Financial satisfaction contributes most to overall happiness compared to satisfaction in family, health, and work domains (Easterlin, 2006). Although saving for retirement is a critical component of consumer financial wellbeing, retirement savings by US consumers are inadequate according to the studies that examined the Survey of Consumer Finance (SCF) (Yuh, Hanna and Montalto, 1998; Kim, Hanna and Chen, 2014; Munnell, Webb and Golub-Sass, 2012). Naturally, many have argued for the potential benefits of financial education and professional financial planning (FPA, 2008).
Independent financial planning (FP) services may improve both financial behaviour and financial satisfaction of the clients. Increased retirement savings is a very important change in behaviour of the FP service clients. Maintaining the modified financial behaviours through a sustainable relationship between a planner and a client is a necessary condition for the ultimate goal of financial wellbeing. Clients’ satisfaction will reinforce such stable long-term relationships.
In this study, we examine the financial behaviours and satisfaction of FP service clients with two aspects of FP services distinguished:
Although a few studies have examined who would benefit more from FP services, there is little attempt to evaluate the actual benefits from such services (Warschauer, 2008). In addition, the attempts to examine the relationships among financial attitudes, knowledge, behaviour and satisfaction reported mixed results. That is, previous studies of cross-section analyses failed to show unambiguous results on how any change in attitude and knowledge affects financial practice and satisfaction. Moreover, they did not attempt to examine the impact of FP services on the changes in attitude, knowledge, behaviour and satisfaction.
The current study attempts to examine whether and how FP services improve clients’ positive financial behaviours and financial satisfaction through their changes in financial attitude and knowledge, as these two factors impact behaviours in general (Eagly and Chaiken, 1993). A sample of 216 randomly selected clients was obtained from independent financial planners at one of the largest FP firms in South Korea. Their fee- and commission-based FP services were performed during the April 2012 to February 2015 period. On average, all self-reported measures of FP attitude, planning knowledge, and financial satisfaction improved after FP was completed. Discretionary and untraceable expenses decreased while total savings and investments increased by a significant amount and as a percentage of income. Further analyses show that clients’ financial behaviour changes are related to their changes in attitude (especially, future time preference), but not to the changes in financial knowledge which, instead, are related to their financial satisfaction.
The next section reviews the research literature and presents hypotheses. Then the data and research methods are explained, and the empirical results are presented. Finally, the study concludes with a summary and discussion section.
Some studies in the past examined the relationship between
Some other studies, however, have reported confounding results in terms of possible impact of financial advice on financial behaviour. Marsden, Zick and Mayer (2011) examined the employees of a large Mountain West university in its defined contribution plan. They found that working with a financial advisor within the last two years was positively related to FP activities like goal setting, calculation of retirement needs, diversification, use of supplemental retirement accounts, and accumulation of emergency funds, but was not related to retirement savings or account value growth. Bhattacharya
In addition, a group of studies that investigated the relationships between financial attitudes, knowledge, behaviour and satisfaction reported mixed results. Godwin (1994) found among 256 randomly selected newlywed couples, that a positive attitude toward FP was the greatest predictor of cash flow management after ability and need to manage were controlled, and record-keeping predicted greater satisfaction with the financial situation. Mugenda, Hira and Fanslow (1990) reported a negative relationship between financial knowledge and satisfaction with financial status, while Godwin (1994), Hira, Fanslow and Vogelsang (1992) and Titus, Fanslow and Hira (1989) did not find a significant relationship. Parrotta and Johnson (1998) examined the impact of financial attitudes and knowledge on financial management practices and satisfaction. They used a dataset of 194 recently married individuals, and found that positive financial attitudes, but not financial knowledge, predicted use of recommended financial management practices. Their cross-sectional study, however, was not able to determine whether an individual’s change in attitude and knowledge led to improvements in behaviour and satisfaction. In this study, we would like to provide new insights on the relationship among financial attitudes, knowledge, behaviour and satisfaction by examining how
On the effects of personal attitude on retirement saving, Jacobs-Lawson and Hershey (2005) observed from a sample of 270 young working adults that future time preference, risk tolerance, and retirement planning knowledge positively affect self-assessed retirement saving behaviour. Hershey
According to the theory of reasoned action (Fishbein and Ajzen, 1975), a person’s behaviour is determined by behavioural intention, which is determined by one’s attitude toward the behaviour, the subjective norm, and the relative importance between the attitude and the subjective norm (Xiao, 2016). The theory of planned behaviour contends that three factors influence behaviour intention: the positive or negative valence of attitudes about the behaviour (+), subjective norms (+), and perceived behavioural controls (−) (Ajzen, 1991). Intention then influences one’s actual behaviour. An attitude is a person’s positive or negative evaluation of a relevant behaviour and is composed of one’s beliefs regarding the perceived outcomes of performing a behaviour. A subjective norm refers to one’s perception of whether significant referents approve or disapprove of a behaviour. Perceived behavioural controls describe the perceived difficulty level of performing the behaviour.
Armitage and Conner (2001) note that subjective norms are a weaker predictor of intention than attitude and perceived control. After evaluating 185 studies on the theory of planned behaviour, they further note that self-reports are a less reliable source of information than objective and observed measures. The current study contends that a change in financial attitude among the clients of FP services is related to the change in their objective financial behaviour as reflected in measures like expenditure reduction and retirement investment/saving, and proposes the following hypothesis:
Studies have found that
Financial satisfaction, as a measure of self-perceived overall financial status, is the most commonly used subjective measure of financial wellbeing (Xiao, 2016). Studies of financial satisfaction are important because they contribute most to overall happiness compared to satisfaction in family, health, and work domains (Easterlin, 2006). Financial satisfaction is also a strong predictor of life evaluation (Ng and Diener, 2014) and financial anxiety (Archuleta, Dale and Spann, 2013).
From a sample of 220 mail surveys of white-collar clerical workers in a west Texas community, Joo and Grable (2004) concluded that self-assessed financial knowledge level had a direct impact on financial satisfaction. Robb and Woodyard (2011) found for the Finance Industry Regulatory Authority (FINRA)’s 2009 National Financial Capability Study that self-assessed financial confidence is highly correlated with overall satisfaction on current personal financial condition regarding assets, debts and savings. Perceived financial capability was also found to contribute positively to financial satisfaction (Xiao, Chen and Chen, 2014).
According to Bandura (1982, p. 122), “perceived self-efficacy is concerned with judgments of how well one can execute courses of action required to deal with prospective situations.” Treatments to enhance self-efficacy would promote active work toward a desirable behavioural change (Prochaska, DiClemente and Norcross, 1992). Financial knowledge measure as a proxy for financial self-efficacy would promote desirable financial planning activities, which would then increase financial satisfaction regardless of a change in investments or wealth. Thus, we contend that a change in financial knowledge among the clients of professional FP services is related to the change in their financial satisfaction, and propose the following hypothesis:
The research sample was collected through the fee- and commission-based professional FP services performed from April 2012 to February 2015 at one of the top three independent financial planning firms in Korea. Studies on the effects of financial planning using South Korean data are scant. For example, Sohn
For 216 randomly selected clients, financial planning and counselling were performed. All clients in our sample received
Clients are surveyed at their first and third planning sessions in three areas with 1-5 Likert-type scales. First, attitudes towards financial planning are measured by
In addition to the clients’ demographic information such as age (
In order to test our hypotheses, we employ paired t-tests and multiple regression analysis. We first compared measures for financial attitude, knowledge, satisfaction and behaviour before and after FP services are provided. Paired t-tests were performed for changes in those measures to identify any significant change in measures of financial attitude, knowledge, satisfaction, and behaviour after clients received FP services. Next, we ran a multiple regression to test if financial satisfaction and behaviour are affected by changes in financial attitudes and/or financial knowledge. Dependent variables are changes in financial satisfaction and financial behaviour, and explanatory variables are changes in financial attitude and financial knowledge. In the regression analysis, we control for the clients’ age, marital status, household size, asset size and monthly income.
Table 1 reports the demographics of the 216 clients in the sample. Client age (
Descriptive statistics
Mean | S.D. | Min | Med | Max | |
---|---|---|---|---|---|
37.21 | 9.38 | 23 | 35 | 59 | |
0.66 | 0.48 | 0 | 1 | 1 | |
2.94 | 1.44 | 1 | 3 | 7 | |
Assets Total (10,000 KRW) | 39,646 | 67,675 | 0 | 14,062 | 489,285 |
8.89 | 2.52 | 0 | 9.55 | 13.10 | |
IncomeTotal (10,000 KRW) | 496.2 | 437.1 | 0 | 360 | 3500 |
5.88 | 0.99 | 0 | 5.89 | 8.16 | |
Δ |
0.31 | 0.66 | -1 | 0 | 3 |
Δ |
0.39 | 1.25 | -3 | 0 | 4 |
Δ |
0.37 | 0.87 | -2 | 0 | 4 |
Δ |
0.71 | 1.12 | -3 | 1 | 4 |
Δ |
0.67 | 0.95 | -2 | 1 | 4 |
Δ |
0.89 | 1.06 | -2 | 1 | 4 |
Δ |
0.43 | 0.91 | -2 | 0 | 3 |
Δ |
0.88 | 1.04 | -2 | 1 | 4 |
Δ |
0.88 | 1.21 | -2 | 1 | 4 |
Δ |
70.64 | 101.76 | -410 | 40.5 | 500 |
Δ |
-67.71 | 122.36 | -614 | -49 | 483 |
KRW10,000 is about US$9 when converted at the average exchange rate during 2012-2015.
Average total asset value (
Table 1 also presents the descriptive statistics of the variables that capture the changes in self-assessed value of financial attitude, knowledge, and satisfaction. All measures of attitudes toward, knowledge of, and satisfaction with FP have improved after completion of professional FP services. The last two lines report the average improvement in investment/savings by KRW706,400 (US$640) per month, and the average monthly reduction in discretionary untraceable expenditure by KRW677,100 (US$601).
The correlation coefficients among the variables are reported in Table 2. Demographic characteristics are highly correlated with changes in financial knowledge and satisfaction. An interesting observation is that
Correlations
Δ |
Δ |
Δ |
Δ |
Δ |
Δ |
Δ |
Δ |
Δ |
Δ |
|||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1 | .633** | .639** | .541** | 0.012 | -0.049 | -.173* | -.191** | -.169* | -.255** | -.156* | -.285** | -.277** | 0.018 | |
.633** | 1 | .687** | .419** | 0.036 | 0.028 | -.142* | -0.115 | -0.112 | -.285** | -.162* | -.199** | -.267** | 0.053 | |
.639** | .687** | 1 | .341** | -0.123 | 0.012 | -0.119 | -0.118 | -.163* | -.317** | -.192** | -.245** | -.346** | -0.056 | |
.541** | .419** | .341** | 1 | -0.044 | -0.004 | -.186** | -0.089 | -0.118 | -0.061 | -0.083 | -0.112 | -0.123 | .282** | |
Δ |
0.012 | 0.036 | -0.123 | -0.044 | 1 | -0.011 | .372** | 0.012 | 0.047 | 0.071 | -0.067 | -0.073 | 0.057 | -0.069 |
Δ |
-0.049 | 0.028 | 0.012 | -0.004 | -0.011 | 1 | 0.065 | 0.063 | 0.102 | 0.101 | 0.096 | 0.099 | 0.040 | 0.087 |
Δ |
-.173* | -.142* | -0.119 | -.186** | .372** | 0.065 | 1 | 0.109 | .183** | .155* | 0.005 | 0.073 | 0.030 | -0.062 |
Δ |
-.191** | -0.115 | -0.118 | -0.089 | 0.012 | 0.063 | 0.109 | 1 | .335** | .367** | .322** | .331** | .238** | -0.035 |
Δ |
-.169* | -0.112 | -.163* | -0.118 | 0.047 | 0.102 | .183** | .335** | 1 | .537** | .290** | .402** | .366** | -0.008 |
Δ |
-.255** | -.285** | -.317** | -0.061 | 0.071 | 0.101 | .155* | .367** | .537** | 1 | .279** | .452** | .479** | -0.016 |
Δ |
-.156* | -.162* | -.192** | -0.083 | -0.067 | 0.096 | 0.005 | .322** | .290** | .279** | 1 | .483** | .432** | 0.017 |
Δ |
-.285** | -.199** | -.245** | -0.112 | -0.073 | 0.099 | 0.073 | .331** | .402** | .452** | .483** | 1 | .597** | -0.023 |
Δ |
277** | -.267** | -.346** | -0.123 | 0.057 | 0.040 | 0.030 | .238** | .366** | .479** | .432** | .597** | 1 | 0.030 |
Δ |
0.018 | 0.053 | -0.056 | .282** | -0.069 | 0.087 | -0.062 | -0.035 | -0.008 | -0.016 | 0.017 | -0.023 | 0.030 | 1 |
Δ |
0.013 | -0.027 | 0.033 | -.254** | 0.053 | -0.101 | -0.012 | 0.036 | -0.054 | 0.005 | -0.007 | 0.004 | 0.007 | -.826** |
See Table 1 for variable description. * and ** denote correlation significant at the 5% and 1% levels (2-tailed), respectively.
Table 3 reports the results of paired t-tests, examining the differences before and after comprehensive FP services. All attitude, knowledge, and satisfaction measures improved after FP, and all the changes show strong statistical significance. Clients’ average reduction in discretionary and untraceable expenditure (Δ
Paired t-tests: After – Before for Same Client
Mean Before | Mean After | Diff | ||
---|---|---|---|---|
4.465 | 4.772 | .308 | ||
3.179 | 3.566 | .388 | ||
4.249 | 4.622 | .372 | ||
3.212 | 3.923 | .711 | ||
3.123 | 3.791 | .668 | ||
2.671 | 3.560 | .889 | ||
2.899 | 3.332 | .434 | ||
2.597 | 3.480 | .883 | ||
2.563 | 3.446 | .883 | ||
91.402 | 162.046 | 70.64 | ||
321.621 | 253.913 | -67.71 |
KRW10,000 is about US$9 when converted at the average exchange rate during 2012-2015.
denotes 2-tailed statistical significance at 1% level.
To examine the effects of financial attitude and knowledge changes on the clients’ retirement planning behaviours, regression analyses were performed with control variables like age (
Regressions
[A] Δ |
[B] Δ |
[C] Δ |
[D] Δ |
[E] Δ |
|
---|---|---|---|---|---|
156.542*** | -87.222* | 0.097 | 0.942** | 1.020* | |
2.612 | -1.753 | 0.236 | 2.094 | 1.918 | |
Δ |
10.692 | -14.310 | -0.155 | -0.079 | 0.148 |
0.806 | -1.299 | -1.598 | -0.745 | 1.180 | |
Δ |
-14.128** | 14.490** | 0.055 | 0.010 | 0.006 |
-2.000 | 2.471 | 1.073 | 0.178 | 0.089 | |
Δ |
-16.163 | 3.015 | -0.038 | -0.021 | -0.142 |
-1.512 | 0.340 | -0.486 | -0.245 | -1.410 | |
Δ |
7.591 | -4.790 | 0.206*** | 0.112* | 0.098 |
0.900 | -0.684 | 3.527 | 1.749 | 1.285 | |
Δ |
-10.704 | -0.866 | 0.138* | 0.208*** | 0.176* |
-1.038 | -0.101 | 1.910 | 2.600 | 1.864 | |
Δ |
8.669 | -4.279 | 0.020 | 0.262*** | 0.344*** |
0.934 | -0.555 | 0.304 | 3.553 | 3.934 | |
1.796 | -0.835 | 0.002 | -0.022** | -0.004 | |
1.400 | -0.784 | 0.200 | -2.140 | -0.351 | |
1.411 | 16.500 | -0.039 | 0.040 | 0.120 | |
0.055 | 0.778 | -0.210 | 0.194 | 0.496 | |
7.168 | -12.003* | -0.085 | -0.015 | -0.113 | |
0.854 | -1.723 | -1.396 | -0.226 | -1.428 | |
-3.320 | 1.548 | -0.014 | 0.044 | -0.051 | |
-0.655 | 0.368 | -0.390 | 1.093 | -1.054 | |
-48.394*** | 34.998*** | 0.079 | -0.008 | 0.034 | |
-4.238 | 3.691 | 1.074 | -0.096 | 0.353 | |
216 | 216 | 216 | 216 | 216 | |
.139 | .126 | .173 | .275 | .274 | |
.084 | .070 | .121 | .229 | .228 | |
2.529*** | 2.243 *** | 3.885 *** | 5.949*** | 6.775*** | |
.003 | .009 | .000 | .000 | .000 |
See Table 1 for variable description. t-stats below coefficients. *, **, and *** denote statistical significance at 10%, 5%, and 1% levels, respectively. Statistical and economic significances of the coefficients for major variables do not materially change in models C, D and E when Δ
Columns C, D and E in Table 4 report the results of the regressions of the financial satisfaction variables against attitude and knowledge variables along with control variables. Improvement in satisfaction in asset size and types (Δ
Since Dowling, Corney and Hoiles (2009) found that financial management behaviours such as savings, budget and credit card payment are positively related to financial satisfaction, we also included behaviour variables, Δ
Our results are consistent with the US-based studies by Hudson and Palmer (2014), and Winchester and Huston (2015), which found positive relationships between financial advice and desirable savings and retirement preparation behaviours. Hudson and Palmer (2014) used the 2010 Survey of Consumer Finances sponsored by the Board of Governors of the Federal Reserve System, while Winchester and Huston (2015) used a survey sample of 662 middle class and 1751 affluent households with income levels in the $35,000-$99,999 range. On the other hand, Rickwood
On average, 216 clients of professional FP services provided between April 2012 and February 2015 by a large independent planning company in South Korea experienced improvements in their attitudes toward goal-setting importance, future time preference and early planning, and in their knowledge of financial planning, budgeting and retirement needs analysis. In addition, their financial satisfaction levels improved in the areas of asset, investment, and retirement savings. On average, our sample clients reduced discretionary and untraceable expenditures by $601 per month (13% of monthly income) and increased total investments by $640 per month (14% of income) compared to the pre-planning levels. These remarkable changes in financial behaviours among the clients of an independent FP firm are significant and promising in practical implications. The results point to further motivation of financial planning and counselling among the middle class in South Korea.
This study finds significantly different impacts of two aspects in FP service: attitude and knowledge. Financial attitudinal changes affect financial behaviours such as expenditure reduction and investment/savings for our sample clients, while financial knowledge changes do not. Financial satisfaction measures of the clients, however, are not influenced by financial attitudes but by financial knowledge. Although the results suggest that individual perception of being more capable of personal financial tasks does not necessarily induce actual financial behavioural changes, the increased level of financial satisfaction through gains in financial knowledge is still very important in client retention and thus sustainable positive financial behaviours. The practical implication of our study is that simultaneous improvements in retirement savings behaviour and financial satisfaction can be achieved through professional FP services as opposed to financial education or counselling alone. Financial planning practitioners need to consider these two complementary factors in designing and examining the effectiveness of FP services in order to achieve sustainable improvements in clients’ financial behaviours.
While the studies of the US and Australian consumers relied on
Unlike the US and Australia where FP is very popular, the FP market in South Korea is still developing. In 2016, the Korean government introduced a classification of Independent Financial Advisors (IFA) who can receive fees for FP services but cannot receive commission as they can only recommend financial products to clients. Although this is a well-intended initiative to promote more advice-based business in FP industry, there would not be a sufficient number of clients willing to pay fees for FP services while such fees are standard in the US and Australian FP industries.
When we consider the recent significant increase in household debt (about USD1.3 trillion in 2017, an 8.1% increase from 2016), the excessive portion of residential property in retirement assets, rapid ageing of the population, and over-reliance on insufficient national welfare, promotion of FP services is crucial for the whole Korean society. As our results imply a positive impact of FP services on the clients’ financial behaviour and satisfaction, policymakers need to consider promoting independent FP services in Korea. One way is to improve awareness of the benefits of independent financial advice by professionals with industry certification like CFP® and AFPK®. Another is to allow financial planners to use a range of models to charge their clients for providing advice, like a hybrid model that allows both commission and fee-for-service. Policymakers may also consider subsidising independent FP services for those who need but cannot afford the services, including young, minority and single-parent consumers.
For future research, difference in differences (DID) analysis may be used with a control group of people who did not utilise FP services. In addition, complex relationships between financial attitude, knowledge, behaviour and satisfaction need to be further analysed because financial education may improve both financial knowledge and attitudes (Batty, Collins and Odders-White, 2015).