Patterns and Obstacles to Financial Management

Elizabeth P. Davis and Judith A. Weber, Patterns and Obstacles to Financial Management from Financial Counseling and Planning, Volume 1, 1990

This paper reports a questionnaire based study that reports on use of four recommended financial management practices and possible obstacles in following them. The user group studied was non-metropolitan households’ living in Kansas.  The four practices studied were: budgeting, keeping records of expenditures, comparing records to budget and estimating net worth. Respondents who reported having used a procedure were further surveyed to find level of implementation and those who responded to be not following a procedure were asked the reason for not doing so, both as multiple choice questions with facility to explain other factors. 

It was found that record keeping was the most practiced principle and second (80%) was budgeting. But follow up question revealed most (54%) people did budgeting both mentally and on paper. The reason for not being able to practice a budget was lack of a steady income.  Budgeting was planned for time slots of a month, several months and a year. About two third people compared their spending to their planned budget, and they did it on a monthly basis. Only 36% followed all the four practices. Some of the obstacles in following these practices were:  they take time, effort, sometimes cooperation from other family members.

The study is quite old, data were collected in 1984. This may make most results not be very relevant to this usability study.  Also the study didn’t particularly focus on use of any tools. Budgeting was discussed to be mostly “written” and expenditure tracked through saved receipts and checks but did not explain more on the specifics of how that information was handled or managed, which are limitations of a questionnaire kind of study. 

However, the paper still helps us identify the critical practices of personal finance management: record keeping, budgeting, comparing records to planned budget and finally estimating net financial worth. All these are essential basic features of personal finance software even today.  Other critical factors the paper brings to focus are:

·         How different kinds of income and expenditure patterns effect financial planning? This could be huge area to study in itself. As for this study it would mean to use same financial data as test material and try and make sure the actual income profiles of the study participant to be similar (steady or flexible).

·         Finance management may not always be a single person task but rather collaborative as the paper mentions the failure to keep up with record keeping was due to lack of cooperation from other family members. This is something even the current latest personal finance software should try to help.