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Journal of Personal Finance Tools, Techniques, Strategies - iarfc PDF

135 Pages·2008·1.9 MB·English
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Journal of Personal Finance Tools, Techniques, Strategies, and Research to Aid Consumers and Professional Financial Advisors Volume 5, Issue 2 The Official Journal of the International Association of Registered Financial Consultants 2 Journal of Personal Finance CONTENTS EDITOR’S NOTES .................................................................. 9 ® John E. Grable, Ph.D., CFP , RFC NEWS & NOTES .................................................................. 14 PRACTICE MANAGEMENT A Further Examination Of The Validity Of The Kansas Marital Satisfaction Scale: Implications For Financial Consultants .............. 17 John E. Grable, Ph.D., CFP®, RFC Kansas State University Sonya Britt, M.S. Kansas State University The purpose of this study, using data from a survey of Midwestern married respondents (N = 293), is to yield additional empirical evidence regarding the criterion- and construct-related validity of the Kansas Marital Satisfaction Scale. The KMS was significantly correlated with the Relationship Assess- ment Scale and with Type-A Personality, Self-Esteem, and Religiosity in this study. These findings confirm the criterion-related validity of the KMS. A logistic regression was used to test the construct validity of the KMS. Results support the construct-related validity of the KMS. Lower KMS scores were associated with an increased likelihood of thinking a marriage might be in trouble. Age and employment status also were found to be negatively related to the thought of marital trouble. Since money management is a large aspect of most marriages, the findings from this study support the use of the KMS by financial consultants who believe that their clients may be exhibiting problematic financial and marital behaviors. Implications for practitioners are provided to elaborate on this finding. ©2006, IARFC All rights of reproduction in any form reserved. Volume 5, Issue 2 3 RESEARCH & THEORY Mortgages And Asset Accumulation: A Ten Year Comparison Of Homeowners .............................................................. 32 Lance Palmer, Ph.D. The University of Georgia Jean M. Lown, Ph.D. Utah State University The purpose of this study was to investigate the long-term relation between household leverage through the use of mortgages, and changes in household wealth using the theoretical framework of the life cycle income hypothesis. This study used the 1992 through 2002 waves of the Health and Retirement Study. The characteristics of leveraged and unleveraged households were compared in 1992 and 2002 as were changes in wealth during that period. Households without mortgages consistently had greater net assets relative to households with mortgages. Whether members of the household were currently working was consistently associated with carrying a mortgage. The Effects Of Investment Education On Gender Differences In Financial Knowledge ....................................................................... 55 Ronald E. Goldsmith Florida State University Elizabeth B. Goldsmith Florida State University There is much concern that women in particular have less knowledge and skill in managing their personal finances than men do, despite its manifest impor- tance and the fact that so many women have this responsibility. These gender differences appear early in life: previous studies have suggested that male college students not only feel that they have more knowledge of personal finance than female students, but that in fact they really do have more knowledge on average. One avenue for improving financial skills is through education. Little research, however, has been done to evaluate the effects of education on the financial skills of women versus men. Using data from 122 students, the present study confirmed that women knew less about investments than did men. However, the experiment showed that formal instruction in personal finance not only increased both men’s and women’s investment knowledge, it closed the knowledge gap between the genders. 4 Journal of Personal Finance Consensus Market Forecasts: Too Risky To Rely On Experts .......... 70 Seth Hammer, CPA, Ph.D. Towson University Ora Freedman, Ph.D. Villa Julie College This study examines whether it is feasible that consensus market forecasts, such as those published annually by Business Week can provide information useful for asset allocation decisions. The findings suggest that reliance on forecasts of the Business Week experts or any group of experts is highly risky because a) experts, similarly to laymen, demonstrate a proclivity to engage in the anchoring and adjustment heuristic; b) experts must perform at a level approximately 20% above random simply to match a buy-and-hold strategy; and c) where taxes are a factor, experts must perform at an even higher level to compensate for loss of compounding benefits and loss of preferred tax rates applicable to stock investments. Covered Call Writing As A Strategy For Small Investors ................... 87 Ki C. Han, Ph.D. Suffolk University Kamlesh Dadlani Ernst & Young LLP This study investigated, using Dow Jones Industrial Average (DJIA) compa- nies, whether writing a covered call provides a significant benefit over outright stock investment. It was found that even a simple strategy using out-of-the-money calls brought significant benefits to investors in terms of risk and reward. The results demonstrated that, during the period of 1990- 2003, covered call writing reduced the volatility of returns significantly, but did not significantly lower returns. This study also investigated two other covered call strategies. Writing a covered call with half of the position in out- of-the-money calls and the other half in in-the-money calls worked as well as writing covered calls with out-of-the-money calls only. In fact, the former worked even better than the latter during the less bullish period. However, writing covered calls with in-the-money calls only did not work well. Summary Of Author And Article Citations: Journal Of Personal Finance Volumes 1, 2, 3, & 4 .............................................. 101 Theresa Kasper Editorial Assistant John E. Grable, Ph.D., CFP®, RFC Editor ©2006, IARFC All rights of reproduction in any form reserved. Volume 5, Issue 2 5 Traditional Versus Roth 401(K): A Benefits Analysis ....................... 112 G. Eddy Birrer, PhD, CPA Gonzaga University BOOK REVIEW Blink: The Power of Thinking without Thinking ............................. 121 Author: Malcom Gladwell Reviewer: Tim Griesdorn, MBA, CFM, CMA INSTITUTIONAL PROFILE Financial Planning At Western Carolina University ........................ 125 Journal of Personal Finance Guidelines for Authors ....................................................................... 132 6 Journal of Personal Finance Write an article today! The Journal of Personal Finance is currently accepting manuscripts and reviews for publication in future issues. Practitioners, this is your opportunity to contribute to the profession by sharing your ideas and insights with others. Academicians, this is your opportunity to add tothe body of literature in personal financial planning through a rigorous peer reviewed process. The Journal of Personal Finance is unique in its publication approach. The Journal’s Research Policy Board is committed to publishing timely original contributions that offer readers applicable personal financial planning tools, techniques, and strategies. The Journal is practitioner oriented. Approximately one-half of each issue is devoted to practice management articles written by financial consultants and academicians. Each issue also includes empirically based academic articles. Both qualitative and quantitative articles are acceptable. A blind peer review process is used to evaluate each manuscript. Contributors are encouraged to submit papers corresponding to the following topic areas: Client Relationship Management Financial Planning Trends Technology Issues Planning for Special Needs Regulation Overview Ethics of Financial Planning Practice Management Techniques Interesting and Unique Planning Tools and Techniques Investment Decision Management Marketing Methods Book Reviews and Letters Attitude and Behavioral Measurement The audience for the Journal consists primarily of practicing financial planners, insurance advisors, other securities industry professionals, consultants, and academicians. Empirically based submissions should provide a detailed discussion of findings that are directly related to practitioner implementation. If you are a new author, or just thinking about the idea of writing for the first time, please feel free to contact Ruth H. Lytton, Ph.D. about your manuscript ideas. Details regarding the Journal’s manuscript submission process can be found at www.ksu.edu/ipfp/jpf.htm ©2006, IARFC All rights of reproduction in any form reserved. Volume 5, Issue 2 7 JOURNAL OF PERSONAL FINANCE VOLUME FIVE, ISSUE TWO EDITOR ® John E. Grable, Ph.D., CFP , RFC EDITORIAL COORDINATOR Jennifer King EDITORIAL ASSISTANT Theresa Kasper EDITORIAL ADVISORY BOARD Steve Bailey, RFC, LUTCF, CEBA Jim McCarty, RFC HB Financial Resources American Express Financial Joyce Cantrell Advisors Kansas State University Edwin P. Morrow, RFC, CFP , CLU, Charles Hatcher, Ph.D. ChFC University of Wisconsin Financial Planning Consultants So-Hyun Joo, Ph.D. Barbara O’Neill, Ph.D., CFP , AFC, Texas Tech University CHC, CFCS Rich Landsberg, RFC, J.D., LLM Rutgers Cooperative Extension Nationwide Financial Services Robert Moreschi, Ph.D., RFC Mike Massrock Virginia Military Institute Western Reserve Life and ISI Anthony Sorrentino, RFC Ruth H. Lytton, Ph.D. National Financial Services Virginia Tech Richard Salmen, CFP , CRFA, EA Mike Lemieux, RFC G-Trust U.S. Worldwide Financial Services, Inc. Ronald Stair, Ph.D., RFC, MLT, AEP Jean Lown, Ph.D. Creative Plan Designs Utah State University Jing Xiao, Ph.D. Constance O. Luttrell, RFC University of Rhode Island CC & Associates William J. Trainor, Jr., Ph.D. Burnett Marus, RFC Western Kentucky University Burnett Marus Associates Jerry Mason, Ph.D., CFP , RFC Edelman Financial Services Mailing Address: Institute of Personal Financial Planning, School of Family Studies and Human Services, 318 Justin Hall, Kansas State University, Manhattan, KS 66506 Phone: (785) 532-1486 or (785) 532-5510; Fax: (785) 532-5505; E-mail: 8 Journal of Personal Finance Postmaster: Send address changes to Editorial Assistant, Journal of Personal Finance, 303 Justin Hall, Family Studies and Human Services, Kansas State University, Manhattan, KS 66506. Permissions: Requests for permission to make copies or to obtain copyright permissions should be directed to the Editor. Certification Inquiries: Inquiries about or requests for information pertaining to the Registered Financial Consultant or Registered Financial Associate certifications should be made to IARFC, Financial Planning Building, 2507 North Verity Parkway, Middletown, Ohio 45042. Disclaimer: The Journal of Personal Finance is intended to present timely, accurate, and authoritative information. The editorial staff of the Journal is not engaged in providing investment, legal, accounting, financial, retirement, or other financial planning advice or service. Before implementing any recommendation presented in this Journal readers are encouraged to consult with a competent professional. While the information, data analysis method- ology, and author recommendations have been reviewed through a peer evaluation process, some material presented in the Journal may be affected by changes in tax laws, court findings, or future interpretations of rules and regulations. As such, the accuracy and completeness of information, data, and opinions provided in the Journal are in no way guaranteed. The Editor, Editorial Advisory Board, the Institute of Personal Financial Planning, and the Board of the International Association of Registered Financial Consultants specifically disclaim any personal, joint, or corporate (profit or nonprofit) liability for loss or risk incurred as a consequence of the content of the Journal. General Editorial Policy: It is the editorial policy of this Journal to only publish content that is original, exclusive, and not previously copyrighted. Subscription Rates: Individual $ 55 U.S. Institution: $ 98 U.S. $ 68 Non-U.S. $115 Non-U.S. Single issue $19 U.S. Send subscription requests and payment to: IARFC Journal of Personal Finance The Financial Planning Building 2507 N Verity Parkway Middletown, OH 45042 ©2006, IARFC All rights of reproduction in any form reserved. Volume 5, Issue 2 9 EDITOR’S NOTES The year 2006 is well on its way, and what a great year it has been. I have been receiving wonderful feedback from readers about the papers that were published in Volume 4 Issue 4. The dual topics of predicting the future of the profession and why we all should be writing really hit home with readers. I only hope that we all can continue the dialogs that were started in that issue into the future. My guess is that after reading through this issue of the Journal I will be receiving even more feedback. We have an all-star lineup of authors in this Issue. The topics covered are diverse, but the underlying theme is the same, namely, information, tools, techniques, and strategies that can be used to improve the practice of personal financial planning. If you are interested in who is the most widely quoted author over the past five years of the Journal, I encourage you to look at the summary of author and article citations paper. The quality of references is an indication of the excellent research that is being conducted in the area of personal finance. On a personal note I want to share some (and somewhat sad for me) news. This issue of the Journal of Personal Finance will be my last as editor. When Ed Morrow and I concluded that this Journal needed to be established I eagerly volunteered to get it off the ground, but I always had one stipula- tion, namely, I would stay on only long enough for the Journal to achieve stability. That time has now come. The Journal has grown from one issue in late 2001 to four issues yearly in 2006. The number of papers being submitted has grown dramatically over that time, and our acceptance rate has continu- ally dropped (this is a good thing in the academic world). The Journal of Personal Finance can now be found in some of the nation’s largest and most respected libraries, on the Internet, and through indexing services including ProQuest and Cabal’s. It has been a pleasure to watch the Journal grow during my tenure as editor, but it is now time to allow the Journal to grow even larger under the leadership of someone who will bring a fresh perspec- tive and a dedication to sustained quality. I am very pleased to announce that Dr. Ruth Lytton will be taking over editorial responsibilities starting with the Issue Three of Volume Five. I am personally excited to know that the Journal will be in the hands of Ruth. She is, by far, one of the nation’s leading thinkers on personal finance topics. Students at Virginia Tech, under her guidance, have won national collegiate financial planning competitions, and she herself, has won several national and international research and teaching awards. So, while I am saddened that I will no longer have a day-to-day role in the Journal’s operations, I am thrilled to know that the Journal will continue to improve into the future. Please feel free to contact Ruth at: 10 Journal of Personal Finance Meet the Authors The first paper in this Issue of the Journal of Personal Finance deals with a topic that, at first glance, may not appear to be related to personal finance. Sonya Britt and I (John Grable) looked at how effectively the Kansas Marital Scale works in predicting relationship satisfaction. The issue of marital stability is one that is growing in importance for practitioners, and it was concluded that the Kansas Marital Scale may be one tool that financial consultants can use to assess their clients’ marital wellness. Sonya Britt, M.S. received her undergraduate degree in Personal Financial Planning and a master’s degree in Marriage and Family Therapy from Kansas State University. She is Licensed Marriage and Family Therapist who works as a therapist at a low-income agency and also at an independent agency. In addition to practicing marriage and family therapy, Sonya teaches an introduction to personal and family finance course at Kansas State University. Dr. John Grable, CFP®, RFC holds the Vera Mowery McAninch Professor of Human Development and Family Studies professorship at Kansas State University. He received his undergraduate degree in economics and business from the University of Nevada, an MBA from Clarkson University, and a Ph.D. from Virginia Tech. He is the Certified Financial Planner™ Board of Standards Inc. and International Association of Registered Financial Consultants registered undergraduate and graduate program director at Kansas State University. Teams of undergraduate financial planning students mentored by Dr. Grable have won the National Collegiate Financial Planning Championship in 2000, 2003, 2005, and 2006. Dr. Grable also serves as the director of The Institute of Personal Financial Planning at K-State. Prior to entering the academic profession he worked as a pension/benefits administrator and later as a Registered Investment Advisor in an asset management firm. Dr. Grable serves as the editor for the Journal of Personal Finance, a rigorous peer-reviewed research journal. His research interests include financial risk-tolerance assessment, financial planning help-seeking behavior, and financial wellness assessment. He has been the recipient of several research and publication awards and grants, and is active in promoting the link between research and financial planning practice where he has published more than 60 refereed papers. Dr. Grable served on the Board of Directors of the International Association of Registered Financial Consultants, as Treasure for the American Council on Consumer Interests (ACCI), and on the Research Advisory Council of the Take Charge America Institute (TCAI) for Consumer Education and Research at University of Arizona. In 2004 he won the prestigious Cato Award for Distinguished Journalism in the Field of Financial Services. Drs. Lance Palmer and Jean Lown have written an interesting paper that compares mortgages and asset accumulation over a 10-year period ©2006, IARFC All rights of reproduction in any form reserved.

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