the First Five Years of
Financial Counseling and Planning
This is the fifth issue of Financial Counseling and Planning.
As the “Index of Abstracts and Key Words” (page 207) shows, there has been
a diversity of topics in the 46 articles published over the five years.
The topics covered in the journal have ranged from “arguments involving
finances” to “well-being of the elderly.” Popular topics included financial
ratios, risk, financial planning, retirement, satisfaction and financial
counseling. Virtually all of the articles have included sections on implications
for practitioners, but there has been no article describing innovative
techniques for practitioners. Based on comments from reviewers, such an
article would have to be a rigorous evaluation of techniques rather than
a simple description. I believe that most of the articles should be useful
to practitioners, at least in stimulating new ideas and approaches. Obviously,
some research results will have little direct usefulness for practitioners.
In any case, having one journal for articles related to financial counseling
and planning has made it easier to keep up with the field.
Statistical Techniques and Theoretical Frameworks
The statistical techniques used may give some insight into the background
needed to keep up with research in the field. There were 19 articles using
regression, logit or probit. Five articles used analysis of variance and
8 articles used factor analysis. Five articles used chi square analysis.
Other articles used miscellaneous statistical techniques. Some articles
used analytical approaches based on economic models or financial analysis,
without any empirical analysis. The theoretical frameworks used included
economic models, such as the life cycle theory, and the Deacon-Firebaugh
model, as well as ad hoc models.
The goals of this journal may lead to problems. The journal is intended
to be both useful for practitioners and also the primary journal for new
research related to financial counseling and planning. The statistical
techniques may seem complex to most practitioners, but they are not state
of the art in the social sciences. For a taste of the level of complexity
in social science research, take a look at the winning dissertations in
1993 and 1994 of the graduate research awards of the American Council on
Consumer Interests. Given that it is possible to explain Einstein’s Theory
of Special Relativity to any intelligent layperson, it should be possible
to have clear communication of the results of complex statistical analyses,
but it will take a great deal of effort to do so.
The Diversity of Authors
There have been 79 different authors of the articles in the first five
years. Most have been faculty and graduate students in departments of family
and consumer sciences, but there have also been faculty from accounting,
finance, marketing, insurance and agricultural economics. The only current
fulltime practitioners among the authors seem to have been recent graduate
students. The authors’ ranks ranged from full professors to graduate students.
The longest article was in the first issue, while in the current issue,
only one article is longer than 20 pages. I have tried to encourage authors
to keep the main body of text in an article below 6,000 words and to have
no tables more than one page long. The latter goal has been difficult to
accomplish, and took some typesetting tricks, but was met in all but one
of the articles this year, other than appendix tables.
The Future Supply of Manuscripts
We should have a good supply of manuscripts in the future, because
many universities have steadily increased requirements for tenure and promotion.
At my university, a new assistant professor is expected to have 10 journal
articles in the first 5 years. Whether this trend will lead to articles
useful to the practitioners reading this journal remains to be seen. One
possible incentive for authors would be to increase the number and monetary
value of awards for articles in this journal. The awards can be based on
some combination of usefulness, good writing and originality. Simply receiving
an award can be helpful to a faculty member trying to achieve tenure, but
monetary awards can increase the incentive for tenured faculty to work
harder to achieve clear communication.
Good Financial Management Practices
Many recommended financial practices seem sensible, but the fact that
a large number of households do not follow them makes research as to the
results of following the practices worthwhile. DeVaney’s article, “The
Usefulness of Financial Ratios as Predictors of Household Insolvency: Two
Perspectives,” is unique in that she analyzed what happened to individual
households between 1983 and 1986. The most striking result is that households
who met none of three guidelines on household financial ratios in 1983
were 33 times more likely to be insolvent in 1986 than were households
who met all three guidelines in 1983. This result could help financial
counselors to persuade clients to take their cod liver oil!
Godwin’s article, “Antecedents and Consequences of Newlyweds’ Cash Flow
Management,” includes an excellent, careful discussion of previous studies
and textbook treatments of cash flow management. Her results from her small
sample do not provide strong evidence as to whether couples are better
off following the basic elements recommended for cash flow management,
but her article is certainly essential reading for anyone studying the
topic in the future.
Three articles focus on saving: Xiao and Noring; Chang; and Fitzsimmons
and Leach. The latter two articles use the same concept of saving,
the change in net worth from one period to the next. This measure is useful,
because it is
realized saving, which depends not only on thriftiness
today, but also on wise (or lucky) investing. Obviously, putting cash under
your mattress will result in a decrease in your real net worth as inflation
steadily eats away at its purchasing power. Many households make similar
mistakes with their portfolios. Xiao and Noring focused on motives for
saving, finding some support in the patterns for Maslow’s theory of needs
hierarchy. Chang examined patterns of changes in net financial assets between
1983 and 1986. Chang found that households with high levels of risk tolerance
increased their assets more than those with low levels of risk tolerance.
Fitzsimmons and Leach found that saving was negatively related to the wife’s
increase in education and to the household’s increase in income. Both results
were contrary to their expectations, but might be consistent with a life
Whom Do You Trust?
Bailey and Turner analyzed a survey of over 2000 farmers, and found
that farmers did not value information on retirement planning from financial
planners but did consider the Cooperative Extension Service an important
source of information. Ayres and Hethcox analyzed the income tax tests
conducted by Money Magazine and found that Certified Public Accountants
performed somewhat better than non-CPA preparers. Their methodology might
be applied to other types of financial advice. Obviously, any such comparison
will be difficult to make, but would be very useful for consumers.
The Costs of Job Changes
Many academics realize that the only way to substantially increase
their salaries is to move to another university. Depending on the type
of pension, such a move might have a substantial cost in terms of future
pension benefits. Woerheide and Fortner show how much of a salary increase
would be need to make one just as well off (at least financially) as if
one had not changed jobs.
The Family Life Cycle
There are two articles focusing on opposite ends of the family life
cycle. Danes analyzes parent perceptions as to when it is appropriate to
teach and involve children about different financial activities. Bauer
and Stum examine factors related to the need for assistance among a large
national sample of elderly. Montalto’s article deals with an important
problem in the middle of the family life cycle, the financial consequences
of divorce. Obviously, this is a major economic risk. However, there has
been little discussion in textbooks or research journals of strategies
to deal with this risk. Montalto’s analysis provides useful insights, even
if her results are not directly useful for practitioners.
State of the Journal
The articles in this issue represent 40% of the submissions in the
past year. As the years go by, the acceptance rate will decrease, which
will benefit readers, as well as successful authors. I expect that there
will be a cumulative 10 year index in Volume 10, with over 100 articles
which will have made substantial contributions to the field. To continue
improvement, authors and reviewers will need to keep the goals of AFCPE
in mind as they write and review. This journal is the primary forum for
research related to financial counseling and planning, but the research
must be clearly communicated to practitioners. (We do have one advance
in two-way communication in this issue — every article has an email address