"The King Was in the Counting House . . . "

Those with money do like to count it, or so it seems from a recent Gallup Poll* that finds upper-income Americans to be much more likely than the rest of the public to use money management tools.

While the wealthy have more money to keep track of and more means to do so, the exercise may be most important for lower-income Americans who need to make the best use of every dollar. Gallup's recent Economy and Personal Finances survey, conducted April 7-9, documents some of the gaps between upper- and lower-income groups' money management practices.

Overall, a majority of American adults (56%) claim to prepare a household budget that tracks their income and expenditures. However, just one in three Americans (34%) takes advantage of the next most commonly used tool -- a long-term financial plan. About the same percentage (30%) uses an accountant or certified financial planner, but even fewer make use of computer-based financial software programs such as Quicken or Microsoft Money (24%).

Financial Planning Tools
2003 Apr 7-9	Yes	No
	%	%
Prepare a household budget that tracks your income/expenditures and sets spending limits	56	42
Prepare a long-term financial plan that outlines your savings and investment goals in detail	35	62
Use an accountant or certified financial planner to assist you in your financial planning	30	69
Use a computer-based financial program such as Quicken, Microsoft Money	24	75

. . . Counting Out His Money

The connection between having money and counting money is clear: The poll results show a direct correlation between how much money one makes and whether a person uses money management software, uses an accountant or certified financial planner, or has prepared a long-term financial plan. For instance, only 10% of Americans in the lowest income group report using financial software to track their finances. This rises to 17% among those earning between $20,000 and $29,999 annually, to 20% among those in the $30,000 to $49,999 bracket, to 38% among those earning $50,000 to $74,999, and reaches 51% among those earning $75,000 or more per year (the wealthiest 20% of American households).

A similar pattern is seen in the public's use of professional financial advice and, perhaps most importantly, with long-term financial planning.

Setting a household budget to track income and expenses is the only mechanism tested that is just as likely to be used by lower-income as upper-income Americans. But given the differential need for a budget according to income level -- this is one area in which lower-income Americans ought to exceed wealthier groups.

Use of Financial Planning Tools by Income
	$75,000+	$50,000-$74,999	$30,000-49,999	$20,000-29,999	Less than $20,00
	%	%	%	%	%
Household budget	57	57	58	58	51
Long-term financial plan	51	40	33	28	19
Accounting/Certified financial planner	51	38	27	18	13
Financial software	45	30	20	17	10

"Have-Nots" Lag in Financial Planning

Of course, income does not tell the whole story. One could have high earnings and be struggling with a sea of debt, or have low earnings, but have few expenses to worry about. Thus, Gallup's Economy and Finances poll also evaluates respondents' financial security on various levels. Three-quarters of Americans (73%) told Gallup in the April survey that they have enough money at present to live comfortably, while 26% said they do not.

The 26% group is just as likely as the 73% group to report setting a household budget. The group is only slightly less likely to use computer finance software.

More substantial differences are seen with respect to financial planning. Only 22% of those in financial difficulty report having prepared a long-term financial plan, compared with 40% of those who are currently living comfortably. And related to this, there is a 13-point gap in the percentage saying they have used a financial professional to assist them with financial planning.

Financial Planning Activity According to Current Financial Situation
	Have enough money to live comfortably	Do not have enough money to live comfortably	Difference
	%	%
Have a household budget	55	58	+3
Use financial software	26	19	-7
Use accountant/Financial adviser	34	21	-13
Have a long-term financial plan	40	22	-18

While only a quarter of the public indicates experiencing difficulty making ends meet, more than a third of non-retired adults believe they will not have enough money to live comfortably in their retirement. Yet how people in this financial category hope to acquire that necessary income is unclear: only a quarter of this group has thus far prepared a long-term financial plan.

Financial Planning Activity According to Retirement Expectations
	Expect to have enough money in retirement	Do not expect to have enough money in retirement
	%	%
Have prepared a long-term financial plan	44	24
Have not prepared a long-term financial plan	54	74
No answer	2	2

Bottom Line

The people who could most benefit from financial planning advice and tools -- those with tight incomes, barely making ends meet, or putting little aside for retirement -- are underutilizing the tools that could aid them. To some extent, their situation is a Catch-22: they may not be able to afford the computer, the software, or the professional advice that could help them. This leaves simple household budgeting as the best option. This alone could be a tremendous aid to people trying to find an extra $100 a month to pay bills or save for retirement. While a majority of those currently facing financial difficulty do budget their expenses, fully 40% do not.

*These results are based on telephone interviews with a randomly selected national sample of 1,018 adults, aged 18 and older, conducted April 7-9, 2003. For results based on this sample, one can say with 95% confidence that the maximum error attributable to sampling and other random effects is ±3%. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.