Individuals who scored higher on measurements of objective financial knowledge were more likely to seek professional financial advice in the areas of savings or investment management, obtaining a mortgage loan or any type of insurance or tax planning than individuals who scored lower on objective financial knowledge, according to Cliff Robb, associate professor of personal and financial planning.

He observed a similar outcome for individuals who scored higher on subjective financial knowledge.

Robb, Ph.D., and Martin Seay, assistant professor, presented their research findings at the 10th Annual Insurance and Financial Advisors Continuing Education (IFACE) Conference in April at the K-State Alumni Center, Manhattan. Presentations at the conference covered topics such as estate and income taxes, the Patient Protection and Affordable Care Act (PPACA), life insurance in estate planning, charitable giving and ethics.

Robb spoke on Personal Financial Knowledge as a Compliment to, Rather than a Substitute for, Professional Advice. His research was based on the 2009 National Financial Capability Study (funded by FINRA).

To frame his presentation, Robb pointed out the differences between the concepts of subjective financial knowledge (individuals’ perceptions of what they feel they know about personal finance matters) and objective financial knowledge, which is based on a standardized series of questions contained within the FINRA dataset that is designed to test basic financial knowledge.

Other variables commonly associated with personal finance including risk tolerance, income, education and age were found to be positively associated (higher levels of each) with the likelihood of seeking financial advice, though certain attributes such as financial satisfaction, and age tended to vary based on the type of financial advice.

Seay, Ph.D., CFP®, presented Financial Satisfaction and Homeownership Status.

The Great Recession appears to have impacted the housing cycle; young individuals remain at home for longer periods of time, are more dependent on their parents, and postpone marriage until later in life. The tightening of the credit markets following the 2008 financial crisis has also played a role in the homeownership delay, he said.

In the traditional (pre-2008) housing cycle, young adults left home, rented apartments until they could afford to buy a home, and then bought a home partially financed by a mortgage.

Seay explained that researchers have studied the concept of financial satisfaction and its impact on individual well-being. Before the 2008 financial crisis, several studies found that homeownership status was associated with financial satisfaction, and that homeownership was positively associated with financial wellness.

His research focused on the relationship between homeownership and financial satisfaction after the crisis. Using data from the 2009 Financial Capability Study, Seay also asked:

• How does holding a mortgage have on financial satisfaction among homeowners?
• Among mortgage holders, is there a relationship between mortgage characteristics and financial satisfaction?

He found that:

• Among all survey respondents, homeowners reported significantly higher financial satisfaction than non-homeowners;
• Among homeowners, financial satisfaction was lower for those who held a mortgage;
• Among individuals who held a mortgage, those that held an interest-only loan were more satisfied than those who held a fixed rate loan; and
• Among mortgage holders, individual who had missed multiple mortgage payments were less satisfied than those that had not missed a payment.

While owning a home was associated with higher satisfaction levels, this increase in satisfaction was largely wiped out for those owners who had a mortgage. Overall, an individual’s ability to meet monthly expenses and protect against emergencies were found to be the most significant predictors of financial satisfaction.

View more of Seay’s research findings (pdf)

Morris speaks on ethics

Gary Morris, CFP®, talked about the consequences of engaging in unethical behavior and the Certified Financial Planner® Board’s Standards of Ethical Conduct at the IFACE conference.

His presentation was made possible through a grant from the Provost’s Academic Excellence Fund obtained by Sonya Britt, PFP program director and associate professor, and Ann Coulson, assistant professor.

Morris is managing director of Morris Consulting Company, Hong Kong. He works with an international base of clients in financial planning and philanthropy.

All individuals awarded the Certified Financial Planner® designation are required to complete a minimum of two hours of continuing education ethics credits annually, as part of the thirty hour continuing education annual requirement.

More than 75 financial planning professionals attended the conference sponsored by KSU Foundation in conjunction with the Institute for Personal Financial Planning.