Cash Flow Management: A Framework Of Daily Family Activities

Glenn Muske
1
and Mary Winter
2


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


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.
Introduction
For years, scientists have been interested in the
familys 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 familys 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 familys cash management
decisions.
The purpose of this study is to develop a framework to
explain and describe the familys 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.

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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
familys use since the late 1920s and early 1930s. In
parallel comparisons between business and family,
scientists since the 1920s 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 processremain unclear
(Davis & Carr, 1992, p. 14). Thompson, Sharpe, and
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 aint broke, dont 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; Prochaska-
Cue, 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 familys short-term cash
flow management process. The study responds to Key
and Firebaughs (1989) challenge to understand and
conceptualize the phenomenon, that being the
familys 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 individuals behavior rather than provide a group
average (Sprey, 1995).

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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 arent 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 peoples verbal accounts
of their own lifespeak best to many research
questions and to most consumers of social
science research (p. 175).

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.

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 bachelors degree. All of the
respondent couples were white.

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.

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).

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
respondents 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
Cash Flow Management
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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 materials 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
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 individuals 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 familys 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
Financial Counseling and Planning, Volume 10(1), 1999
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recommended today and Rainwater, Coleman and
Handels (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
Firebaughs (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 todays family (We live
life 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 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.

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
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
managers 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.

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, Womans Day, McCalls, and Good
Housekeeping. Other sources include credit card junk
mail, bank employees, insurance agents, and profit
Cash Flow Management
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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 managers 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 familys
fiscal well-being or keeping the bills paid, almost
always expressed in the short-term. The key to
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 goal-
focused 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
Firebaughs (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 managers
short and long-term experience. The money managers
expression 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 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.

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).
Values Feelingnormal Ease/Convenience Flexibilit y Timeorientation Experience Positi veCompari son
Calendars Pad/paper Mental games Falsebalance Conti nuousloan Homeequi ty use Credi t cards
Information Stat ed Objecti ves
Process/System Underlying Motivators
Feedback
Viabi lity Safety Contr ol Comf ort
Speci fic Outcomes Desired Practices

Cash Flow Management
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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 & J ensen, 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
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.

Todays 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.
Financial Counseling and Planning, Volume 10(1), 1999
101999, Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved.

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 familys 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,
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 Housekeepings
5,000,000 per month or Moneys 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
Cash Flow Management
1999, Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved. 11
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.

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