Have you ever felt you wish you didn't pick up a call or meet up with that friend who is now trying to talk to you about planning for your finances? As an adviser myself, I know this is a common sentiment. I once took a cab at midnight and the chatty cab driver who was trying to make conversation instantly shut up when I said "I sell insurance" when he asked me what I did for a living. However I have found that having advisers reach out for meet ups is a necessary process to save many people from financial crisis. Here are 3 reasons why.
1. People tend to sit on the fence unless encouraged to act.
There's this case study revolving around how the United States and Europe conduct organ donations. In the US, organ donation is an opt-in process which requires people to sign a donor card. Thus only 28% of Americans opt in to become organ donors. As for many European countries, citizens are automatically opted into this organ donation scheme unless they opt out. As a result less than 1% of the total population opted out. You can no doubt guess the organ donor shortage is more prevalent in the US than in Europe.
Humans are generally leaning to the hassle-free side of things. How many of us wake up in the morning and 'go I want to make my money work harder for me today?' Most of the time, many of us rationally know what needs to be done and what is good for us. However, procrastination tends to make us delay taking action. To many people, inaction is risk free.
What if I introduce the concept that inaction is a definite risk?
While the advise from the financial adviser is not guaranteed to be the best (depending on his/her competency), inflation is almost guaranteed. Staying idle with the money in the bank effectively means losing future spending power. I'll encourage people to meet financial advisers because most of us need an impetus to overcome the inertia to do something.
2. Humans have a strong sense of loss aversion
Have you heard the experiment involving apples and monkeys? In one room, there was 5 monkeys and they each were given 1 apple. All the monkeys were very happy. In another room, another 5 monkeys were given 2 apples each. Thereafter, 1 apple from each monkey was taken away, thus all the monkeys in room 2 also were left with 1 apple each. The monkeys in that room were very angry. Why are the monkeys in room 1 happy with their 5 apples whilst the monkeys in room 2 angry with their 5 apples? The monkeys in room 2 felt like they lost something.
Generally, human behavior works the same way. There's a huge reluctance to start retirement planning because of this concept that you have less to spend today if you commit a portion of your income to this purpose. So even if you know that the premiums you contribute to the plans today would result in a higher value in the future, you feel like you lost spending power today. Yet if you think about it, how many of us spend till we have zero in the bank? In fact, as we get our pay increments, most of us have a higher and higher balance in the bank. You should meet an FA because it is the financial adviser's job to help you see that you will be the monkey in room 2 if you do not start planning for retirement now. Retirement is a guaranteed event and the day there's no more active income to finance your lifestyle, it will be like taking away 1 apple from the monkey who originally had 2 apples.
Would you feel like an angry monkey then?
3. We live in an instant gratification age where delayed gratification is underrated
The marshmallow test is probably one of the more well known tests around. They put a child in a room and tell the kid that the marshmallow in the room is theirs. The tester would then tell the kid that he/she needs to leave the room to run an errand. If the kid can leave the marshmallow alone, the tester would give the kid 2 marshmallows when he/she returns.
The idea of delayed gratification is nothing new. Most of us have heard of it. Increasingly as society progresses with social media and technology, the lure of instant gratification is greater and greater. You should google the marshmallow test on youtube and see how kids fight the urge and how some succumb to it. Retirement planning is exactly like the marshmallow test. It's about the willingness to set aside our money into an instrument that can give us sufficient money in the future to meet our future needs.
Studies have also shown that most of us overestimate our own ability to plan for our own retirement. Most recently I asked if a client is saving $xxx for the sole purpose of retirement and his reply while he does save $xxx, he is simply putting it in his bank account for multiple purposes. That's why meeting an adviser is important. Given that retirement is the end stage of our life cycle, if we put our funds in a multi-purpose account, we would prioritize retirement last and there is a high risk we would be forced to compromise our quality of life when we should be rewarding ourselves for working so hard all our lives. The merits of meeting an adviser would be to set the motions going, have the difficult conversations and set you thinking about the stuff you probably aren't willing to think about now.
If you feel motivated to meet a financial adviser, you can approach someone you trust. If you don't know anyone, you can drop me a message under 'Let's Talk', coffee is on me!
Be sure to share the article if you feel this information is helpful. Like my page to keep updated on the latest things to look out for in financial planning.
Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.
Commentaires