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A couple of year after retiring from a career in translation and the organization of international conferences, I enrolled in a graduate program for Financial Planners at Rice University and subsequently passed the CFP exam. I didn’t intend to go back to work, and I haven’t. What motivated me was an interest in learning how to manage my own finances better. In the process, I gained an appreciation for financial planning as a profession and would consider it seriously if I were starting out again. Alas, I’m 76 years old.
I have the impression that many Humble Dollar readers take pride in managing their own finances and investments – that’s kind of the premise of Humble Dollar, isn’t it? That it’s not rocket science. Financial literacy comes down to a few basic principles, and financial success to clear goals and discipline.
Nevertheless, it seems to me that that simple message – and the good outcomes it leads to – isn’t reaching the people who would benefit most, if one is to judge by the average person’s readiness for retirement.
So, I have two questions for you: First, have you personally benefitted from access to financial planning, and if so, how? And second, why aren’t financial planners reaching those who need it most?
I have other questions, as well, but I’ll start with those. I welcome any comments on financial planning, financial planners and how they could be of value to the average household.
Just seeing this now, after reading you’re third article about this today.
I’d like to share my brief thoughts on the second question you posed here, “why aren’t financial planners reaching those who need it most?”
To me it’s pretty simple: lack of financial literacy among their clients; and incentives for planners are mis-aligned with the desired outcomes of their clients.
This is particularly acute for retirees who are in the decumulation stage. AUM planners make their money by keeping asset levels high (and growing). This works great during the accumulation stage, as working people are focused on their jobs, careers and families. They don’t have the time or inclination to learn about personal financial management, so here a planner can help them at least put in place a plan that will lead to the right balance of saving while allowing enough spending to enjoy the journey.
Retirees, though, pose a much more challenging problem. They’re faced with 30 years or more of decumulating their portfolios and navigating around the myriad pitfalls that could derail them along the way.
As near as I can tell, planners as a group and planning as a profession are doing a lousy job of offering real help here. Of course there are exceptions, but in my opinion their profession is not set up to address this extraordinarily difficult challenge.
Always a good Idea to educate, I did that in 1985 and I learned a lot. I am self financed since childhood. Parents encouraged a bank account at 10 years old, ah, they paid me money for saving mine, one of the most important financial axioms, Compounding interest! The other major one, inflation. So it seemed to me someone with little money did not have or want to pay a fee, at my brokerage, Fidelity. I actually gave them $100,000 to invest about 1990, and guess what, they never beat the S&P 500, but most of all they traded so often, your head would spin, and I had to pay them if they made money or not. I stopped that after 6 months and started reading all I could to learn about Bogle, Peter Lynch, and many others. So, First, have you personally benefitted from access to financial planning, and if so, how? Yes, saved thousands of dollars and at 65 realized indexing was by far the best bet for me, no financial planner needed. And second, why aren’t financial planners reaching those who need it most? Not sure but it costs money and it is hard to trust others with your very hard earned cash, maybe young people no interest, you have to get them on social media. At 80, I am at 85% equites, so I can beat inflation, and 15% cash to tide me over when the market is in a tizzy or downtrend for a year of 5 years, generally not more. I decide no need for bonds but if you like them, OK, 55, 35, 10, equites, bonds, cash. This is working for me. Humble Dollar is a godsend, we should all find a way with a new name that attracts young 25 to 45 year olds somehow on social media. They need this info the most.
Do you spend exclusively out of your equities until a downtrend? And if so, how do you define a downtrend/tizzy to make the switch from spending from equity allocation to begin spending from cash allocation?
Javier –
I’m self-taught when it comes to financial knowledge, and that alone has benefited me greatly. The more I learned, the more I realized good planning is not about finding magic investments. It is about clarity: cash flow, taxes, risk, Social Security, survivor needs, insurance, estate documents, and whether your retirement income is dependable.
As for why planners aren’t reaching the people who need them most, I think it comes down to access, trust, and timing. Many people assume planners are only for the wealthy, or they fear being sold products instead of receiving real advice. Others do not realize they need help until debt, poor savings, or retirement panic has already set in.
I also wish financial literacy was required in high school. Every young adult should understand budgeting, credit cards, loans, taxes, insurance, investing, and compound interest before the world starts handing them debt.
Maybe planning needs to become less about portfolio management and more about education, coaching, and helping ordinary people make one better decision at a time. Good advice only matters if it reaches people early enough to change the outcome.
~ Jeff