Wealth Accumulation and the Propensity to Plan

Why do similar households end up with very different levels of wealth? We show that differences in the attitudes and skills with which they approach financial planning are a significant factor. We use new and unique survey data to assess these differences and to measure each household’s “propensity to plan.” We show that those with a higher such propensity spend more time developing financial plans, and that this shift in planning is associated with increased wealth. These findings are consistent with broad psychological evidence concerning the beneficial impacts of planning on goal pursuit. Those with a high propensity to plan may be better able to control their spending, and thereby achieve their goal of wealth accumulation. We find direct evidence supporting this effortful self control channel in the very strong relationship we uncover between the propensity to plan and budgeting behavior. ∗Caplin thanks the Center for Experimental Social Science at New York University and the C.V. Starr Center for financial support under grant no. SBS-9730133. Leahy thanks the National Science Foundation for financial support. We thank Daron Acemoglu, Alberto Alesina, Robert Barsky, Christopher Carroll, Douglas Fore, Xavier Gabaix, Robert Hall, Guido Imbens, Thomas Juster, Miles Kimball, Lawrence Kotlikoff, David Laibson, Kevin Lang, Donghoon Lee, Annamaria Lusardi, Jennifer Ma, Ben Polak, Thomas Sargent, Matthew Shapiro, Richard Thaler, and an anonymous referee for insightful suggestions. We gratefully acknowledge financial support for our survey provided by the TIAA-CREF Institute. All opinions expressed herein are those of the authors alone, and not necessarily those of TIAA-CREF or any of its employees.