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... ProchaskaCue, 1991, 1993) The specific financial management practices of family financial managers are examined in this study From the analysis of that data, various constructs and relationships are... experience was observed ©1999, Association for Financial Counseling and Planning Education by Edin & Lein (1997), Shepard (1982) and Xiao and Olson (1993) Chang, Hanna and Fan (1997) and Hanna and Chen... (199 0a) Family financial management Family Relations, 39, 221-228 Godwin, D D (1990b) Towards a theory of family cash flow management Proceedings of the Association for Financial Counseling and
Cash Flow Management: A Framework Of Daily Family Activities Glenn Muske1 and Mary Winter2 The purpose of this paper is to develop a framework to explain and describe the daily cash flow management processes of families. From data gathered through semi-structured interviews, themes are developed and linked into a daily cash flow management framework. The proposed model suggests that families have a process for managing money. The process focuses on short-term viability through safety, control, comfort, and routine aspects. Cash flow activities are motivated by the near future, feelings and values, experience, and situational knowledge. The framework fills a gap in existing research about motivating factors underlying the actual money management patterns of families. Key Words: Cash flow management, Family finance, Family resource management, Money management, Personal financial behavior Introduction For years, scientists have been interested in the family’s financial management procedures and processes. Monroe (1974), describing the work of Davies (1795), Eden (1797), and later Engel (1857) and LePlay (1878), saw these authors as forerunners in studying the expenditure patterns and management styles of the family (Liston, 1993). The family’s cash management practices have been of particular interest (Godwin, 1990a, 1990b). In 1912, Mitchell examined not only what the family bought but also the buying process itself. He wrote that making money and spending money are correlated. Of the two, he suggested that spending money was the more pleasurable task. He noted however that “important as spending is, we have developed less skill in its practice than in the practice of making money....To spend money is easy, to spend it well is hard” (Liston, 1993). Today, family resource management professionals as well as family development theorists, economists and sociologists continue to examine not only where the family spends their money, but also how they spend it or the methods or system used. Even though family money management has been the focus of much study, many researchers still question the level of understanding of the family cash flow management process (Beutler & Mason, 1987; Godwin, 1990a, 1990b; Lown, 1986; Varcoe, 1990; Winter, 1986a, 1986b). The inputs of the process have been studied, as well as the outputs, but questions still arise about what occurs within the decision process and the motivations behind the family’s cash management decisions. The purpose of this study is to develop a framework to explain and describe the family’s cash management practices. The work develops further the data in Muske and Winter (1998) that described the cash management process of family financial managers. The framework, developed from a family unit perspective, supplements existing theoretical work by offering additional explanation and description of the cash management process (Sprey, 1995). Theory and Research on Family Cash Flow Management The role of theory in science has been to describe, explain, and predict (Adams & Steinmetz, 1993; Ambert, Adler, Adler & Detzner, 1995). The development of theoretical frameworks aids the understanding of the phenomena occurring in the surrounding world. Theory, according to Thomas (1992) and Sprey (1995), is what “makes sense out of facts” (Thomas, 1992, p. 4). He goes on to explain that “theory filters out certain facts and gives a particular pattern to those it lets in.” Family resource management professionals, focusing on the study of the financial management processes occurring within the family, have used a variety of theories to explain how the family is managing their financial affairs. Initial scientific work on family financial decisions used the predominant paradigm at the time, microeconomic theory. Over time, family resource management professionals have continued to use economic theory, but have also included other theories. 1 . Glenn Muske, Assistant Professor, Department of Design, Housing and Merchandising, Oklahoma State University, 135 HES, Stillwater, OK 74078. Phone: 405-744-5776. Fax:405-744-5506. E-mail: muske@okstate.edu 2 . Mary Winter, Associate Dean of Research and Graduate Education, College of Family and Consumer Sciences, Iowa State University, 126 McKay, Ames, IA 50014. Phone:515-232-3019. Fax:515-294-6773. E-mail: mwinter@iastate.edu. Cash Flow Management In the mid-1970s, family resource management professionals studying the family unit began using paradigms evolving from other social science disciplines, including psychology and sociology (Doherty, Boss, LaRossa, Schumm & Steinmetz, 1993; Key and Firebaugh, 1989). Today the prevalent paradigm is systems theory. Using systems theory, hypotheses have been developed and tested with quantitative methods (Godwin, 1990a). Most studies have used net worth as the predicted outcome (Beutler & Mason, 1987; Godwin, 1990a; Godwin & Carroll, 1985; Hira, 1987; Sumarwan & Hira, 1992; Titus, Fanslow & Hira, 1989). Financial management professionals have integrated systems theory with a set of recommended financial management practices, the “normative practices,” to assess whether families are managing their financial affairs properly (Rettig & Mortenson, 1986). The recommended practices have been in place for the family’s use since the late 1920s and early 1930s. In parallel comparisons between business and family, scientists since the 1920’s have concluded that good business practices translate into good home financial management practices (Andrews, 1935). Family financial management professionals, using the recommended practices and systems theory for explanation and discovery, have expressed an uneasiness though with the existing outcomes (Beutler & Mason, 1987; Godwin, 1990a; Key & Firebaugh; 1989; Varcoe, 1990; Winter,1986b). They are frustrated by a lack of understanding about the exact management practices occurring within the family as a microeconomic unit. Studies have found few families using the recommended practices (Beutler & Mason, 1987; Davis, 1992; Davis and Carr, 1992; Davis & Weber, 1990; Godwin, 1990b; Godwin & Carroll, 1985; Hira, 1987; Titus, Fanslow & Hira, 1989), yet little work has been done to discover the methods they are using instead (Godwin, 1990a, 1990b; Heck, Winter & Stafford,1992; Prochaska-Cue, 1991, 1993; Winter, 1986a, 1986b). Godwin (1990a) stated “much of the literature on family financial management is prescriptive, including extensive discussions of what families should do in managing their financial resources....little empirical research has focused on what families actually do” (p. 222). Davis and Carr (1992) and Godwin (1990a, 1990b) stated “the incentives that actually lead people to embrace (or reject) the process…remain unclear” (Davis & Carr, 1992, p. 14). Thompson, Sharpe, and ©1999, Association for Financial Counseling and Planning Education. Hamilton (1998) is an example of research that is attempting to fill this gap of how planning is actually being done. They have studied the retirement planning process of single, midlife women. Studies on the recommended practices have questioned whether a lack of knowledge about the practices or the benefits of using the recommended practices may be a contributing factor (Davis & Carr, 1992: Lown, 1986). Winter (1986a) hypothesized that decisions about the use of specific practices are made on a cost/benefit analysis and that, if families do not feel that the benefits and the practices outweigh the time, costs and effort involved, they will reject the use of the practice. Davis and Weber (1990) suggested that the regularity of income and expenses made the practices seem unnecessary. Another possible reason is the maintenance of the status quo, or the tendency to leave things alone if the outcomes are acceptable. The saying, “if it ain’t broke, don’t fix it,” comes to mind (Atchley, 1989; Godwin, 1990a, 1990b). Although the recommended practices are considered prescriptive, several authors have questioned whether, indeed, they are the only way that management can occur (Davis & Carr, 1992; Godwin, 1990a, 1990b; Heck, Winter & Stafford, 1992; Muske & Winter, 1998; ProchaskaCue, 1991, 1993). The specific financial management practices of family financial managers are examined in this study. From the analysis of that data, various constructs and relationships are defined. The results are a framework that describes and explains the family’s short-term cash flow management process. The study responds to Key and Firebaugh’s (1989) challenge to understand and “conceptualize the phenomenon,” that being the family’s cash management system. Such an understanding allows a more complete picture of the decision making process and, in turn, expands the theoretical base. Methods The Advantages of Qualitative Methods This study used a qualitative method to develop a cash management framework. Fayol (1929) suggested that to study what a manager does one must ask the manager as well as watch and follow the manager, in summary, an inductive process. Inductive methods allow the researcher to learn about how and why people behave as they do. The goal is to understand the individual’s behavior rather than provide a group average (Sprey, 1995). All rights of reproduction in any form reserved. 3 Financial Counseling and Planning, Volume 10(1), 1999 Qualitative research lets the voice of the individual be heard. Cunniff (1998), writing about Americans’ low savings habits, said that to understand why people do not save, “why not ask the people who aren’t doing the savings?” (p. E3). Writers have noted that statistics often drown out the voice and experience of the respondent (Edin & Lein, 1997; Rubin, 1976). Rosenblatt and Fischer (1993) maintain that qualitative research provides “answers about meanings, understandings, perceptions and other subjects in and about the family” (p. 172). They continue: qualitative family research will always be at the leading edge because people’s verbal accounts of their own life…speak best to many research questions and to most consumers of social science research (p. 175). During the collection of the data and throughout the analysis, themes in the data were noted (Strauss & Corbin, 1990). Themes are the building blocks for theory development (Glaser & Strauss, 1967). As Lofland (1974) wrote, a generic theme emerges “when the structure or process explicated is chosen and brought to a level of abstraction that makes it generally applicable rather than applicable only in a given institutional realm” (p. 103). Themes in turn are grouped into constructs, or broad descriptors that, when linked by relationships, form an identified framework (Glaser & Strauss, 1967; Miles & Huberman, 1994; Thomas, 1992). Relationships between the constructs are outlined. As relationships link the constructs, grounded theory developed, so called because it is “grounded” in empirical work. Methods Used The qualitative process began with data collection. Data included observations, words and activities of the respondents. Respondent selection can be performed in a variety of ways. At times respondents are chosen based on new information they may provide and at other times selection is done based on extreme positions. For this study, the intent was to develop a loosely defined homogeneous group. Families were selected from couples known to the researcher, his spouse, or the faculty members with whom he worked. Similar families were selected and interviewed until their answers became redundant. The framework developed is based on case studies of 7 families reported in Muske and Winter (1998). The framework offers an in-depth look at cash management practices including information regarding the reasoning in the decision making process. The case study approach as a research method allows the researcher to learn about people in the context of their lives, in their natural surroundings, performing their normal routines, surrounded by the social structures and individuals with whom they normally come in contact (Bogdan & Biklen, 1992; Lincoln & Guba, 1985; Miles & Huberman, 1994). Families selected resembled the median or “typical” American family (Ambert, Adler, Adler & Detzner; 1995; Lincoln & Guba, 1985; Miles & Huberman, 1994). The working definition of this American family was based on the 1990 census bureau definition of the median family (1994 Statistical Abstract, Table 714; 1990 Census of the Population and Housing-Social, Economic, and Housing Characteristics, Table 5; 1990 Census of Population-Social and Economic Characteristics, Table 16, 17, 23). All respondent couples consisted of individuals in their first marriage. The ages of the couples ranged from age 30 to age 41 at the end of the three-year time frame during which the data were gathered. All the couples had been married for a minimum of 8 years. Each couple had one to three children. Both adult individuals held a part time or full time job and their combined income levels ranged from $40,000 to $60,000. All individuals held high school diplomas, with the highest degree of any adult being a bachelor’s degree. All of the respondent couples were white. 4©1999, Association for Financial Counseling and Planning Education. In a quantitative paradigm, 7 families would seem to be a rather small number for research. In qualitative studies however, a large sample size is considered unnecessary. Ambert, Adler, Adler, and Detzner. (1995) and Yin (1989) suggest that an in-depth study of a small number of cases begins to allow explanation of “cause and effect” relationships. Similarly Sprey (1995) commented that, if the purpose is to generalize to theory, the sample should be rather small. Some qualitative researchers suggest that one in-depth case study can form the underpinnings of a theory (Glaser & Strauss, 1967; Lincoln & Guba, 1985; Rosenblatt & Fischer, 1993). Using interviews with the self-designated family financial manager, data were collected for up to three years (one family was surveyed for three years, three families for two years, and the remaining three families for one year). Interviews were conducted in the respondent’s home. In addition to interviews, an examination of the physical financial management tools was conducted. For each family, random expenditures were selected and the money manager All rights of reproduction in any form reserved. Cash Flow Management was asked, based on recall information, to provide information about the purpose of the purchase. Finally the money manager was observed in his or her bill paying process. All money managers participated in at least three personal interviews (the maximum number of interviews for any one respondent was seven). All personal interviews were tape recorded and then transcribed. The total interview length with a respondent ranged from five to 12 hours. Each respondent was contacted after he or she had received copies of the transcribed materials and asked to comment on the material’s accuracy, intended meaning and general clarity. This process, termed member checking, is considered extremely important in the process of establishing study credibility (Lincoln & Guba, 1985). In addition, other tools were used to develop accuracy, reliability and credibility. These tools included peer debriefing; redundancy of data gathering; triangulation (reaching the same conclusion using various data types); meetings with a colleague on a periodic basis to discuss findings; presentation of early drafts to family financial management professionals for their response and feedback; and finally, meeting with faculty members in the design and development of the study. In addition, a colleague read parts of the transcripts to see if she noted similar reflections, key words and themes (Bogdan & Biklen, 1992). After all interviews were completed, a formal analysis of the data began with the coding of the data. Codes were designed to categorize data into common areas. These areas included the context in which the data occur, the settings in which the data were discussed, the processes used, and the perceptions of the respondents. Development of a Framework Framework Themes The elements of the theoretical framework arose from the themes. Themes represent grouped data pertaining to similar phenomenon (Strauss & Corbin, 1990). Themes capture the flavor of what is taking place within a family and put it at a broader conceptual level. Themes “deepen understanding and explanation” (Miles & Huberman, 1994, p. 173). The following basic themes are found in the data (Muske, 1996). Process Each family manager has a process or a regular method to handle cash flow management. The ©1999, Association for Financial Counseling and Planning Education. process is systematic and formalized, done in a regular manner and on a regular basis. The process is designed to keep the family in a stable financial position and not “go in the hole.” Each individual’s process is unique but the underlying cash management philosophies of the 7 managers are similar to one another and different from the recommended practices. The common philosophy is short-term with strategies developed to keep the family’s bills paid. Viability Family managers desire to maintain an economically viable unit. Economic viability means staying current on bill payments, avoiding bills that are not paid. Financial success under this system is to “pay all the bills and have no new ones coming in.” Two primary elements are seen in all systems to help achieve viability. First, to help maintain control, the managers look for ways to create an even flow of income and expenses. This stability is noted in routines and systems that require little planning and little time commitment. The respondents also note stability in the regularity of the monthly bills and paychecks. Other strategies used are calendering, income/expense flow charts, false balances, and holding written checks. Even though stability is the preferred mode, family financial managers acknowledge that the financial situation of the family is not static and thus they prepare for changes in cash flow needs (Muske & Winter, 1998). Respondents describe this as “coping.” Coping is identifying strategies that could be used to meet changes in cash flow needs. Coping strategies used include monthly payments, using a charge card, using a home equity loan, or having savings available. By identifying strategies prior to a change in circumstances, such changes are handled without the manager experiencing significant distress. Safety Safety is an important theme. Safety is translated as being able to cover current bills as well as offering some means of protection if funding gets tight. Safety also is a factor in investment decisions. Control Control arises as a theme when managers talk about “avoid[ing] an overdraft” or smoothing out cash flow. Control is not verbalized; rather it is shown in the activities of the respondents. Those activities include false balances (when the account reaches a zero balance, a cushion of money still remains), multiple accounts, and “mad money” or a cookie jar approach. Mad money is similar to the envelope method All rights of reproduction in any form reserved. 5 Financial Counseling and Planning, Volume 10(1), 1999 recommended today and Rainwater, Coleman and Handel’s (1959) “tin can” economy, in which cash is put in a specific place for a specific purpose. When that money is gone, no more is spent for that purpose until the tin can is replenished. Comfort Comfort is a third cash flow objective. Comfort means having a “cushion” of cash. A “comfort zone” describes an acceptable range of operations, instead of living by hard, fixed rules. Family savings are part of the cushion (Xiao & Noring, 1994). Values The respondents verified Deacon and Firebaugh’s (1988) idea that internal thoughts often direct their actions. Some values are clear such as “stay[ing] home with the kids” and “family time.” Another value statement, being “conservative,” is less definitive but still important in the financial management process. Debt provides a number of stated values including its acceptance (debt for “toys” is a perfectly logical thing), its continuity (“I think most people have [a credit card] that is never paid off,”) and its prevalence in today’s family (“We live ‘life to the max’.....We are going to have it right now”). Such statements are supported by Porter and Garman’s (1993) discussion of peer reference groups. Feeling normal Although values are “the essential meanings relating to what is desirable or has worth, providing fundamental criteria for goals, thereby giving continuity to all decisions and actions” (Deacon & Firebaugh, 1988, p. 40), feelings are more contextual, more like relative values. Feelings are defined as “thoughts or beliefs, often for unanalyzed or emotional reasons” (Neufeldt, 1994). The most prevalent feeling is feeling normal, feeling like everyone else. Respondents note this in the debt they carry, the financial decisions they make and in general nonuse of the recommended practices. received severance pay and had access to his retirement funds. By converting these to cash, he now had a significant amount of savings that could cover his debt if needed. Therefore he was in a position to give his family what he never had. Similarly when respondents note they are “doing okay,” “lucky,” “life is good” or “losing ground,” the comparison is always given in relation to some other person or group. Ease and convenience As the money managers discussed the development and use of a financial management system, the concept of ease and convenience often surfaced. Money managers look for banks that are physically close or provide quick service. The managers want monthly billings and automatic withdrawals. Ease and convenience limit the extensive use of mental processing in the financial management system. Ease and convenience override a manager’s search for the “best deal.” Flexibility Managers attempt to develop a system that is routine, minimizes time and mental requirements, and is easy overall. Managers also desire a system that allows some degree of flexibility. All seven of the money managers recognize that financial needs are not static and that they need to be able to respond to emergencies, both large and small. Reported time orientation Time orientation not only is an underlying assumption but also stands out as an important motivator. The time orientation for cash flow management of all the families is short. If any long-term goals are mentioned, they are general in nature with few specific action steps in place to reach the goal. Experience The use of experience is noted over and over in planning for payments and the amount of money set aside for groceries and other miscellaneous bills. Managers also admit that a response to a new situation is often based upon past experience with a similar situation. Positive comparisons Similar to but different is the respondents’ need to feel they are doing as well as their peers but also better than the situation they remember as children. One of the respondents provided a good example of this. While unemployed, he bought a computer, car, and pickup, all on credit. His purchases would seem improper if considered alone. Only when his underlying motivators – vacations for his children, college, giving his family more than he had as a child, and not allowing debt to exceed his savings – are considered, does seemingly irrational behavior begin to seem reasonable in the short run. When laid off, he Information One interesting theme is the respondents’ search for and use of financial management information. The typical sources are not educational classes, formal or nonformal, or work but “coworkers,” “friends,” “our banker and insurance representative,” “a father of a friend” and a “friend of father,” “newspapers,” and “magazines” such as “Glamour, Woman’s Day, McCalls, and Good Housekeeping.” Other sources include credit card “junk mail,” bank employees, insurance agents, and profit 6©1999, Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved. Cash Flow Management sharing plan advisors. Information is categorized according to its source, trusted other or unknown. Information from a trusted other is accepted readily because of the relationship. Like Thompson, et al. (1998), the respondents indicated that information overload was a problem as were financial professionals who were not understanding. Specific practices Family money managers display a range of activities designed to achieve the short-term goals. Many of these activities have already been mentioned. This theme will hold a significant role in the final framework. Activities are the link that ties the motivators and objectives to the desired outcome. Developing a Framework According to Doherty, et al. (1993), theorizing is “the process of systematically formulating and organizing ideas to understand a particular phenomenon.” The first step is the development of themes. Those themes are grouped into five major constructs: underlying motivators, stated objectives, specific practices, desired outcome, and information. The next step is to develop relationships or generalizations as links between the constructs (Thomas, 1992). These constructs and relationships then form the framework outlining the financial managers short-term cash flow management process, the what and why of what they are doing. The conceptual framework developed from the data is displayed in Figure 1. Financial management process The box around the conceptual framework indicates that, in fact, there is an overall process or system of financial management for everyone. The various systems are sufficiently similar in themes and relationships to permit combining them into the suggested framework. Clearly, the data indicate that management does occur and that it occurs in systematic ways. Families are not “willy-nilly” in the handling of their finances. They have in place a thoughtful process. Notable aspects of the process are: (1) parts of it are similar or can be compared to the recommended practices; (2) a relatively high level of mental management occurs in each system; and (3) the focus of the system is on short-term objectives. Desired Outcome The idea that a process exists starts with the manager’s ability to express a desired outcome. In each case, the cash flow management process has the goal of family financial viability. Viability is defined as the continuation of the family’s fiscal well-being or “keeping the bills paid,” almost always expressed in the short-term. The key to ©1999, Association for Financial Counseling and Planning Education. achieving and maintaining this viability is the development of a system that provides stability yet allows for flexibility to accommodate change driven by internal wants or environmental shifts. Stability means evenness, routine, a system requiring little mental exertion to keep it running. Baron and Byrne (1987) noted that mental processing capacity is a limited resource. Yet situations change and family managers responded by including methods to handle change in the least disruptive manner, again while trying to minimize the use of mental resources (Deacon & Firebaugh, 1988). When an engineer designs a structure, built-in flexibility, not rigidity, is a key. Too rigid or too flexible and the structure will collapse. Instead, the structure is designed to, within limits, move and shift. Yet the system cannot be monitored constantly. It must be capable of self-adjustment without constant monitoring. Similarly, the cash management system of the family recognizes the need to adapt to changing circumstances. Families show flexibility in meeting small problems, such as the need for a new air conditioner, and large issues, such as the loss of a job, a move across country with the loss of a client base, or a job shift with a corresponding decrease in pay. Viable systems limit mental processing needs. Underlying Motivators If viability is the desired end state, the next questions are, “How was that state selected and how is it maintained?” The answers to those questions start with understanding the primary motivators expressed by the money managers. A motivator is “an inner state that energizes, activates, or moves, and that directs or channels behavior toward goals” (Berelson & Steiner, 1964, p. 240). The motivation process involves four interacting and interdependent elements, turning needs into goalfocused drives (Luthans, 1977). The themes included as motivators are values, time orientation, experience, feeling normal, positive comparison, ease/convenience, and flexibility. Values as motivators are consistent with Deacon and Firebaugh’s (1988) conceptualization of the management process. Family values motivated a man to take an $8000 per year pay cut for the sake of family (Muske & Winter, 1998). Another stated value is the idea of “enjoying it now” versus saving for the future. This value is interrelated with that of time orientation. Feelings develop in part from the money manager’s short and long-term experience. The money manager’s expression of feelings was voiced in words and actions. All rights of reproduction in any form reserved. 7 P rocess /S ystem Und erlying Info rmation S pec fi ic P ractices M otivators Valu es S ta et d Obje ctiv es F eeling no rmal Ease/Con ven ience Desired Outc omes Calen dars P ad/pa per S afety M ental game s Viab li ity Con tro l F le xibility Com of rt Time orientation F alse balan ce Con tin uou s lo an Exp erience Hom e equ ti y u se P ositiv e Comp aris on Cred ti card s F eedb ack Financial Counseling and Planning, Volume 10(1), 1999 The wish to be seen as normal is similar to Festinger’s (1954) social comparison theory. Time orientation is a strong and clear motivator across all families. A short time frame orientation has a significant impact throughout the study. Time, like feelings, is interrelated with values. Families struggle with reconciling the need to feel normal and “live life to the max,” while limiting debt. Figure 1 Financial Management Process Model Stated Objectives Objectives are more specific, concrete desires that arise from the motivators. Three themes form a hierarchy of objectives: safety, control, and comfort. Safety means avoiding overdrafts, control stems from having activities or accounts available, such as “mad money,” that can be tapped for quick cash needs, and comfort is having a “cushion” or a level of safety. The link between the objectives and the motivators developed as the respondents discussed their cash management systems. The stated objectives are the terms used when respondents discussed what controlled their actions. Typically the motivators only emerged after the respondents were encouraged to go deeper into the process. Specific Practices The activities undertaken by the family financial manager are a direct reflection of the short-term objectives of the manager and the family. Practices are developed to accomplish the outcomes in light of the underlying motivators and stated objectives. Links between objectives and activities are visible. An objective is usually offered when discussing an activity and, likewise, the discussion of an objective elicits the description of an activity. The cash management system (mind games, false balances, calendars, pads, little piece of paper, movement from loan to loan, the credit card for unforeseen emergencies, having available and using home equity credit lines, etc.) is grounded on the objectives of safety, control, and/or comfort. 8©1999, Association for Financial Counseling and Planning Education. Feedback The relationship between viability and the underlying motivators resembles systems theory concept of feedback (Deacon & Firebaugh, 1988). Building routines and using “experience” implies that people use previous efforts to help them manage today. Although the respondents did not discuss their development of routines and experiences in terms of feedback, what is described fits the definition of “that portion of the data that reenters a system as input to affect succeeding output” (Deacon & Firebaugh, 1988, p. 12). Information The last model construct is information. Although not a primary question during discovery, the comments about sources and use of information are enlightening. Information is value-laden according to its source. “Trusted source” information requires less time to process, a short cut for the manager, thus preserving precious mental processing resources. Model Fit Miles and Huberman (1994) suggested that, although two theories will never converge perfectly, partial convergence offers support for the suggested relationships from different researchers with different biases, different respondents, and often in different times. The model offered fits both systems theory (Deacon & Firebaugh, 1988; Gross, Crandall & Knoll, 1980; Paolucci, Hall & Axinn, 1977) and ecological theory ( Bronfenbrenner, 1977; Bubolz & Sontag, 1993). All rights of reproduction in any form reserved. Cash Flow Management The underlying themes also are supported by other theories. As theory is a social construct, existing as people create it, the use of other studies strengthens the hypothesized constructs and relationships. Several studies have examined how past experience is used by the expert to make easier, quicker, and, perhaps, more accurate decisions (Hershey, Walsh, Read & Chulef, 1990; Rasmussen & Jensen, 1974). Newman (1988), Rainwater, et al. (1959), Blau and Duncan (1967), and Edin and Lein (1997) all indicated that families had systems in place for cash flow management. Edin and Lein (1997), Rubin (1976) and Newman (1988) found short range planning horizons. Newman (1988) indicated that families wanted the outside world to see the family as normal and successful in a material sense even as they struggled for stability. Coping was noted by Danes and Rettig (1995). Edin and Lein (1997) discussed coping as developing and maintaining a “patchwork quilt” of strategies used to survive. Safety, as a theme, has been noted by Hanna, Fan and Chang (1995) and Huston and Chang (1997) when commenting on family risk tolerance. According to Newman (1988), Rainwater, et al. (1959) and Ehrenreich (1989), safety is the underlying basis for the middle class. Newman (1988) defined the rewards of the good life as comfort. Various studies have shown the impact of values. Edin and Lein (1997) noted that how single low-income mothers valued being seen as “good mothers.” Rainwater, et al. (1959) offered an interesting comparison on values of saving and spending. While the families claimed to be planning for the future and had a low opinion of debt, two thirds of the participants had some debt and that “the desire to pay cash had fallen victim to a more urgent desire, material consumption” (p. 156). Edin and Lein (1997) discussed feelings as welfare mothers bought extra things for their children to feel normal and avoid feeling “completely hopeless” (p.30). Blau and Duncan (1967) noted the need to feel “normal” when stocking a home with goods. Rainwater, et al. (1959) commented that respondents wanted flexibility when shopping and needed to buy some little unplanned thing, a $1 item, to make the shopping trip feel complete. The importance of previous experience was observed ©1999, Association for Financial Counseling and Planning Education. by Edin & Lein (1997), Shepard (1982) and Xiao and Olson (1993). Chang, Hanna and Fan (1997) and Hanna and Chen (1997) suggested that experience showed families that they had only a small chance of their household income dropping significantly. With such limited risk, the concern with long-term preparations was of little consequence. Summary The purpose of the study was to model cash flow management practices of 7 family money managers. From the similarity in responses, constructs were developed that included underlying motivators, stated objectives, and desired outcome. The data suggested relationships that link the elements together. The respondents’ priorities: short-term, everyday, cash flow management processes are the focus of this model. Each manager focused on remaining financially viable or solvent in the short-term. All the respondents admitted that they made only limited preparation for catastrophes and rarely developed specific long-term goals. This short-term focus does not mean, however, that the long-term is ignored. The families all have methods in place for many long-term occurrences. All are homeowners, a decision that entails commitment to building home equity; all have health insurance; all have some form of retirement plan in place. They also have had experience in getting through difficult financial situations before and so reason they should be able to do so again. College education costs and a three-to-six month emergency savings account are typically the financial objectives for which little preparation has been made. Today’s families are often criticized for their constant drive to buy more and save less. Yet these families did not spend uncontrollably and did not buy everything they wanted even though their credit limits would permit additional purchases. Each family had a debt level, developed over time, that they would not exceed. They saw themselves as controlling or managing the situation. Control, though, was often just a feeling about when to stop buying, rather than a budgetary predetermined dollar limit. Such actions complement the recommended practices. The data support the hypothesis of Winter (1986b) that families are managing, and are doing so in a routine, systematic fashion. Some of the routines even take the form of recommended practices. All rights of reproduction in any form reserved. 9 Financial Counseling and Planning, Volume 10(1), 1999 Conclusions and Implications The three main conclusions for family resource management professionals are: (1) families have a system; (2) that system relies heavily on routine and mental processes; and (3) the system is short-term. Each of these conclusions creates a new challenge for the profession and for a system of cash flow management. That families indeed have a system is helpful in any revision or extension of the recommended practices. The issue is how that system is seen in terms of meeting the family’s needs and the level of resources used in the process alone. Because the manager wants to limit resources used in the process of cash flow management, they look for ways to develop routines, routines that they can store as a mental script. Even in times of change, managers examine past experiences or preset practices to discover the least expensive (in terms of mental resources, not necessarily family dollars) method to handle the situation. Paper and pencil are used as a last resort and even then written planning is often done in a quick burst, relying heavily on a mental picture of the past. The profession must recognize the focus on short-term viability that may be endemic, e.g., keeping the bills paid. The family financial managers interviewed in this study do not focus on paying themselves first. Instead they want to have no bills from others. The savings programs noted are typically automatic, direct contributions from another account or payroll. Such programs generally are set up to meet a short-term goal and not a long-term goal. They could be easily accessed to cover current expense shortfall and, in fact, are accessed, as funds are transferred readily between accounts. There is no attempt to earmark those accounts for long-term goals. The short-term finding is also supported by previous family resource management literature (Beutler & Mason, 1987; Godwin, 1990a, 1990b; Prochaska-Cue, 1991, 1993; Varcoe, 1990; Winter, 1986a, 1986b). Certainly this short-term mindset of the individuals offers some explanation for why it is so difficult to encourage individuals to do long-term planning. As noted, many long-term needs are already covered, typically required or encouraged by an outside institution. Examples are automobile insurance, 10©1999, Association for Financial Counseling and Planning Education. property insurance, and health and life insurance by an employer. Even retirement, in the minds of the respondents, is partially covered through Social Security. In addition, they have access to additional retirement funds through private plans, six of which are employer-sponsored and into which the employer contributed. Although skeptical and cautious about their retirement planning, the respondents see current retirees as generally enjoying their life with adequate finances to meet their needs. Left out of the long-term planning needs, though, are preparation for college, the loss of a job, and emergency savings. College preparation might be considered a known need while the other two represent an unknown. Most of the respondents know they should be taking steps to save for these goals, but are not. Each of these long-term needs could be met with a savings plan. Yet the respondents have indicated that it is difficult to use savings. Clearly one way to assure the long-term nature of the accounts is to make them untouchable without severe penalty, like an IRA. Without such a deterrent, savings accounts such as those opened for the receipt of 3 to 6 months income as emergency savings become yet another account to be drawn on as needed. One tool might be the development of a new savings vehicle similar to IRAs: untouchable without heavy penalty unless used for their express purpose. Already several states are exploring savings plans for college that have such structure. Such accounts might also be a method to respond to recession or the loss of a job. Automatic withdrawals and payroll savings would increase the use of such accounts. Finally, the way the family resource management professional enters the family cash flow system is important. Typically not a trusted other, the professional must establish such a relationship. The manager is strongly influenced by the mass media and an informal network of friends, relatives, and acquaintances with whom information is exchanged on a regular basis. The public media reaches far more people than the more academic sources; subscriptions to the Journal of Family and Consumer Sciences are 25,000 per quarter versus Good Housekeeping’s 5,000,000 per month or Money’s 2,000,000 per month (Ulrich, 1994). These numbers represent only a portion of the print media; they do not even touch on the electronic media such as a “Today Show” segment that might reach 10 to 15 million people or the radio or the Internet. Financial management professionals must All rights of reproduction in any form reserved. Cash Flow Management use these outlets and become the experts for the media and the source for proactive rather than reactive information. The output of the scholarship process must include dispensing information in such a manner. References Adams, B. N. & Steinmetz, S. K. 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Writing up qualitative research. Newbury Park, CA: Sage. Xiao, J. J. & Noring, F. E. (1994). Perceived savings motives and hierarchical financial needs. Financial Counseling and Planning, 5, 25-44. Xiao, J. J. & Olson, G. I. (1993). Mental accounting and saving behavior. Home Economics Research Journal, 22, 92-109. Yin, R. K. (1989). Case study research: Design and methods (2nd ed.). Newbury Park, CA: Sage. ©1999, Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved. 13 [...]... rights of reproduction in any form reserved Cash Flow Management studies Journal of Marriage and the Family, 57, 867-878 Statistical abstract of the United States, 1994 (114th ed.) Washington, DC: U S Dept of Commerce Strauss, A & Corbin, J (1990) Basics of qualitative research: Grounded theory and procedures and techniques Newbury Park, CA: Sage Sumarwan, U & Hira, T K (1992) Credit, saving, and insurance... Prochaska-Cue, K (1991) Towards a cognitive model of personal financial management style Proceedings of the Association for Financial Counseling and Planning Education, 9, 46-48 Prochaska-Cue, K (1993) An exploratory study for a model of personal financial management style Financial Counseling and Planning, 4, 111-134 Rainwater, L., Coleman, R P & Handel, G (1959) Workingman’s wife New York: Oceana Publications... Guidance from research Journal of Home Economics, 79, 5-8 Luthans, F (1977) Organizational behavior New York: McGraw Hill Miles, M B & Huberman, A M (1994) Qualitative data analysis: A sourcebook of new methods Beverly Hills, CA: Sage Mitchell, W C (1912) The backward art of spending money In M I Liston (Ed.), History of Family Economics Research: 1862-1962 A bibliographical, historical, and analytical... up qualitative research Newbury Park, CA: Sage Xiao, J J & Noring, F E (1994) Perceived savings motives and hierarchical financial needs Financial Counseling and Planning, 5, 25-44 Xiao, J J & Olson, G I (1993) Mental accounting and saving behavior Home Economics Research Journal, 22, 92-109 Yin, R K (1989) Case study research: Design and methods (2nd ed.) Newbury Park, CA: Sage ©1999, Association... Publications, Iowa State University Muske, G (1996) Family financial management: A real world perspective Unpublished doctoral dissertation, Iowa State University, Ames, IA Muske, G & Winter, M (1998) An in-depth look at the financial management practices of the family In I E Leech (Ed.), Proceedings of the 44th Annual Conference of the American Council of Consumer Interests, Columbia, MO: ACCI Neufeldt,... scripts Organizational Behavior and Human Decision Processes, 46, 77-101 Hira, T K (1987) Satisfaction with money management practices among dual earner households Journal of Home Economics, 79, 1922 Huston, S J & Chang, Y R (1997) Adequate emergency fund holdings and family type Financial Counseling and Planning, 8(1), 37-46 Key, R J & Firebaugh, F M (1989) Family resource management: Preparing for the... 93-101) Ames, IA: University Publications, Iowa State University 12©1999, Association for Financial Counseling and Planning Education Monroe, D (1974) Pre-Engel studies and the work of Engel: The origins of consumption research In M I Liston (Ed.), History of Family Economics Research: 1862-1962 A bibliographical, historical, and analytical reference book (pp 47-75) Ames, IA: University Publications, Iowa... research In P G Boss, W J Doherty, R LaRossa, W R Schumm & S K Steinmetz (Eds.), Family theories and methods: A contextual approach (pp 167-180) New York: Plenum Press Rubin, L B (1976) Worlds of pain: Life in the working-class family New York: Basic Books Shepard, D L (1982) Awareness and decision-making in dual-career couples York University, Canada Sprey, J (1995) Explanatory practice in family All... Chang, Y R (1995) Optimal life cycle savings Financial Counseling and Planning, 6, 1-16 Heck, R K Z., Winter, M & Stafford, K (1992) Managing work and family in home-based employment Journal of Family and Economic Issues, 13, 187-212 Hershey, D A. , Walsh, D A. , Read, S J & Chulef, A S (1990) The effects of expertise on financial problem solving: Evidence for goal-directed problem-solving scripts Organizational... Dictionary (3rd ed.) New York: MacMillan Newman, K S (1988) Falling from grace: The experience of downward mobility in the American middle class New York: The Free Press Paolucci, B., Hall, O A & Axinn, N.W (1977) Family decision making: An ecosystem approach New York: John Wiley & Sons Porter, N M & Garman, E T (1991) Testing a conceptual model of financial well-being Financial Counseling and Planning,