Despite the importance of saving for retirement, new research from Charles Schwab shows that only one in four Americans have a written financial plan in place, while three in five Americans are living paycheck to paycheck.
The Charles Schwab Corporation’s (SCHW) 2018 Modern Wealth Index scores participants from 1 to 100 based on how well they manage their money, goal setting, financial planning, saving and investing, in addition to how well they are staying on track and their confidence in reaching their financial goals. Non-planners earned a score of 44, while those with a financial plan on the books had a score of 68.
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“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,” said Terri Kallsen, executive vice president and head of Schwab Investor Services, in a press release announcing the results of the index for this year. “Planning is critical to achieving any goal. 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.” According to Schwab, those in the planning group are more likely to stay engaged with their investments, are more cognizant of the fees they are paying and are more confident about reaching their financial goals.
Among the planners, Millennials are leading the way, outpacing the older generations, Charles Schwab found. According to the San Francisco-based discount brokerage‘s Modern Wealth Index, Millennials are more focused on saving, investing and planning, with 31% saying they have a written financial plan. That compares to 20% of Generation Xers and 22% of Boomers. Meanwhile, 36% of Millennials said they have specific savings goals compared to 25% of Gen Xers and 17% of Boomers. Of the respondents, 22% of Millennials and 25% of Boomers said they would work with a financial advisor compared with the 16% of the Gen Xers.
As for those that don’t have a financial plan, Schwab found that 45% think they don’t have enough money to warrant a formal plan. Of the survey respondents, 20% said they never thought about a financial plan, while another 20% said they don’t even know where to go to begin the process.
“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,” said Joe Vietri, senior vice president and head of Schwab’s retail branch network, in the press release. “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. We must make planning and advice more accessible to more people. Simply put, we believe every American deserves a financial plan, regardless of how much money they have today.”