Vol1011 Cash Flow Management

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Cash Flow Management: A Framework Of Daily Family Activities

Glenn Muske1and 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 modelsuggests 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, Moneymanagement, Personal financial behavior

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: [email protected] 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: [email protected].

IntroductionFor years, scientists have been interested in thefamilys financial management procedures and

processes. Monroe (1974), describing the work ofDavies (1795), Eden (1797), and later Engel (1857)and LePlay (1878), saw these authors as forerunners instudying the expenditure patterns and managementstyles of the family (Liston, 1993). The familys cashmanagement practices have been of particular interest(Godwin, 1990a, 1990b). In 1912, Mitchell examinednot only what the family bought but also the buyingprocess itself. He wrote that making money andspending money are correlated. Of the two, hesuggested that spending money was the morepleasurable task. He noted however that important asspending is, we have developed less skill in its practice

than in the practice of making money....To spendmoney is easy, to spend it well is hard (Liston, 1993).Today, family resource management professionals aswell as family development theorists, economists andsociologists continue to examine not only where thefamily spends their money, but also how they spend itor the methods or system used.

Even though family money management has been thefocus of much study, many researchers still questionthe level of understanding of the family cash flowmanagement process (Beutler & Mason, 1987;Godwin, 1990a, 1990b; Lown, 1986; Varcoe, 1990;

Winter, 1986a, 1986b). The inputs of the process havebeen studied, as well as the outputs, but questions stillarise about what occurs within the decision process andthe motivations behind the familys cash managementdecisions.

The purpose of this study is to develop a framework toexplain and describe the familys cash managementpractices. The work develops further the data in

Muske and Winter (1998) that described the cashmanagement process of family financial managers.The framework, developed from a family unitperspective, supplements existing theoretical work byoffering additional explanation and description of thecash management process (Sprey, 1995).

Theory and Research on Family Cash Flow

ManagementThe role of theory in science has been to describe,explain, and predict (Adams & Steinmetz, 1993;Ambert, Adler, Adler & Detzner, 1995). Thedevelopment of theoretical frameworks aids the

understanding of the phenomena occurring in thesurrounding world. Theory, according to Thomas(1992) and Sprey (1995), is what makes sense out offacts (Thomas, 1992, p. 4). He goes on to explain thattheory filters out certain facts and gives a particularpattern to those it lets in.

Family resource management professionals, focusingon the study of the financial management processesoccurring within the family, have used a variety oftheories to explain how the family is managing theirfinancial affairs. Initial scientific work on familyfinancial decisions used the predominant paradigm at

the time, microeconomic theory. Over time, familyresource management professionals have continued touse economic theory, but have also included othertheories.


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Cash Flow Management

1999, Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved. 3

In the mid-1970s, family resource managementprofessionals studying the family unit began usingparadigms evolving from other social sciencedisciplines, 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 withquantitative methods (Godwin, 1990a). Most studieshave 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 integratedsystems theory with a set of recommended financialmanagement practices, the normative practices, toassess whether families are managing their financialaffairs properly (Rettig & Mortenson, 1986). Therecommended practices have been in place for thefamilys use since the late 1920s and early 1930s. Inparallel comparisons between business and family,scientists since the 1920s have concluded that goodbusiness practices translate into good home financialmanagement practices (Andrews, 1935).

Family financial management professionals, using therecommended practices and systems theory forexplanation and discovery, have expressed anuneasiness though with the existing outcomes (Beutler& Mason, 1987; Godwin, 1990a; Key & Firebaugh;1989; Varcoe, 1990; Winter,1986b). They arefrustrated by a lack of understanding about the exact

management practices occurring within the family as amicroeconomic unit. Studies have found few familiesusing 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), yetlittle work has been done to discover the methods theyare 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 financialmanagement is prescriptive, including extensivediscussions of what families should do in

managing their financial resources....littleempirical research has focused on what familiesactually do (p. 222).

Davis and Carr (1992) and Godwin (1990a, 1990b)stated the incentives that actually lead people toembrace (or reject) the processremain unclear(Davis & Carr, 1992, p. 14). Thompson, Sharpe, and

Hamilton (1998) is an example of research that isattempting to fill this gap of how planning is actuallybeing done. They have studied the retirement planningprocess of single, midlife women.

Studies on the recommended practices have questioned

whether a lack of knowledge about the practices or thebenefits of using the recommended practices may be acontributing factor (Davis & Carr, 1992: Lown, 1986).Winter (1986a) hypothesized that decisions about theuse of specific practices are made on a cost/benefitanalysis and that, if families do not feel that thebenefits and the practices outweigh the time, costs andeffort involved, they will reject the use of the practice.Davis and Weber (1990) suggested that the regularityof income and expenses made the practices seemunnecessary. Another possible reason is themaintenance of the status quo, or the tendency to leavethings alone if the outcomes are acceptable. Thesaying, if it aint broke, dont fix it, comes to mind(Atchley, 1989; Godwin, 1990a, 1990b). Although therecommended practices are considered prescriptive,several authors have questioned whether, indeed, theyare the only way that management can occur (Davis &Carr, 1992; Godwin, 1990a, 1990b; Heck, Winter &Stafford, 1992; Muske & Winter, 1998; Prochaska-Cue, 1991, 1993).

The specific financial management practices of familyfinancial managers are examined in this study. Fromthe analysis of that data, various constructs andrelationships are defined. The results are a frameworkthat describes and explains the familys short-term cash

flow management process. The study responds to Keyand Firebaughs (1989) challenge to understand andconceptualize the phenomenon, that being thefamilys cash management system. Such anunderstanding allows a more complete picture of thedecision making process and, in turn, expands thetheoretical base.

Methods

TheAdvantages of Qualitative MethodsThis study used a qualitative method to develop a cashmanagement framework. Fayol (1929) suggested thatto study what a manager does one must ask the

manager as well as watch and follow the manager, insummary, an inductive process. Inductive methodsallow the researcher to learn about how and whypeople behave as they do. The goal is to understandthe individuals behavior rather than provide a groupaverage (Sprey, 1995).


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Financial Counseling and Planning, Volume 10(1), 1999

41999, Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved.

Qualitative research lets the voice of the individual beheard. Cunniff (1998), writing about Americans lowsavings habits, said that to understand why people donot save, why not ask the people who arent doing thesavings? (p. E3). Writers have noted that statisticsoften drown out the voice and experience of the

respondent (Edin & Lein, 1997; Rubin, 1976).Rosenblatt and Fischer (1993) maintain that qualitativeresearch provides answers about meanings,understandings, perceptions and other subjects in andabout the family (p. 172). They continue:

qualitative family research will always be at theleading edge because peoples verbal accountsof their own lifespeak best to many researchquestions and to most consumers of socialscience research (p. 175).

Methods Used

The qualitative process began with data collection.Data included observations, words and activities of therespondents. Respondent selection can be performedin a variety of ways. At times respondents are chosenbased on new information they may provide and atother times selection is done based on extremepositions. For this study, the intent was to develop aloosely defined homogeneous group. Families wereselected from couples known to the researcher, hisspouse, or the faculty members with whom he worked.Similar families were selected and interviewed untiltheir answers became redundant.

Families selected resembled the median or typicalAmerican family (Ambert, Adler, Adler & Detzner;

1995; Lincoln & Guba, 1985; Miles & Huberman,1994). The working definition of this American familywas based on the 1990 census bureau definition of themedian family (1994 Statistical Abstract, Table 714;1990 Census of the Population and Housing-Social,Economic, and Housing Characteristics, Table 5; 1990Census of Population-Social and EconomicCharacteristics, Table 16, 17, 23). All respondentcouples consisted of individuals in their first marriage.The ages of the couples ranged from age 30 to age 41at the end of the three-year time frame during whichthe data were gathered. All the couples had beenmarried for a minimum of 8 years. Each couple had

one to three children. Both adult individuals held apart time or full time job and their combined incomelevels ranged from $40,000 to $60,000. All individualsheld high school diplomas, with the highest degree ofany adult being a bachelors degree. All of therespondent couples were white.

During the collection of the data and throughout theanalysis, themes in the data were noted (Strauss &Corbin, 1990). Themes are the building blocks fortheory development (Glaser & Strauss, 1967). AsLofland (1974) wrote, a generic theme emerges whenthe structure or process explicated is chosen and

brought to a level of abstraction that makes it generallyapplicable rather than applicable only in a giveninstitutional realm (p. 103). Themes in turn aregrouped into constructs, or broad descriptors that, whenlinked by relationships, form an identified framework(Glaser & Strauss, 1967; Miles & Huberman, 1994;Thomas, 1992). Relationships between the constructsare outlined. As relationships link the constructs,grounded theory developed, so called because it isgrounded in empirical work.

The framework developed is based on case studies of 7families reported in Muske and Winter (1998). Theframework offers an in-depth look at cash managementpractices including information regarding the reasoningin the decision making process. The case studyapproach as a research method allows the researcher tolearn about people in the context of their lives, in theirnatural surroundings, performing their normal routines,surrounded by the social structures and individualswith whom they normally come in contact (Bogdan &Biklen, 1992; Lincoln & Guba, 1985; Miles &Huberman, 1994).

In a quantitative paradigm, 7 families would seem to bea rather small number for research. In qualitativestudies however, a large sample size is considered

unnecessary. Ambert, Adler, Adler, and Detzner.(1995) and Yin (1989) suggest that an in-depth study ofa small number of cases begins to allow explanation ofcause and effect relationships. Similarly Sprey(1995) commented that, if the purpose is to generalizeto theory, the sample should be rather small. Somequalitative researchers suggest that one in-depth casestudy can form the underpinnings of a theory (Glaser &Strauss, 1967; Lincoln & Guba, 1985; Rosenblatt &Fischer, 1993).

Using interviews with the self-designated familyfinancial manager, data were collected for up to three

years (one family was surveyed for three years, threefamilies for two years, and the remaining three familiesfor one year). Interviews were conducted in therespondents home. In addition to interviews, anexamination of the physical financial managementtools was conducted. For each family, randomexpenditures were selected and the money manager


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was asked, based on recall information, to provideinformation about the purpose of the purchase. Finallythe money manager was observed in his or her billpaying process.

All money managers participated in at least three

personal interviews (the maximum number ofinterviews for any one respondent was seven). Allpersonal interviews were tape recorded and thentranscribed. The total interview length with arespondent ranged from five to 12 hours. Eachrespondent was contacted after he or she had receivedcopies of the transcribed materials and asked tocomment on the materials accuracy, intended meaningand general clarity. This process, termed memberchecking, is considered extremely important in theprocess of establishing study credibility (Lincoln &Guba, 1985).

In addition, other tools were used to develop accuracy,reliability and credibility. These tools included peerdebriefing; redundancy of data gathering; triangulation(reaching the same conclusion using various datatypes); meetings with a colleague on a periodic basis todiscuss findings; presentation of early drafts to familyfinancial management professionals for their responseand feedback; and finally, meeting with facultymembers in the design and development of the study.In addition, a colleague read parts of the transcripts tosee if she noted similar reflections, key words andthemes (Bogdan & Biklen, 1992).

After all interviews were completed, a formal analysis

of the data began with the coding of the data. Codeswere designed to categorize data into common areas.These areas included the context in which the dataoccur, the settings in which the data were discussed,the processes used, and the perceptions of therespondents.

Development of a Framework

Framework Themes

The elements of the theoretical framework arose fromthe themes. Themes represent grouped data pertainingto 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 followingbasic themes are found in the data (Muske, 1996).

Process Each family manager has a process or aregular method to handle cash flow management. The

process is systematic and formalized, done in a regularmanner and on a regular basis. The process is designedto keep the family in a stable financial position and notgo in the hole. Each individuals process is uniquebut the underlying cash management philosophies ofthe 7 managers are similar to one another and different

from the recommended practices. The commonphilosophy is short-term with strategies developed tokeep the familys bills paid.

Viability Family managers desire to maintain aneconomically viable unit. Economic viability meansstaying current on bill payments, avoiding bills that arenot paid. Financial success under this system is to payall the bills and have no new ones coming in.

Two primary elements are seen in all systems to helpachieve viability. First, to help maintain control, themanagers look for ways to create an even flow ofincome and expenses. This stability is noted inroutines and systems that require little planning andlittle time commitment. The respondents also notestability in the regularity of the monthly bills andpaychecks. Other strategies used are calendering,income/expense flow charts, false balances, andholding written checks.

Even though stability is the preferred mode, familyfinancial managers acknowledge that the financialsituation of the family is not static and thus theyprepare 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 strategiesused include monthly payments, using a charge card,using a home equity loan, or having savings available.By identifying strategies prior to a change incircumstances, such changes are handled without themanager experiencing significant distress.

Safety Safety is an important theme. Safety istranslated as being able to cover current bills as well asoffering 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 cashflow. Control is not verbalized; rather it is shown inthe activities of the respondents. Those activitiesinclude false balances (when the account reaches a zerobalance, a cushion of money still remains), multipleaccounts, and mad money or a cookie jar approach.Mad money is similar to the envelope method


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recommended today and Rainwater, Coleman andHandels (1959) tin can economy, in which cash isput in a specific place for a specific purpose. Whenthat money is gone, no more is spent for that purposeuntil the tin can is replenished.

Comfort Comfort is a third cash flow objective.Comfort means having a cushion of cash. Acomfort zone describes an acceptable range ofoperations, instead of living by hard, fixed rules.Family savings are part of the cushion (Xiao & Noring,1994).

Values The respondents verified Deacon andFirebaughs (1988) idea that internal thoughts oftendirect their actions. Some values are clear such asstay[ing] home with the kids and family time.Another value statement, being conservative, is lessdefinitive but still important in the financialmanagement process. Debt provides a number ofstated values including its acceptance (debt for toysis a perfectly logical thing), its continuity (I thinkmost people have [a credit card] that is never paidoff,) and its prevalence in todays family (We livelife to the max.....We are going to have it right now).Such statements are supported by Porter and Garmans(1993) discussion of peer reference groups.

Feeling normal Although values are the essentialmeanings relating to what is desirable or has worth,providing fundamental criteria for goals, thereby givingcontinuity to all decisions and actions (Deacon &Firebaugh, 1988, p. 40), feelings are more contextual,

more like relative values. Feelings are defined asthoughts or beliefs, often for unanalyzed or emotionalreasons (Neufeldt, 1994). The most prevalent feelingis feeling normal, feeling like everyone else.Respondents note this in the debt they carry, thefinancial decisions they make and in general nonuse ofthe recommended practices.

Positive comparisons Similar to but different is therespondents need to feel they are doing as well as theirpeers but also better than the situation they rememberas children. One of the respondents provided a goodexample of this. While unemployed, he bought a

computer, car, and pickup, all on credit. His purchaseswould seem improper if considered alone. Only whenhis 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 areconsidered, does seemingly irrational behavior begin toseem reasonable in the short run. When laid off, he

received severance pay and had access to his retirementfunds. By converting these to cash, he now had asignificant amount of savings that could cover his debtif needed. Therefore he was in a position to give hisfamily what he never had. Similarly when respondentsnote they are doing okay, lucky, life is good or

losing ground, the comparison is always given inrelation to some other person or group.

Ease and convenience As the money managersdiscussed the development and use of a financialmanagement system, the concept of ease andconvenience often surfaced. Money managers look forbanks that are physically close or provide quickservice. The managers want monthly billings andautomatic withdrawals. Ease and convenience limit theextensive use of mental processing in the financialmanagement system. Ease and convenience override amanagers search for the best deal.

FlexibilityManagers attempt to develop a system thatis routine, minimizes time and mental requirements,and is easy overall. Managers also desire a system thatallows some degree of flexibility. All seven of themoney managers recognize that financial needs are notstatic and that they need to be able to respond toemergencies, both large and small.

Reported time orientation Time orientationnot only is an underlying assumption but also standsout as an important motivator. The time orientation forcash flow management of all the families is short. Ifany long-term goals are mentioned, they are general in

nature with few specific action steps in place to reachthe goal.

Experience The use of experience is notedover and over in planning for payments and the amountof money set aside for groceries and othermiscellaneous bills. Managers also admit that aresponse to a new situation is often based upon pastexperience with a similar situation.

Information One interesting theme is therespondents search for and use of financialmanagement information. The typical sources are not

educational classes, formal or nonformal, or work butcoworkers, friends, our banker and insurancerepresentative, a father of a friend and a friend offather, newspapers, and magazines such asGlamour, Womans Day, McCalls, and Good

Housekeeping. Other sources include credit card junkmail, bank employees, insurance agents, and profit


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sharing plan advisors. Information is categorizedaccording to its source, trusted other or unknown.Information from a trusted other is accepted readilybecause of the relationship. Like Thompson, et al.(1998), the respondents indicated that informationoverload was a problem as were financial professionals

who were not understanding.

Specific practices Family money managers display arange of activities designed to achieve the short-termgoals. Many of these activities have already beenmentioned. This theme will hold a significant role inthe final framework. Activities are the link that ties themotivators and objectives to the desired outcome.

Developing a Framework

According to Doherty, et al. (1993), theorizing is theprocess of systematically formulating and organizingideas to understand a particular phenomenon. Thefirst step is the development of themes. Those themesare grouped into five major constructs: underlyingmotivators, stated objectives, specific practices, desiredoutcome, and information. The next step is to developrelationships or generalizations as links between theconstructs (Thomas, 1992). These constructs andrelationships then form the framework outlining thefinancial managers short-term cash flow managementprocess, the what and why of what they are doing. Theconceptual framework developed from the data isdisplayed in Figure 1.

Financial management process The box around theconceptual framework indicates that, in fact, there is an

overall process or system of financial management foreveryone. The various systems are sufficiently similarin themes and relationships to permit combining theminto the suggested framework. Clearly, the dataindicate that management does occur and that it occursin systematic ways. Families are not willy-nilly inthe handling of their finances. They have in place athoughtful process. Notable aspects of the process are:(1) parts of it are similar or can be compared to therecommended practices; (2) a relatively high level ofmental management occurs in each system; and (3) thefocus of the system is on short-term objectives.

Desired Outcome The idea that a process exists startswith the managers ability to express a desiredoutcome. In each case, the cash flow managementprocess has the goal of family financial viability.Viability is defined as the continuation of the familysfiscal well-being or keeping the bills paid, almostalways expressed in the short-term. The key to

achieving and maintaining this viability is thedevelopment of a system that provides stability yetallows for flexibility to accommodate change driven byinternal wants or environmental shifts. Stability meansevenness, routine, a system requiring little mentalexertion to keep it running. Baron and Byrne (1987)

noted that mental processing capacity is a limitedresource.

Yet situations change and family managers respondedby including methods to handle change in the leastdisruptive manner, again while trying to minimize theuse of mental resources (Deacon & Firebaugh, 1988).When an engineer designs a structure, built-inflexibility, not rigidity, is a key. Too rigid or tooflexible and the structure will collapse. Instead, thestructure is designed to, within limits, move and shift.Yet the system cannot be monitored constantly. Itmust be capable of self-adjustment without constantmonitoring. Similarly, the cash management system ofthe family recognizes the need to adapt to changingcircumstances. Families show flexibility in meetingsmall problems, such as the need for a new airconditioner, and large issues, such as the loss of a job,a move across country with the loss of a client base, ora job shift with a corresponding decrease in pay.Viable systems limit mental processing needs.

Underlying Motivators If viability is the desired endstate, the next questions are, How was that stateselected and how is it maintained? The answers tothose questions start with understanding the primarymotivators expressed by the money managers. A

motivator is an inner state that energizes, activates, ormoves, and that directs or channels behavior towardgoals (Berelson & Steiner, 1964, p. 240). Themotivation process involves four interacting andinterdependent elements, turning needs into goal-focused drives (Luthans, 1977). The themes includedas motivators are values, time orientation, experience,feeling normal, positive comparison, ease/convenience,and flexibility.

Values as motivators are consistent with Deacon andFirebaughs (1988) conceptualization of themanagement 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 theidea 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 managersshort and long-term experience. The money managersexpression of feelings was voiced in words and actions.


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The wish to be seen as normal is similar to Festingers(1954) social comparison theory.

Time orientation is a strong and clear motivator acrossall families. A short time frame orientation has asignificant impact throughout the study. Time, like

feelings, is interrelated with values. Families strugglewith reconciling the need to feel normal and live lifeto the max, while limiting debt.

Figure 1Financial Management Process Model

Stated Objectives Objectives are more specific,concrete desires that arise from the motivators. Threethemes form a hierarchy of objectives: safety, control,and comfort. Safety means avoiding overdrafts,control stems from having activities or accountsavailable, such as mad money, that can be tapped forquick cash needs, and comfort is having a cushion ora level of safety.

The link between the objectives and the motivatorsdeveloped as the respondents discussed their cashmanagement systems. The stated objectives are the

terms used when respondents discussed whatcontrolled their actions. Typically the motivators onlyemerged after the respondents were encouraged to godeeper into the process.

Specific Practices The activities undertaken by thefamily financial manager are a direct reflection of theshort-term objectives of the manager and the family.Practices are developed to accomplish the outcomes inlight of the underlying motivators and statedobjectives. Links between objectives and activities arevisible. An objective is usually offered whendiscussing an activity and, likewise, the discussion of

an objective elicits the description of an activity. Thecash management system (mind games, false balances,calendars, pads, little piece of paper, movement fromloan to loan, the credit card for unforeseenemergencies, having available and using home equitycredit lines, etc.) is grounded on the objectives ofsafety, control, and/or comfort.

Feedback The relationship between viability and theunderlying motivators resembles systems theoryconcept of feedback (Deacon & Firebaugh, 1988).Building routines and using experience implies thatpeople use previous efforts to help them manage today.Although the respondents did not discuss theirdevelopment of routines and experiences in terms offeedback, what is described fits the definition of thatportion of the data that reenters a system as input toaffect succeeding output (Deacon & Firebaugh, 1988,p. 12).

Information The last model construct is information.Although not a primary question during discovery, thecomments about sources and use of information areenlightening. Information is value-laden according toits source. Trusted source information requires lesstime to process, a short cut for the manager, thuspreserving precious mental processing resources.

Model Fit

Miles and Huberman (1994) suggested that, althoughtwo theories will never converge perfectly, partialconvergence offers support for the suggested

relationships from different researchers with differentbiases, different respondents, and often in differenttimes. The model offered fits both systems theory(Deacon & Firebaugh, 1988; Gross, Crandall & Knoll,1980; Paolucci, Hall & Axinn, 1977) and ecologicaltheory ( Bronfenbrenner, 1977; Bubolz & Sontag,1993).

V al uesFeeli ngnor m alEase/ Convenience

Flexi bi lity

Tim eor ient at ionEx per i ence

Posit iveCom par ison

Calendar sPad/ paper Mental gam es

Falsebalance

ContinuousloanHom eequityuse

Cr edit car ds

Inf or m ati on

StatedO b j ect ives

Pr ocess/System

U nder lyingMotivat or s

Feed back

V iabili tySaf et yCont r olCom f or t

S pecif ic

OutcomesDesi r ed

Pr acti ces


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The underlying themes also are supported by othertheories. As theory is a social construct, existing aspeople create it, the use of other studies strengthens thehypothesized constructs and relationships. Severalstudies have examined how past experience is used by

the expert to make easier, quicker, and, perhaps, moreaccurate decisions (Hershey, Walsh, Read & Chulef,1990; Rasmussen & Jensen, 1974).

Newman (1988), Rainwater, et al. (1959), Blau andDuncan (1967), and Edin and Lein (1997) all indicatedthat families had systems in place for cash flowmanagement. Edin and Lein (1997), Rubin (1976) andNewman (1988) found short range planning horizons.Newman (1988) indicated that families wanted theoutside world to see the family as normal andsuccessful in a material sense even as they struggledfor stability. Coping was noted by Danes and Rettig(1995). Edin and Lein (1997) discussed coping asdeveloping and maintaining a patchwork quilt ofstrategies used to survive.

Safety, as a theme, has been noted by Hanna, Fan andChang (1995) and Huston and Chang (1997) whencommenting on family risk tolerance. According toNewman (1988), Rainwater, et al. (1959) andEhrenreich (1989), safety is the underlying basis for themiddle class. Newman (1988) defined the rewards ofthe good life as comfort.

Various studies have shown the impact of values. Edinand Lein (1997) noted that how single low-income

mothers valued being seen as good mothers.Rainwater, et al. (1959) offered an interestingcomparison on values of saving and spending. Whilethe families claimed to be planning for the future andhad a low opinion of debt, two thirds of the participantshad some debt and that the desire to pay cash hadfallen victim to a more urgent desire, materialconsumption (p. 156).

Edin and Lein (1997) discussed feelings as welfaremothers bought extra things for their children to feelnormal 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 respondentswanted flexibility when shopping and needed to buysome little unplanned thing, a $1 item, to make theshopping trip feel complete.

The importance of previous experience was observed

by Edin & Lein (1997), Shepard (1982) and Xiao andOlson (1993). Chang, Hanna and Fan (1997) andHanna and Chen (1997) suggested that experienceshowed families that they had only a small chance oftheir household income dropping significantly. Withsuch limited risk, the concern with long-term

preparations was of little consequence.

SummaryThe purpose of the study was to model cash flowmanagement practices of 7 family money managers.From the similarity in responses, constructs weredeveloped that included underlying motivators, statedobjectives, and desired outcome. The data suggestedrelationships that link the elements together.

The respondents priorities: short-term, everyday, cashflow management processes are the focus of thismodel. Each manager focused on remainingfinancially viable or solvent in the short-term. All therespondents admitted that they made only limitedpreparation for catastrophes and rarely developedspecific long-term goals.

This short-term focus does not mean, however, that thelong-term is ignored. The families all have methods inplace for many long-term occurrences. All arehomeowners, a decision that entails commitment tobuilding home equity; all have health insurance; allhave some form of retirement plan in place. They alsohave had experience in getting through difficultfinancial situations before and so reason they should beable to do so again. College education costs and a

three-to-six month emergency savings account aretypically the financial objectives for which littlepreparation has been made.

Todays families are often criticized for their constantdrive to buy more and save less. Yet these families didnot spend uncontrollably and did not buy everythingthey wanted even though their credit limits wouldpermit additional purchases. Each family had a debtlevel, developed over time, that they would not exceed.They saw themselves as controlling or managing thesituation. Control, though, was often just a feelingabout 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) thatfamilies are managing, and are doing so in a routine,systematic fashion. Some of the routines even take theform of recommended practices.


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Conclusions and ImplicationsThe three main conclusions for family resourcemanagement professionals are: (1) families have asystem; (2) that system relies heavily on routine andmental processes; and (3) the system is short-term.

Each of these conclusions creates a new challenge forthe profession and for a system of cash flowmanagement.

That families indeed have a system is helpful in anyrevision or extension of the recommended practices.The issue is how that system is seen in terms ofmeeting the familys needs and the level of resourcesused in the process alone.

Because the manager wants to limit resources used inthe process of cash flow management, they look forways to develop routines, routines that they can storeas a mental script. Even in times of change, managersexamine past experiences or preset practices todiscover the least expensive (in terms of mentalresources, not necessarily family dollars) method tohandle the situation. Paper and pencil are used as a lastresort and even then written planning is often done in aquick burst, relying heavily on a mental picture of thepast.

The profession must recognize the focus on short-termviability that may be endemic, e.g., keeping the billspaid. The family financial managers interviewed inthis study do not focus on paying themselves first.Instead they want to have no bills from others. The

savings programs noted are typically automatic, directcontributions from another account or payroll. Suchprograms generally are set up to meet a short-term goaland not a long-term goal. They could be easilyaccessed to cover current expense shortfall and, in fact,are accessed, as funds are transferred readily betweenaccounts. There is no attempt to earmark thoseaccounts for long-term goals.

The short-term finding is also supported by previousfamily 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 individualsoffers some explanation for why it is so difficult toencourage individuals to do long-term planning.

As noted, many long-term needs are already covered,typically required or encouraged by an outsideinstitution. Examples are automobile insurance,

property insurance, and health and life insurance by anemployer. Even retirement, in the minds of therespondents, is partially covered through SocialSecurity. In addition, they have access to additionalretirement funds through private plans, six of which areemployer-sponsored and into which the employer

contributed. Although skeptical and cautious abouttheir retirement planning, the respondents see currentretirees as generally enjoying their life with adequatefinances to meet their needs. Left out of the long-termplanning needs, though, are preparation for college, theloss of a job, and emergency savings. Collegepreparation might be considered a known need whilethe other two represent an unknown. Most of therespondents know they should be taking steps to savefor these goals, but are not.

Each of these long-term needs could be met with asavings plan. Yet the respondents have indicated that itis difficult to use savings. Clearly one way to assurethe long-term nature of the accounts is to make themuntouchable without severe penalty, like an IRA.Without such a deterrent, savings accounts such asthose opened for the receipt of 3 to 6 months income asemergency savings become yet another account to bedrawn on as needed.

One tool might be the development of a new savingsvehicle similar to IRAs: untouchable without heavypenalty unless used for their express purpose. Alreadyseveral states are exploring savings plans for collegethat have such structure. Such accounts might also be amethod to respond to recession or the loss of a job.

Automatic withdrawals and payroll savings wouldincrease the use of such accounts.

Finally, the way the family resource managementprofessional enters the family cash flow system isimportant. Typically not a trusted other, theprofessional must establish such a relationship. Themanager is strongly influenced by the mass media andan informal network of friends, relatives, andacquaintances with whom information is exchanged ona regular basis. The public media reaches far morepeople than the more academic sources; subscriptionsto the Journal of Family and Consumer Sciences are

25,000 per quarter versus Good Housekeepings5,000,000 per month or Moneys 2,000,000 per month(Ulrich, 1994). These numbers represent only aportion of the print media; they do not even touch onthe electronic media such as a Today Show segmentthat might reach 10 to 15 million people or the radio orthe Internet. Financial management professionals must


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use these outlets and become the experts for the mediaand the source for proactive rather than reactiveinformation. The output of the scholarship processmust include dispensing information in such a manner.

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