Journal of Personal Finance Tools, Techniques, Strategies - iarfc

135 Pages·2008·1.9 MB·English

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: [phone] or [phone]; Fax: [phone];
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.
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Journal of Personal Finance
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©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.