The Backward Art Of Managing Money
Sherman Hanna(1)
In the early years of this
century, the eminent economist Wesley Mitchell (1912) contrasted the expertise
increasingly being applied to business decisions to the lack of expertise
in many households in spending money. Mitchell stated:
Perhaps we may solve the problem by developing a professional class of Doctors of Domestic Science, who will be employed in organizing households, giving expert counsel to the newly wed, holding free dispensaries of advice for the indigent, assisting in divers municipal ventures in welfare work, and the like.Although the Cooperative Extension Service attempts to do what Mitchell proposed, its resources are not sufficient for the task today. Many consumers possess the art of spending money, although not always wisely. Clearly, though, many consumers are lacking in the art of managing money. A new record for bankruptcy filings in the United States was set in 1997 (American Bankruptcy Institute, 1998). Merrill Lynch's (1996) Baby Boom Retirement Index claims that Americans are only saving 36% of what they need to maintain their standard of living in retirement. The personal savings rate in the United States in the fourth quarter of 1997 was about 3.8% (Bureau of Economic Analysis, 1998).
The Association for Financial Counseling and Planning Education exists to help address the problems households have in managing money, by improving the education of financial professionals, and by supporting research through its annual conference and this journal. This issue of the journal includes two articles related to how individuals might get help: through the workplace (Garman) and in seeking a financial planner (Bae & Sandager). The latter article includes a result that should please those of us with graduate programs: almost half of the consumers surveyed preferred a financial planner with a graduate degree.
All nine of the articles in this issue have something to do with retirement, in terms of planning, investing, or education. Clearly retirement is important, but many households have more immediate financial concerns. I would like to see more manuscripts submitted on budgeting and counseling issues.
There are three articles with a focus on risk tolerance: Hanna and Chen, Wang and Hanna, and Embrey and Fox. This is an important topic, especially with the increasing need for workers to choose their retirement funds. The Embrey and Fox article is notable because of its analysis of single men and women, thus allowing for analysis of a pure gender effect on risk tolerance.
I have included a little essay of my own, titled What Should Every Student Know? I hope to encourage future contributions on this theme. It would be particularly useful to have an essay on what students of financial counseling should know.
In 1996, I started putting some supplementary material on the journal web site. With this issue, several articles have supplementary materials, such as a survey instrument, statistical results, and additional graphs.
There were 18 regular articles published in Volume 8. Since Volume 7, we have received 73 submissions. Clearly, reviewers and authors have been working hard to make this a useful and relevant journal. Given the need to improve the backward art of managing money, this is an important task.
References
American Bankruptcy Institute (1998, March 2). Bankruptcies increased by 19 Percent in 1997 to a record high of 1.4 million filings. Press release. [WWW document] URL: http://www.abiworld.org/release/LATEST.html
Bureau of Economic Analysis (1998, February 27). Press release. [WWW document] URL: http://www.bea.doc.gov/bea/dn/niptbl-d.htm
Merrill Lynch (1996). The 1996 Merrill Lynch Baby Boom Retirement Index. [WWW document] URL: http://www.plan.ml.com/personal/retire/bb_index.html
Mitchell, W. C. (1912). The
backward art of spending money, American Economic Review 2,
(2), 269-281. (Available on the web through the URL
http://www.jstor.org)
1. Sherman Hanna, Professor, Consumer Sciences Department, The Ohio State University, 1787 Neil Ave., Columbus, OH 43210-1295. Phone: (614) 292-4584. Fax: (614) 292-7536. E-mail: hanna.1@osu.edu