719. Gruber says the kit’s
sole purpose is to give the reader a
well-organized and flexible way to
locate and document your
important financial information,
to help you organize your budgets
and to provide your family or
caregivers easy access to important
information in case of emergency.
There are enough categories to
remind the reader of the important
information to document for his or
her particular needs. The kit is
punched for a notebook and
numerically indexed. Instructions
are provided for all forms.

The Long Term Care
Jeff Sadler
(1996).240p. $26.95. National
Underwriter Co., 505 Gest St.,
Cincinnati, OH 45203-1716; (800)
543-0874. Provides the rationale
for the need for long term care.
Outlines elder care services
available in most communities.
Explains the specifics of current
government programs for long
term care. Thorough discussion of
individual and group long term
care insurance policies. Also
discusses financing options for
long term care using insurance
policy benefits including living
benefits and viatical settlements.
Appendix, Index, and Glossary.

The Smart Consumer’s Book
of Questions.
Linda Mack Ross
(1996). 232p. $14.95. Chicago
Review Press, Inc., 814 North
Franklin St., Chicago, IL 60610.
The author’s professional expertise includes market research,
examining consumers needs and
satisfaction. The lists of questions
in the book are a product of her
professional and personal
experiences. She feels that asking
and getting answers to basic
information about any topic is the
key to consumer’s satisfaction.
Persistence is the key. Too many
of us don’t persist and ask the
tough questions or enough
questions until we get the answers
we need to make intelligent
decisions. Questions given for
topics ranging from finding
lodging, housing, medical services,
hiring repair persons, child care,
etc. Each chapter begins with a
short case study. Many chapters
include references for more
information. The lists would be
helpful references in counseling

Bulletin Board

Web Addresses

Attention techies and others with e-mail/internet access. Please
include e-mail addresses with submissions. Look for AFCPE
information, including the Newsletter on the WEB.

AFCPE Web Address


Note: if you forget this address, just do a search in Alta Vista or other web search engine for afcpe.

E-mail Addresses

Newsletter Editor

Executive Director, Ruth Helein

The Association for Financial Counseling and Planning
Education (AFCPE) was established to promote education,
research, and service in personal financial management. The
AFCPE, governed by elected officers and directors, is a
non-partisan, non-profit, incorporated professional
organization of academicians and practitioners.

AFCPE serves professionals through. . .

the promotion of the education and training of
professionals in financial management.

the administration of the national Accredited Financial
Counselor (AFC) program.

the dissemination of scholarly research findings,
procedures, and applications related to financial
counseling and planning education.

the active participation in educating individuals and
families in all areas of personal finance and counseling

a forum for the discussion of curriculum models used in
educating financial counselors and planners.

Click here to return to the AFCPE Newsletter index