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By Barbara O’Neill, Ph.D., CFP®

Personal finance research informs high-quality financial education briefings, publications, and 1:1 financial counseling sessions with clients. Below are findings and implications for practice from four recent studies:

Financial Capability – The 5th triennial National Financial Capability Study (NFCS) by the FINRA Investor Education Foundation found improvements in financial practices (e.g., emergency savings, paying bills and credit cards) vs. prior studies. However, certain demographics that have historically struggled financially continued to do so. In addition, higher financial literacy was associated with greater financial capability.

  • Implications: This study supports other evidence that Americans fortified their finances during the pandemic. Many (78%) respondents received at least one pandemic-related stimulus payment. Time will tell if financial capability progress is maintained. The results underscore the important of lifelong financial education, especially for low- and moderate- income learners. Financial educators may want to use NFCS questions in their work (e.g., as a pre- and post-test of clients financial knowledge and practices).

Financial Education – This triangulation (mixed methods) study explored how financial professionals work with clients. The results indicated that service delivery depended on the context of clients and content of their financial concerns. A commonplace occurrence reported by financial professionals was when clients lost motivation to continue meeting after their unique crisis was resolved, without addressing long-term issues.

  • Implications: Practitioner and client interactions must have elements of flexibility and adaptability based on what clients bring to a counseling session or workshop. Financial professionals often need to adjust their approaches, which should be client-driven. Also, no one information delivery method works best for all clients and practitioners should discuss long-term remedial approaches before a crisis has been effectively navigated.

Investment Performance – The independent investment research firm, Dalbar Inc., studied investor performance in mutual funds for 30 years between 1/1/92 and 12/31/21. During this period, inflation averaged 2.36%, average equity fund investors earned 7.13%, and the S&P 500 index earned 10.65%. In dollar terms, with an initial $100,000 investment, average investors accumulated $789,465 and the S&P, $2,082,296.

  • Implications: Investors are often their own worst enemy when they attempt to “chase performance” or time market highs and lows. Reacting to market volatility often lowers long-term returns while patience is rewarded with superior performance. A comprehensive financial plan is only as good as someone’s ability to stick with it over the long term and financial practitioners can help keep clients disciplined and focused on long-term goals.

Housing Costs – A study by Mondragon and Wieland investigated U.S. house price growth since late 2019 and found that the shift to remote work explains over half of the 23.8% national house price increase that occurred during this period. They estimated that an additional percentage point of remote work causes a 0.93% increase in house prices and that remote work, conservatively, raised aggregate U.S. house prices by 15.1%.

  • Implications: Increased job flexibility is fueling homebuyer migration and the evolution of remote work is likely to have large effects on future house prices, especially in top relocation destinations. Increased remote work can affect military families in several ways: it can make new housing more expensive during a PCS move but it can also facilitate continued employment of military spouses. Recent trends are expected to continue in tandem with remote work trends.

Coleman, M. (2022). Dalbar QAIB 2022: Investors are still their own worst enemies. Index Fund Advisors, Inc.

Lin, J. T., Bumcrot, C., Mottola, G., Valdes, O., Ganem, R., Kieffer, C., Lusardi, A., & Walsh, G. (2022). Financial Capability in the United States: Highlights from the FINRA Foundation National Financial Capability Study (5th Edition). Washington, DC: FINRA Investor Education Foundation.

Mondragon, J.A. & Wieland, J. (2022). Housing demand and remote work. National Bureau of Economic Research, Working Paper 30041.

Zuiker, V.S., Hawkins, B.P., Katras, M., Croymans, S., & Anderson-Porisch, S.J. (2022). Financial professionals: Articulating their roles and delivery methods in financial education. Journal of Human Sciences and Extension, 10(1), 1-22.

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