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7th Annual Academic Research Colloquium

CFP Board Center for Financial Planning hosted the seventh annual Academic Research Colloquium for Financial Planning and Related Disciplines in Arlington, VA.

December 7, 2023 - 8:00 AM - December 8, 2023 - 7:00 PM



Economic Security of Older Adults after the Death of a Partner: Evidence from Credit Data

Cäzilia Loibl, Ph.D., The Ohio State University

Stephanie Moulton, Ph.D., The Ohio State University

Meta Brown, Ph.D., The Ohio State University

Donald Haurin, Ph.D., The Ohio State University

Matthew Pesavento, Ph.D., The Ohio State University

The death of a partner has long been recognized as a threat to the economic security of older adults. Yet little is known about changes in credit and debt for surviving older adults. Further, the financial implications of a partner’s death may differ for unexpected deaths, such as those during the COVID pandemic. We examine the relationships between the death of a partner and the economic security of surviving older adults in the pre-pandemic and pandemic periods, spanning 2017-2021. We utilize a unique panel dataset that combines individual-level administrative wage data and detailed financial information from credit report data for older adults in Ohio, including those with and without the death of a partner. We find a significant increase in missed debt payments and persistent decline in credit scores following the death of a partner, with the effects being largest for the most vulnerable older adults.

Tax Loss Harvesting: Check Your Frequency

David Blanchett, Ph.D., CFP®, CFA®, PGIM

Taxes can impact optimal investment strategies for certain types of investors, such as high net wealth households, where efficiently considering taxes has the potential to increase expected risk-adjusted after-tax returns (i.e., generate “tax alpha”). One example of a relatively well-known strategy that has the potential to generate tax alpha is tax loss harvesting (TLH), which involves actively realizing losses on holdings where those losses can be used to offset taxes incurred (or due) on other investments. This research explores how harvesting frequency can impact the expected gains from implementing a realistic TLH strategy, with an additional focus on the realized losses in different market return environments. The analysis clearly demonstrates that more frequent harvesting schedules generate significantly higher levels of realized losses and that the losses realized are likely to vary materially across market return environments. Overall, this analysis demonstrates that the nuances of how a TLH strategy is implemented can have a considerable impact on the expected benefits of the approach (e.g., based on harvesting frequency and the investment options used) although the potential benefits are likely significant for certain investors.

The Value of Professional Financial Advice in a Crisis: Evidence from Financial Advisors During the COVID-19 Pandemic

Kirsten MacDonald, CPA, Griffith University

Ellana Loy, Griffith University

Mark Brimble, Ph.D., Griffith University

Karen Wildman, Griffith University

Globally the COVID-19 pandemic caused tremendous uncertainty for countries and households. This study provides insights into the value of professional financial advice for consumers during times of crisis as perceived by 21 Australian financial advisors. We discuss the significance and dynamics of the client-advisor relationship during crises and the role of advisors in crisis intervention. Clients in long-term advice relationships were reported to panic less in response to the pandemic than other crises and are more likely to have strategies in place to buffer stress. Our evidence highlights the value of trusted advisors in improving consumer well-being and sustainable and resilient communities.

Dwelling on Money Matters: Financial Rumination, Financial Anxiety, and Financial Well-being During the COVID-19 Pandemic

Timothy Todd, Ph.D., J.D., CPA, Liberty University School of Law

Kyoung Tae Kim, Ph.D., EA, University of Alabama

Sunwoo Lee, Ph.D., York University

This study explores the relationships between financial rumination, financial anxiety, and financial well-being during the COVID-19 pandemic. The study also examines the associations of COVID-19 shocks and financial knowledge with financial anxiety and well-being. Regression results from the 2021 National Financial Capability dataset showed that financial rumination was positively associated with financial anxiety while being negatively associated with financial well-being. Both health and employment shocks were positively related to financial anxiety but negatively related to financial well-being. Furthermore, financial knowledge was negatively associated with financial anxiety while positively associated with financial well-being. These results were robustly supported by additional analyses across four generations. This research has important implications for financial practitioners.

Echoes of Bias: An Analysis of ChatGPT in Financial Planner-Client Dialogues

Chet Bennetts, CFP®, CLU®, ChFC®, CLF®, RICP®

Eric Ludwig, CFP®, Kansas State University

In the contemporary era of rapid technological advancements, artificial intelligence (AI) stands at the forefront, revolutionizing human-machine interactions and permeating various industries. Notably, the financial planning sector has embraced AI, leveraging algorithms and AI-empowered tools to offer advice, manage portfolios, and engage with clients. While AI is often hailed for its potential objectivity, recent evidence suggests that generative AI systems, despite their mathematical underpinnings, can harbor implicit biases, leading to potential pitfalls in their applications. The ramifications of such biases within the financial planning realm cannot be understated. Trust, fairness, and impartiality form the bedrock of financial advisories. An AI-generated financial recommendation can significantly shape a client’s financial trajectory, impacting their overall life quality. Thus, guaranteeing fair and unbiased advice is paramount, both for the client’s welfare and the sanctity of the financial planning profession.

A Comparative Study of Planners’ and Clients’ Perspectives on Value

Yu Zhang, Ph.D., Kansas State University

Megan McCoy, Ph.D., Kansas State University

Mindy Joseph, Ph.D., Kansas State University

Client satisfaction is a cornerstone of success in the financial planning industry. Traditionally, financial planning prioritized quantitative outcomes as was demonstrated by the recent decade review of the Journal of Financial Planning (Anderson et al., 2022). However, technological advances like robo-advising and artificial intelligence are compelling financial planners to reassess how they demonstrate value to clients (Fortin et al., 2020). The role of financial planners is increasingly shifting from transactional agents to trusted counselors.

Exploring the Relationships between Virtual Client Meetings, Financial Anxiety, and Trust in Financial Planning

Ashlyn Rollins-Koons, CFP®, Kansas State University

Derek Lawson, Ph.D., CFP®, Kansas State University

Megan McCoy, Ph.D., LMFT, AFC, CFT-I™, Kansas State University

Joanne Wu, CFP®, PFP, Ph.D. student, Kansas State University

Jason Anderson, CFP®, CPA, Kansas State University

Eric Ludwig, Ph.D., CFP®, Kansas State University

This study is one of the first empirical papers examining how tele-financial planning relates to clients' trust in their planners. To address this research gap, this study uses primary data collected from Canadian clients to examine the relationship between tele-financial planning and client trust by examining the client’s perceived ease of use in virtual meeting platforms, being provided the choice of meeting virtually or in-person, and financial anxiety. The findings show that perceived ease of use of technology is positively related to both whether a client meets virtually with their planner and trusts their planner. The results also indicate that virtual meetings and financial anxiety are negatively related to a client's trust in their planner, whereas client satisfaction with virtual interactions was positively related to a client's trust in their planner. Implications for financial planners and researchers are discussed.

Financial Mindfulness

Simon Blanchard, Ph.D., Georgetown University

Emily Garbinsky, Ph.D., Cornell University

Lena Habin Kim, Ph.D. Student, Cornell University

"Financial mindfulness" has become a popular term used by practitioners to promote various financial products and services. Despite its industry-wide prevalence, there is still limited conceptual clarity of what financial mindfulness is and how to measure it effectively. In this article, we define financial mindfulness (FM) as “the tendency to be highly aware of one’s objective financial state while possessing a non-judgmental acceptance of that state,” and we develop and validate an 8-item scale to measure individual differences in financial mindfulness. Through 10 studies, we demonstrate that the FM-Scale has strong psychometric properties, is distinct from conceptually related scales, and predicts actual investment preferences and credit scores. Importantly, the FM-Scale is associated with a broad range of known financially detrimental behaviors (i.e., financial withdrawal, impulse buying, and sunk cost bias) above and beyond related scales (i.e., current money management stress and self-control). Our work is the first to introduce and define mindfulness in the context of consumer finance and to provide a reliable and succinct way to measure it.

The Moderating Effect of Social Media Use on Investing Confidence and Financial Anxiety

Timothy Todd, Ph.D., J.D., CPA, Liberty University School of Law

Sonya Lutter, Ph.D., CFP®, LMFT, Texas Tech University

Cory Thompson, Texas Tech University & Kansas State University

General anxiety plays a significant role in individuals’ mental health. A primary factor contributing to stress is finances, and the concern for financial anxiety has substantial implications for individuals’ well-being. Social media use tends to correlate with unfavorable social comparisons, leading to feelings that others have happier and better lives (Chou & Edge, 2012), which can lead to anxiety symptoms that disrupt daily functioning (Vannucciet al., 2017). Past research has shown that the number of social media accounts was positively correlated with the degree of anxiety (Primack & Escobar-Viera, 2017). Additionally, research has also found that the more time teenagers spend on social media, the more likely they are to experience anxiety (Yan et al., 2017). This research aims to investigate the relationship between social media use and financial anxiety using a stress framework. When faced with new information — for example, by social media — individuals enter a cognitive appraisal process to assess the initial threat or stress associated with the situation. If a threat to well-being is ascertained, individuals enter a secondary appraisal process to analyze their resources to alleviate the perceived threat. When perceived resources are deemed insufficient (e.g., lack of assets available to invest or budget constraints), financial anxiety rises, and it stays elevated until coping mechanisms (e.g., education or counseling) can ameliorate it. Additionally, this framework posits that individuals who perceive a stressor as threatening will exhibit adverse emotional reactions and engage in maladaptive coping strategies. However, if the individual perceives a stressor as challenging but not threatening, generally, they will experience positive emotional responses to the behaviors and engage in adaptive coping systems (Lazarus & Folkman, 1984). This study seeks to answer the research question of whether there is a relationship between financial confidence (i.e., comfort with investment decisions), social media use, and financial anxiety. Guided by the theoretical framework, it is anticipated that a lack of perceived resources (low investment confidence) combined with a high frequency of stressors (social media use) will be associated with higher financial anxiety.

Retirement Expectations vs. Reality: Factors that Impact Retirement Decisions

Zhikun Liu, Ph.D., CFP®, MissionSquare Retirement

David Blanchett, Ph.D., CFP®, CFA®, PGIM

Qi Sun, Pacific Life

Naomi Fink, Europacifica

Using two data sets (Prudential Financial Wellness Survey, and Health and Retirement Study), this study demonstrates that although there is generally a natural upward trend for older (age 50+) Americans to progressively delay their expected retirement, this trend has no statistically significant relationship with the COVID-19 pandemic. The distribution of older Americans’ expected retirement ages is bimodal, often centered around two Social Security Benefit claiming ages – the early retirement age and full retirement age. However, their actual retirement ages are more likely to follow a left-skewed (retire earlier) distribution. The most significant factors that influence participants’ retirement decisions relative to expectations are health (+)1, wealth (-), age (+), change of marital status (+), mortality expectations (+), education levels (+), disability (-), and major illness diagnosis (-). Focusing on these factors can help the retirement benefits community explore strategies to mitigate the negative consequences of gaps between retirement expectations and reality.

Bayesian Estimation as an Alternative to Monte Carlo Analysis in Financial Planning: An Application Using S&P 500 Returns

Donald Lacombe, Ph.D., Texas Tech University

Monte Carlo techniques are ubiquitous in financial planning and related fields. However, the assumptions underlying Monte Carlo techniques can be unrealistic in many modeling contexts. One criticism of Monte Carlo techniques is the distributional assumption underlying the technique, which usually translates into assuming normally distributed data. Bayesian statistical techniques are an alternative estimation strategy that allows one to estimate the underlying distribution as well as make model comparisons between potential candidate distributions. In addition, Bayesian techniques allow for an intuitive interpretation of results, which makes Bayesian techniques more useful than standard Monte Carlo simulation. We illustrate these ideas using returns from the S&P 500 index over a period of 50 years. The assumption of normality for these data leads to economically significant incorrect inferences and interpretations.

A Non-Random Walk Towards More Efficient Portfolios

David Blanchett, Ph.D., CFP®, CFA®, PGIM

Describing the risks of an opportunity set of investments using only returns and covariances, which is common in approaches such as mean variance optimization (MVO), implies that returns are independent (or random) across time. In reality, investments have historically exhibited varying levels of serial dependence, where the returns evolve nonrandomly for both individual investments (i.e., autocorrelation) as well as across investments, to varying levels. This paper explores how the optimal allocation to equities, the value and small factors, and commodities would have varied for different holding periods based on actual historical time series data using a utility function assuming Constant Relative Risk Aversion (CRRA). The analysis clearly demonstrates that optimal allocations vary across investment periods, especially for more risk-averse investors who are concerned with inflation risk (e.g., retirees). Therefore, investment professionals need to actively consider serial dependence when building portfolios with clients, at least to some extent, to ensure the portfolios are best aligned to help clients accomplish their goals.

Measures and Drivers of Financial Wellbeing

Vickie Bajtelsmit, Ph.D., Colorado State University

Jennifer Coats, Colorado State University

Financial wellbeing (FWB) is often measured using the CFPB’s Financial Wellbeing Scale, but there are many alternative ways to assess this concept, including individual perceptions of FWB (e.g., financial satisfaction or stress), objective outcomes that are indicative of FWB (e.g., net wealth, retirement adequacy), and behaviors that influence FWB (e.g., planning, saving, budgeting). Financial planners who aim to improve their clients’ FWB need a nuanced understanding of factors contributing to these measures. We present results of an analysis designed to investigate the drivers through which individuals attain FWB across its different dimensions. Individual discount rates, risk preferences, and financial self-confidence consistently contribute to different indicators of FWB. In particular, we find significant evidence that both the discount rate and self-confidence in financial decision-making have strong impacts on the various indicators of FWB. Financial literacy has an important moderating role in relation to these two drivers and to income. Personality traits, such as conscientiousness and neuroticism are influential in alternative ways across models. Although race and ethnicity do not play a significant role in determining composite FWB, blacks and Hispanics are less likely to perceive their debt as being manageable and they also show significant differences in some financial behaviors.

The Role of Financial Literacy in Improving Financial Well-Being

Nasima Khatun, Texas Tech University

Donald Lacombe, Ph.D., Texas Tech University

Megan McCoy, Ph.D., Kansas State University

This study aims to investigate the relationship between financial literacy and individuals' financial well-being, utilizing data sourced from the 2022 Survey of Household Economics and Decision making (SHED), a cross-sectional survey released by the Federal Reserve Board in the United States. Grounded in the Life Cycle Hypothesis (Modigliani & Brumberg, 1954), this research employs an ordered profit model to find the relationship between financial literacy and an individual's financial well-being. The study affirms the positive impact of financial literacy on financial well-being. Specifically, individuals with a better understanding of inflation, young age, higher education level, full-time employment status, Hispanic ethnicity, and higher income are more likely to experience better financial well-being. Finally, this research provides compelling evidence supporting the importance of financial literacy in enhancing individuals' financial well-being. By promoting financial education and literacy, policymakers, educators, and financial institutions can empower individuals to make informed financial decisions, improve their financial outcomes, and play a pivotal role in fostering economic stability and prosperity. Furthermore, the research findings provide valuable insights for financial planners and therapists, helping them better understand the unique factors influencing their clients' financial well-being. With this knowledge, they can offer more personalized guidance and support, ultimately leading to improved financial outcomes and greater overall financial health for their clients.

Financial Anxiety and Intergenerational Transfers: Impacts of Gifts and Inheritances on Financial Well-Being

Timothy Todd, Ph.D., J.D., CPA, Liberty University School of Law

Kristy Archuleta, Ph.D., LMFT, CFT-I™, University of Georgia

Kenneth White, Ph.D., University of Arizona

The link between financial stressors and financial stress has been clearly established. Indeed, a growing body of research suggests that financial stressors are also linked to financial anxiety (Archuleta et al., 2013). Although financial stressors and stress impact mental health, some individuals have access to helpful financial resources through family members' gifts. More specifically, intergenerational transfers of wealth can provide a way by which individuals can help to alleviate a sense of stress through both a monetary resource as well as a sense of family support. Considering the financial challenges and stress individuals are experiencing (American Psychological Association, 2020) and the positive outcomes from intergenerational wealth transfers found in recent research, the purpose of this study is to advance the literature by exploring how intergenerational wealth transfers can impact financial anxiety and financial stress when facing financial strain. Specifically, the current study aimed to address the question of whether financial strain (i.e., stressors), intergenerational wealth transfers, financial anxiety, and financial stress are associated.

Financial Market Participation and its Association with Investors’ Use of Multiple Information Sources

Mahtab Athari, Ph.D., CFP®, Concord University

Abdullah Noman, Ph.D., CFP®, University of North Carolina at Pembroke

This paper examines the role of a variety of information sources used by individual investors in determining the number of different investment vehicles they hold in their non–retirement portfolios which is used as a proxy for financial markets participation. Data comes from the Investment Survey component of the National Financial Capability Studies (NFCS) survey in 2018. We propose models to test specific hypotheses and estimate them using the ordered logit regression method. The primary results indicate that the variety of different information sources used by individual investors is significantly and directly associated with financial market participation. Additionally, while respondents’ investment knowledge is not, their level of risk tolerance is a significant contributor to their extent of market participation. Among demographic and socio–economic variables, investors’ age, gender, income, and education are significantly associated with market participation, but not, race. Estimation results from the subsamples, based on age, race, gender, education, and income, reconfirm the main results of the full sample with greater details and provide significant additional insights. Findings of the paper imply that policy-makers could encourage financial market participation of individual investors by facilitating dissemination of relevant financial information. Financial planners and advisors can also benefit from the findings of the paper to help their clients diversify their portfolios across several types of financial assets by analyzing their clients’ information-seeking behavior and level of risk tolerance.

Social Media and Speculative Investing: An Examination of Social Media as an Information Source and Investing in Highly Speculative Assets

Morgen Nations, Ph.D. Student, Texas Tech University

Social media is changing the landscape of investment behavior. Investors now have the ability to buy and sell assets at the tap of a finger, and new social communities are being built around those trades. This paper looks at investors who use social media as a source of information and how these consumers approach trading highly speculative assets such as "meme stocks" and cryptocurrency. Through analysis, it was found that social media does have an association with investing in these highly speculative assets, but that the type of social media platform and asset type may play a role in consumer behavior. Financial planning professionals should utilize this information to discuss with clients which social media sites they frequent for investment advice in order to have a better understanding of client risk associated with investing in highly speculative assets.

Financial Education, Employee Mental Health, and Corporate Innovation

Vishal Baloria, Ph.D., CPA, University of Connecticut

Personal financial concerns impact employees’ mental health and make it harder for them to be productive at work. Financial education, in the form of personal finance coursework, can alleviate these challenges and allow employees to apply their cognitive capacity at work. Innovative projects are reliant on the cognitive capacity of employees. We document an increase in patents and patent citations for firms headquartered in states that have adopted financial education mandates relative to firms headquartered in states without such mandates. We use survey data to provide empirical evidence of financial education mandates enhancing the labor supply of mentally healthier employees.

Perceptions or Behavior? An Evaluation of CFPB’s Financial Well-Being Scale: Using Household Financial Ratios

Adele Harrison, Ph.D., California Baptist University

Ed Khashadourian, Ph.D., California Baptist University

This paper addresses financial professionals’ need to assess clients’ perception of their financial well-being relative to their actual financial status based on behavior. We link the CFPB financial well-being scale (perception) with our financial well-being scale based on a combination of household financial ratios (behavior). The result includes four distinct classes of "financially distressed," "financially fragile," "financially stable," and "financially flourishing" which are consistent with the CFPB financial well-being scale. However, we argue that the claim whereby the CFPB financial well-being scale measures a concept beyond traditional financial measures may only reflect the existence of noise in the CFPB data.

Racial and Ethnic Disparities in Household Financial Obligations: Changes from 2016 – 2019

Congrong Ouyang, Ph.D., Kansas State University

Sherman Hanna, Ph.D., The Ohio State University

The 2016-2019 period had increasing prosperity in the United States, especially for households below median income levels, who had substantial gains in income and net worth. Did those households reduce their financial obligations? We analyze the proportion of households with financial obligations ratios over 40% (heavy burdens) in 2016 and 2019. In 2016, households with Black, Hispanic, and Asian/other respondents had significantly higher proportions with heavy burdens than those with White respondents, and those discrepancies persisted in 2019. Each racial/ethnic group of homeowners and renter households had significant increases in the proportion with heavy burdens between 2016 and 2019. A regression analysis with year-racial/ethnic group interactions of homeowner households indicates that only Hispanic households had significant increases in the proportion of heavy burdens between 2016 and 2019. A similar regression of renter households indicates that only Black households had a significant increase in the proportion with heavy burdens.

A Comprehensive View of U.S. Military Veteran Home Ownership

Eric Olsen, The Ohio State University

Cäzilia Loibl, Ph.D., The Ohio State University

Andrew Hanks, Ph.D., The Ohio State University

Andrew Sutherland, Massachusetts Institute of Technology

This study is a comprehensive look at the differences in homeownership between U.S. Veteran households (households in which the head or spouse were previously members of the U.S. Armed Services) and civilian households. In order to provide a comprehensive analysis, we examine both rates of home ownership as well as levels of home equity for those who own a home, and whether financial decision factors might contribute to a difference between the two population samples. By virtue of their military service, Active-Duty military members are impacted by numerous external factors, such as frequent moves and/or deployments, unique benefits programs, universal health care, etc. that impact their ability to build wealth (Eggleston & Holder, 2017). These factors can have negative or positive impacts on the financial lives of military members, but positive or negative, they are clearly impactful. In addition, some Active Duty members experience specific financial hardship, such as prolonged spousal unemployment or PTSD (Eggleston & Holder, 2017; Elbogen et al., 2022) that can follow them post-military service. To investigate the ability of Veteran households to build housing wealth relative to civilian households, this study applies the financial capability framework. This framework posits that both external and internal factors affect overall financial capability, referred to as “opportunity to act,” and “ability to act,” respectively (Sherraden et al., 2019; Sherraden et al., 2015). We aim to answer the research questions: RQ1) do Veteran households own homes at a different rate than civilian households and which behavioral factors are associated with homeownership for Veteran households? RQ2) Do Veteran households have different levels of home equity in a primary residence than civilian households and which behavioral factors are associated with home equity for Veteran households?