How Financially Resilient Were Americans During the Pandemic?
CFP® Certificants in the News
You may be surprised by some of the conclusions drawn about our financial resilience as a nation according to an article posted in CFP Board’s FINANCIAL PLANNING REVIEW dated May 12, 2022. We’ll frame this discussion in three parts:
- Context,
- Methodology, and
- Findings.
Context
According to the article, “the economic and health upheavals associated with the COVID-19 pandemic have brought new focus to older Americans' need to become more financially resilient in the face of major shocks. This paper addresses a series of issues concerning financial resilience and fragility in the older population. First, we identify the factors and household characteristics associated with financial resilience, and we investigate whether these proved stable during the pandemic. Second, we document the factors and household characteristics that were linked to financial fragility, and whether these relationships persisted over time.”
Methodology
“To assess and compare results over time, we develop an index of financial resilience based on eight questions asked in both surveys [one survey was taken pre-COVID and one was taken during COVID].
- Ability to respond to unexpected loss of earnings or the ability to respond to unexpected expenses
Cope with lost earnings: Does the respondent have an emergency fund that could cover expenses for at least 3 months?
- Developed retirement and spending plans and do they track their spending?
- Develop retirement plan: Has the respondent calculated the financial resources that will be needed in retirement?
- Track spending: Does the respondent track day-to-day spending?
- Set budget target: Does the respondent create a budget and set targets with that budget?
- Impact of current debt on spending
- Debt level OK:Does the respondent consider his/her current debt level to be manageable?
- No medical delays:Has this debt delayed or prevented you from receiving medical treatment (including filling prescriptions)?
- Level of concern over finances
- Not financially anxious: Is the respondent anxious about the state of his/her finances and preparedness?
- Money will not run out: Is the respondent confident that his/her money will not run out in retirement?”
Findings
Based on the excerpts shared above and a synthesis of the article’s conclusions, we summarize the findings below.
Expected findings include:
- Resiliency was generally directly related to income level, the higher the income the higher the resiliency score,
- Americans in poor health were generally less resilient than those in at least average health, and
- Knowledge is power—resiliency among the financially literate was significantly higher than among respondents who lack such literacy.
Unexpected findings include:
- Households with income as much as 40% higher than the median U.S. income level had surprisingly low resiliency scores,
- Older Americans—despite numerous other studies that document fear over retirement income—were significantly more resilient than younger age cohorts, and
- Here’s one for psychologists to unravel—procrastinators were relatively resilient when compared to impatient respondents.
Conclusion
What insights does this study reveal about CFP Board’s expectations of current CFP® Certificants and aspirants?
- Establishing an appropriate, liquid emergency cash reserve is a high priority.
- Creating and following a retirement plan as early as possible in life is vital.
- Spending can be effectively controlled by adhering to a budget.
- Savvy Americans avoid, reduce, and liquidate debt where possible.
