Everything in Its Own Time: Planning Horizons Vary Across Financial Domains

Financial planning horizons reflect the time periods people use for their financial decisions. They are measured to understand and inform financial decisions and to predict financial outcomes like using a financial advisor, having a retirement account, or having lower inflation expectations. Financial surveys typically ask participants to report one planning horizon for “saving and spending,” seemingly assuming that people use one planning horizon for saving and for spending and that this one planning horizon also applies to other financial domains such as investing and retirement finances. The underlying reasoning may be that money is fungible, with one extra dollar of spending removing one dollar from the money available for saving, investing, or retirement finances. Here, we report on three US-wide studies in which people indicated using different planning horizons across financial domains, which were differentially associated with financial outcomes. Median planning horizons were significantly shorter for saving and spending than for retirement finances (Study 1); for spending than for saving (Study 2); and, in order, for spending, saving, investing, and retirement finances (Study 3). Short-term (vs. long-term) planning horizons were often more valid predictors of financial outcomes (Studies 1–3), suggesting that short-term planning horizons may take precedence in financial decisions. A combination of short-term and long-term planning horizons may even have independent associations with financial outcomes (Study 3). We conclude that planning horizon questions should ask about specific financial domains and that multiple planning horizons may be relevant to specific financial outcomes.