How much financial advice do we need? It’s a question we all ask ourselves, whether we pay a certified financial planner handsomely or go it alone.
But with a troubling national shortfall in retirement savings and the lingering effects of a foreclosure crisis, policymakers and researchers are asking the same question in the hope of coming up with low-cost ways to keep people on the right track.
The answer, to judge from a rash of recent studies, is not much.
The credit-rating agency Experian recently conducted a study with Neighborworks, a nonprofit that helps lower-income families buy homes, measuring the effectiveness of Neighborworks’ weekend workshops. It showed that as little as eight hours of counseling on real estate basics reduced mortgage delinquencies by more than a third.
The study included experienced homeowners as well as first-time buyers, and Experian was careful to control for those who required remedial advice.
“The study looked at pre-home ownership credit behavior, so you didn’t only have people who already had bad credit,” said Douglas Robinson, a Neighborworks spokesman. He added that middle- and even high-income buyers could also benefit from a brief acquaintance with what to expect from home ownership.
“We reduce the ‘unknown knowns,’ ” Robinson said.
Other studies have shown that the unknowns can be reduced with far less effort.
At Stanford University’s Institute for Economic Policy Research, a group looking for ways to spur higher retirement savings found that employees who got occasional, customized projections from their employer of how much income their IRAs and 401(k)s would provide them responded by increasing their annual contributions.
Similar results can be realized simply by using an online retirement calculator. A recent paper from the Employee Retirement Research Institute showed that those who figured their retirement needs with a Web tool increased the adequacy of their savings targets as much as 18 percent. In fact, those who used an online calculator ended up with more realistic savings targets than people who relied on a financial adviser.
That evidence raises another question: What kind of financial advice do we need?
Jack VanDerhei, research director of EBRI and co-author of the paper about online calculators, suspects that most people seek out advisers for guidance on other investment matters, such as asset allocation. “That tells me nothing as to what my overall savings targets should be,” VanDerhei said.
And it does little to connect our picture of home ownership or retirement with reality.
“All of us sort of dream in color,” said Anna Behnam, a financial adviser with Ameriprise Financial Services in Rockville, Md. “When we think about buying a