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I’m excited to share with you the Spring 2019 issue of the Journal of Personal Finance. This issue includes some thought-provoking
theoretical pieces and impressive research in personal finance that moves us forward in our understanding of how people
interact with their finances. - Editor Benjamin Cummings, Ph.D., CFP®, RFC®

Members of the IARFC can earn CE credits through the Journal of Personal Finance (JPF). Register to take the IARFC JPF Online CE quizzes and receive two for $20. Two hours of IARFC CE will be awarded to anyone who achieves a score of 13 or higher per quiz. Only one submission per member is allowed, quizzes are available as JPF issues are published. To register for a  the quiz click here.


Volume 18 Issue 1,  2019

Financial Planning Client Interaction Theory (FPCIT) ……………………………...9

Sarah D. Asebedo, Ph.D., CFP®, Texas Tech University


The personal financial planning (PFP) profession has grown substantially since its inception in 1969. While PFP is widely practiced, the recognition of PFP as a formal profession is not widespread. Experts have noted that this is largely due to a lack of PFP-specific theory that illuminates how the PFP profession is unique from its peers. This paper seeks to strengthen the theoretical foundation of PFP by introducing Financial Planning Client Interaction Theory (FPCIT). FPCIT is a theory derived from the very thing that makes PFP special—the financial planner/client relationship. FPCIT explains the utility derived from the interaction between a financial planner and client. FPCIT provides theoretical grounding for quantifying the value of PFP as a professional area of research and practice, which informs PFP stakeholders—financial planners, consumers, academics, regulators, and policy makers—about the benefits and uniqueness of the PFP profession.

Key Words
Client relationship; Interaction; Personal financial planning; Theory; Utility.

A Mechanistic Model of Personal Finance……………………………………25

Joseph L. Galatowitsch, Bachelor of Science, Biomedical Engineering, MBA


Widespread personal finance education and advice have not been proven to materially impact the financial health and well-being of most households in the U.S. Ironically, a clear and comprehensive understanding of the operating model of how income, expenses, spending and asset accumulation are interconnected has not been seriously explored or defined. Without an adequate understanding of this operational subsystem, the impact of spending and asset accumulation decisions cannot be objectively assessed. This model provides a robust and actionable tool to help improve understanding of the operating implications and consequences of these decisions. Broad adoption and use of a standard model of income, expenses, spending, and asset accumulation in financial literacy education may have a positive and sustainable impact on individuals and personal finance professionals alike.

“As Soon As…” Finances: A Study of Financial Decision-Making…………………………………………37

Barbara O'Neill, Ph.D., CFP, CRPC, AFC, CHC, CFEd, CFCS, Extension Specialist in Financial Resource Management and
Distinguished Professor
Yilan Xu, Ph.D., Assistant Professor, University of Illinois at Urbana-Champaign
Carrie Johnson, Ph.D., AFC, Assistant Professor and Extension Specialist in Personal & Family Finance
D. Elizabeth Kiss, Ph.D., Associate Professor and Extension Specialist, Kansas State University
Steven Buyske, Ph.D., Associate Professor, Rutgers University


This article reports findings from a study of financial decision-making featuring analyses of responses to open-ended questions. The target audience was young adults with 69% of the sample under age 45. Four key financial decisions were explored: financial goals, homeownership, retirement planning, and student loans. Results indicated that many respondents were sequencing financial priorities instead of funding them simultaneously, and they were delaying homeownership and retirement savings. Three-word phrases like “once I have…,” “after I [action],” and “as soon as…” were noted frequently, indicating a hesitancy to fund certain financial goals until achieving others (i.e., sequential goal pursuit). This article also provides implications for financial practice. 37

Credit Card Use of College Students: A Broad Review………………………………….55

Alex Yue Feng Zhu, Ph.D., Visiting Research Assistant Professor, Lingnan University (Hong Kong)


Using credit cards is an effective way for college students to learn about credit and shape their credit behavior in preparation for financial independence. However, negative outcomes are associated with unhealthy credit card use. By reviewing articles in the past 15 years, this article summarizes the factors influencing credit card use among college students, and identifies the research gaps in previous studies. The purpose of this article is to direct future studies in promoting healthy and responsible credit card use, which promotes financial wellbeing of college students.

Using donor images in marketing complex charitable financial planning instruments: An experimental test with charitable gift annuities…………………………………………65

Russell N. James III, Ph.D, JD, CFP®, Professor, Texas Tech University


Previous experimental research has demonstrated simple charitable giving decisions can be influenced by examples of another’s donation. This article uses a series of experiments to explore how the example of another’s complex donation influences interest in a complex charitable financial planning arrangement (a charitable gift annuity). The influence of an example donor varied depending upon the presence and age of the example donor image. A key factor in determining the effectiveness of an example donor image was matching the age of the participant with the age of the example donor image. When the age of the donor image was similar to (differed substantially from) the participant’s age, including the donor image generated higher (lower) interest in the complex gift as compared with the overall interest generated when including a non-donor image or no image. This effect from age matching arose through the impact on perceived similarity and identification with the example donor. The value of a donor image for increasing interest in a complex charitable financial planning instrument depends upon its ability to advance the idea that “people like me do things like this.”

Issues with the Transition Mechanism in the Actuarial Approach to Retirement Spending..…………………………………………75

Ken Johnston PhD CFA, Associate Professor of Finance, Berry College
John Hatem PhD, Professor of Finance, Georgia Southern University
Thomas Carnes PhD, Professor of Accounting, Berry College
Arman Kosedag PhD, Associate Professor of Finance, Berry College

This article highlights some issues with the actuarial retirement withdrawal strategy. There are potential problems with the transition mechanism (present value of an annuity calculation, PVAN) as the retiree ages. With poor initial returns, the actuarial approach does not cut spending quickly enough, due to the mathematics of the annuity formula. Additionally, spending rates can initially be too high or too low depending on the assumed discount rate, which can result in the inefficient spending down of wealth. If a future value is specified as a bequest/safety net, the minimum annual spending over the 30-year period decreases as the future value increases. The effect of a desired future value on annual spending volatility depends on whether the actual subsequent compounding rate is high or low. An increase in the desired future value results in smaller initial withdrawals, with the portfolio’s recovery dependent on future returns. As remaining longevity declines with a constant future value, large (small) positive returns as the retiree ages force the transition mechanism (PVAN) to significantly increase (not significantly increase) the annual withdrawal, thus increasing (decreasing) the standard deviation. This effect can possibly turn annual spending negative. Therefore, while the actuarial approach provides solutions to some issues, it also creates new ones.


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