Three Times the Retirement Assets
Planning, the simple act of planning, not even following a plan, creates money. In fact, even if you create a plan and don’t follow it, you still end up with more money. So say the researchers. (1,2,3)
On the other hand, when I say the word “money,” your brain shuts down and your emotions shoot through the roof! That’s not news to psychologists, divorce attorneys or financial planners. (4)
Sometimes the news is not news and still immensely important! Let’s look at both sides of the story.
Power of Planning
In 2011, researchers looked at four groups of people, those who had no financial plan, people who thought about having a plan, people who had a plan but gave up on it and people who stuck to the plan they made. If you want three times the assets in retirement than the folks who don’t have a plan, create a financial plan and stick to it.
This common sense advice is easier said than done because money talk causes the brain’s planning function to shut down!
In 2018, researchers measured brain waves when asked various financial questions. They measured the parts of the brain associated with many different things, not the least of which are emotions and planning.
When engaging in a financial conversation, our brains have increased emotional responses and decreased planning functions.
What I make of both sides of this story: the more we talk about money, the more we become less rational, and the more we think about money. It’s a loop that (likely) is not good.
If we’re in a situation where A) we know we need to plan and B) we know that the more we plan the less rational we become, then we are in a no-win situation. If we don’t plan, we worry about money. If we do plan, we run the risk of making irrational decisions.
A Better Way
The better way is to talk to someone else—particularly someone who has experience, knowledge, training and a lot of rational-ability to talk about money-planning; someone like a wealth manager at AIFS.
Sometimes the researchers—whether they were working many years ago or very recently—do the research to point out the obvious. Sometimes they confirm our biases. In this case, our bias towards getting independent, expert financial advice is measurable both in our brains (and hearts) and our wallets!
(1) Financial Planning Research Highlights From the 2019 CFP Board Academic Research Colloquium
(2) The Power of Planning
(3) Financial Literacy and Planning: Implications for Retirement Wellbeing
(4) The Way Consumers and Clients Respond to Financial Conversations: Investigation with Measurement of EEG Signals