Categories
In the News

Important Financial Planning Journals

Whenever a financial planning practitioner or regulator visits the Financial Planning Performance Lab they almost always ask, “What should I be reading to keep current with the research?” Our answers—depending on who responds—tend to be somewhat evasive. The fact is that there are just a handful of academic journals that publish research on the tools, techniques, and processes of financial planning. Each journal provides a unique approach and focus. While there are quite literally hundreds of “finance” journals, the list of journals relevant to financial planning is quite limited, which makes answering the “what should I read” question a bit difficult.

 

Here is our core list of journals that we encourage graduate students to review on a quarterly basis. Some of the journals provide “specific financial planning content” whereas others occasionally publish papers that have planning implications. For those seeking a more comprehensive list check out one the Lab’s working papers: https://fpperformancelab.org/working-papers-2/journal-rankings-financial-planning/

 

Journal Specific Financial Planning Content Content Relevant to the Practice of Financial Planning
Financial Services Review X
Insurance & Risk Management Journal X
Journal of Behavioral Finance X
Journal of Consumer Affairs X
Journal of Economic Psychology X
Journal of Family and Economic Issues X
Journal of Financial Services Research X
Journal of Finance X
Journal of Financial Counseling and Planning X
Journal of Financial Education X
Journal of Financial Planning X
Journal of Financial Service Professionals X
Journal of Financial Therapy X
Journal of Investing X
Journal of Personal Finance X
Journal of Portfolio Management X
Journal of Retirement X
Journal of Retirement Planning X
Journal of Risk and Insurance X
Journal of Risk and Uncertainty X
Journal of Wealth Management X
Quarterly Review of Economics and Finance X

 

A word of caution is in order. Unlike popular press magazines, such as InvestmentNews, Investor Advisor, and Financial Planning Magazine, the journals listed here tend to be a bit—now to put this politely—boring. These journals are rigorously peer review, which means that each published paper has gone through multiple levels of academic review. The result is that sometimes financial planners need to search for ways to apply findings to their own practice.

 

If you are interested specifically in recent work coming out of the Lab, check out the Journal of Financial Therapy and the Journal of Financial Counseling and Planning – these two journals do a great job editing submissions for maximum practical impact.

Categories
Behavioral Financial Planning

Understanding the Stress Response

Every once in a while a paper appears in the literature that is both profound and interesting. One such paper was recently published in the journal Biofeedback. Although the topic is off target for most financial planners, the authors do a fantastic job of explaining exactly how people respond both mentally and physically when stressed. Much of the psychophysiological work that is occurring in the Financial Planning Performance Lab is based on this stress response — but in the context of financial decision making. We strongly encourage you to read this paper (especially if you have children or grandchildren in college) and/or if you want to understand how stress can impact behavior.

Article Citation:

When Not Saying NO Does Not Mean Yes: Psychophysiological Factors Involved in Date Rape. Biofeedback: Spring 2015, Vol. 43, No. 1, pp. 45-48.

doi: http://dx.doi.org/10.5298/1081-5937-43.1.01
http://www.aapb-biofeedback.com/doi/full/10.5298/1081-5937-43.1.01
Categories
Behavioral Financial Planning In the News

Is There a Health-Wealth Connection?

There is a commonly held belief among policy makers, researchers, and those in the media that there is a health-wealth connection. Basically, it assumed that those who watch their health by limiting fats and sugars, and those who regularly exercise, also exhibit the best financial behaviors. There is some truth to this. Smokers, for example, don’t accumulate as much wealth over their lifespan and they tend to die earlier than non-smokers. This does not mean, however, that simply because someone is physically healthy they will automatically be a better money manager.

A new publication shows that the real health-wealth connection may not be a physical one. Nick Carr, Ron Sages, Fred Fernatt, George Nabeshima, and John Grable documented that individuals who engage in health information search behaviors, such as reading the contents and nutrition labels of foods, are more likely to engage in financial planning activities. They called this a form of cognitive health behavior. Essentially, it looks like people who take the time to dig a little deeper into the details of foods also dig deeper into the financial details of their lives.

The paper was published in Volume 26, Issue 1 of the Journal of Financial Counseling and Planning (pp. 3-16). While the paper itself is a bit long and dry, the results have significant implications in explaining why some people are more successful than others in domains of physical and fiscal health.

Disclaimer: Dr. John Grable, the Director of the Financial Planning Performance Lab, was a co-author of the study.

Categories
Financial Risk Tolerance

15-Year Retrospective Risk Paper to be Published

A retrospective review of the Grable and Lytton Risk Scale will be published later this year in Financial Services Review, one of the premier academic financial planning journals. Here is the paper’s abstract:

“Over a decade ago, Grable and Lytton (1999) developed, tested, and published a financial risk-tolerance scale in Financial Services Review that has since been widely used by consumers, financial advisers, and researchers to evaluate a person’s willingness to engage in a risky financial behavior. Analysis of data (n = 160,279) spanning the timeframe 2007 to 2013 provides evidence that the risk-tolerance scale’s reliability and validity have remained robust since the scale was first developed. The scale’s estimated Cronbach’s alpha was .77 during this time period. Consistent with the literature, high scale scores (representing a greater willingness to take risks) were found to be associated with equity ownership and negatively related to cash and bond holdings.”

The scale can be accessed at the following site: http://njaes.rutgers.edu:8080/money/riskquiz/

Categories
Wealth Volatililty

Fantastic Morningstar Paper Just Published

A very important strategic planning article was just published in Morningstar Magazine. It is worth reading. The paper’s author—Hal Ratner—lays out what he and Morningstar are calling Total Wealth, which is a move to quantify a household’s total assets and liabilities. With this information, Morningstar hopes to develop strategies that will provide financial planners (and consumers) with tools to help clients maximize the “probability of meeting a set of consumption goals at some level of risk preference and futurity preference” (p. 52).

Essentially, Morningstar is advocating a position long held by faculty teaching financial planning at the University of Georgia; namely, financial planners add value by helping clients manage their entire “portfolio” rather than a single aspect of wealth. Total wealth—using Morningstar’s definition—includes financial capital, human capital, housing wealth, and pension wealth.

Those working in the Financial Planning Performance Lab would add other forms of wealth to the equation, including business wealth, collectibles, hobby assets, and use assets. All of this may sound familiar to those following the development of zeta. Zeta is a measurement of financial planner value. Zeta can be used to assess how well a financial planner helps his or her clients manage the volatility of total household wealth.

It is quite exciting to see how quickly the financial planning landscape is changing and evolving. If you get a chance, read: “A New Chapter in Investing: The Total Wealth Framework Considers an Investor’s Financial Life” in Morningstar Magazine, February/March 2015, pp. 52-54.

Categories
Behavioral Financial Planning

Stress and Financial Planning Intention

The latest clinical study from the University of Georgia’s Financial Planning Performance Lab has been published in the Journal of Financial Therapy: http://newprairiepress.org/jft/vol5/iss2/2/

This paper shows a clear link between client arousal and planning intention and client financial anxiety and planning intention.

Categories
Wealth Volatililty

Latest Zeta Paper Posted

The latest paper on zeta from the Financial Planning Performance Lab is now posted on SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2549730

The intention of this study was to document how closely households follow normative descriptions of financial behavior in relation to their financial planning horizon. Modern Portfolio Theory predicts that households, in general, exhibit risk aversion. Aversion to wealth volatility should correspondingly be highest among those households with the shortest planning horizons. This study estimated percentage changes in wealth and wealth volatility over time categorized by financial planning horizon using data from the 2002 through 2010 waves of Health and Retirement Study. Modigliani ratios were computed for the entire population and by planning horizon. Zeta estimates were made by calculating the difference between the Modigliani ratios for each planning horizon and the ratio for the short-term horizon. Contrary to the conceptualized relationship between planning horizon and financial wealth volatility, results from this study show that respondents with the shortest financial planning horizons experienced lower risk-adjusted returns and greater wealth volatility. The findings of this study underscore an unmet and perhaps unrealized need for professionally provided financial planning.

Categories
Financial Risk Tolerance

Surprising Risk Tolerance Finding

The financial risk tolerance team discovered something interesting today. The team has been tracking the daily financial risk tolerance of individuals since late 2007. Initial results from the lab suggest that the market does influence people’s willingness to take financial risk. The strongest link is between daily stock market volatility and risk-tolerance scores. When market volatility is up, risk scores drop. When volatility falls, risk scores go up. Generally, people are more likely to increase their tolerance for risk over time.

While these initial results are interesting, the FPP Lab Director, Dr. John Grable, noted, “It looks like the change in risk scores is actually rather small. This means that even though the markets appear to have an influence on subsequent risk attitudes, the actual change in tolerance for risk is not large enough to significantly alter current or future investment choices.”

The research team is currently engaged in a neural pathway analysis to identify other patterns in risk attitudes. Check back for results as they become available.

Categories
Lab News

Lab Director Quoted in PlanAdvisor.com

Dr. John Grable was quoted in a story about risk tolerance published by PlanAdvisor.com. The article can be accessed here: http://www.planadviser.com/Risk_Tolerance_Profiles_Miss_Key_Questions.aspx

Categories
In the News

Wall Street Journal Article on Risk Tolerance

In case you missed it, the Wall Street Journal published a nice piece talking about financial risk tolerance. Some of the material in the article is based on research in the Lab!

http://online.wsj.com/articles/dont-let-stocks-drive-you-crazy-1414283721#printMode