You’re Scared to Bring it Up

weber_bioBrad Weber AIF®, Regional Director, Retirement Plan Services

A 2004 survey conducted by the American Psychological Association says that 73% of Americans name money as the number one factor that affects their stress level. Number one. The New York Times reports that couples who reported disagreeing about finance once a week were over 30% more likely to get divorced than couples who reported disagreements a few times a month.1 So, in addition to being stress-inducing public enemy number one, money is also highly implicated in whether or not we stay married. It’s no wonder then that we tread lightly around retirement or don’t bring it up at all!

The most common behavior in response to the overwhelming anxiety of preparing for three decades of not working is that we may ignore the conversation entirely. After all, we erroneously suppose, “If I ignore it maybe it will go away.” As anyone who has ever put off a project can attest, it never goes away and anxiety is only compounded as a deadline approaches. In college this may have been as inconsequential as pulling an all-nighter and receiving a subpar grade. With retirement planning, it could quite literally have disastrous personal consequences.

A recent study by the American Institute of CPAs2 found that speaking to children about money to children was among parents’ lowest priorities. In fact, money issues were trumped by good manners, sound eating habits, the need for good grades, the dangers of drugs, and the risks of smoking in terms of perceived importance. Our reticence to talk about money is certainly not out of lack of need. An Accenture report states that Baby Boomers will leave $30 trillion to their children in the next 30 years. This doesn’t even take into account the almost $12 trillion that MetLife predicts that Boomers will receive from their parents. The fact is, money will be changing hands within families at an unprecedented rate in the years to come and we are ill equipped to make the exchange.

There are a number of reasons why talking about money may be so difficult. One is that there has been a vitriolic reaction against the wealthy in the wake of the Occupy Wall Street movement and the global financial crisis. This sentiment was illustrated quite vividly in the September 24, 2016 Fortune magazine cover article, “Is It Still OK To Be Rich In America?” Another reason for this taboo may have a higher source.

The Bible, the best-selling book of all time and a foundational text for a majority of Americans, mentions money no less than 250 times. While not all Biblical references to money are negative, there are certainly enough references to “filthy lucre” to give pause. To a nation founded on Protestant ideals about work and morality, the notion of wealth as potentially corrosive is one that is deeply embedded in the collective American consciousness.

John Levy, a counselor to people who have recently inherited money found the following reasons for the money taboo among his clientele (as cited in O’Neil, 1993):3

  • Good taste – “It’s just not done.”
  • Fear of manipulation – “It will give them power over me.”
  • Concern for spoiling children – “They will never make anything of themselves.”
  • Embarrassment – “I don’t deserve to be so much better off than others.”
  • Fear of being judged – “All they can see is my money.”

Perhaps some of the reasons above are resonant with your personal situation and perhaps not, but it seems difficult to deny that money is a subject that puts us all on eggshells. Consider a handful of your best friends. No doubt you could tell me much about their lives; joys and struggles, highs and lows. But I doubt if you could tell me their exact salary, savings or other relevant financial indicators, because we simply don’t talk about them. While this is fine in polite company, this tendency toward silence can extend beyond the cocktail party circuit. Conversations about money tend to be emotionally fraught and tinged with shame and as such, are best handled by professionals adept at de-stigmatizing and reorienting our sometimes misguided thoughts about preparing for our financial future.

Solution: Begin a dialogue around retirement preparedness today with a professional at your place of employment or through a trusted financial advisor. Just as silence leads to greater inaction, a simple conversation can lead to life-changing progress.

For 10 years, Brinker Capital Retirement Plan Services has been working with advisors to offer plan sponsors the solutions to help participants reach their retirement goals.  The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Sources:

1 “Money Fights Predict Divorce Rates,” Catherine Rampell, The New York Times, December 7, 2009.

2  “Money Among Lowest Priorities in Talks Between Parents, Kids,” AICPA, August 9, 2012.

3 “The Paradox of Success,” John O’Neil. New York: Putnam, 1993.

Planning Fallacy

Dr. Daniel CrosbyDr. Daniel Crosby, President, IncBlot Behavioral Finance

Last November, my wife and I were blessed with the birth of Liam, our second child and first son. My wife, who had diligently prepared for all aspects of the baby’s arrival, had been encouraging me to prepare my overnight “go bag” in the case of an early arrival. As I am wont, I put this final preparation off until the last minute, only preparing a very few basic necessities and wrapping them unceremoniously in a Walmart bag rather than the leather duffel I use for most business travel.

Our son arrived without adverse incident (easy for me to say!) and as we hunkered down for those difficult, sleepless first nights in the hospital, I realized that my preparations had been inadequate. I had forgotten my contacts entirely, brought an outdated pair of prescription glasses and packed only enough clothing for one day following the delivery. Needless to say, the discomfort of those late nights in the hospital was only made worse by my lack of foresight. Not only was I sleepy, as is to be expected; I was also smelly, unshaven and outfitted in yesterday’s rumpled t-shirt. Luckily, the miracle of new life minimized my failure to prepare, but the (seemingly millions) of pictures will always tell the tale of just how unprepared I truly was.

Crosby_PlanningFallacy_4.3.14So how is it that I, an otherwise functional person who had been through this experience once before, was caught so off guard? The psychological term for what I had experienced is the planning fallacy and it is the reason that we are often a day late and a dollar short. In a phrase, the planning fallacy is the human tendency to underestimate the time and resources necessary to complete a task. In my case, the damage was limited to a few unfortunate pictures, but when applied to a lifetime of financial decision-making, the results can be catastrophic.

There are a variety of hypotheses as to why we engage in this sort of misjudgment about what it will take to get the job done. Some chalk it up to wishful thinking. To use my example, I was hoping to be in the hospital just two nights instead of the five we spent when my daughter was born. By packing a small bag, I was willing this dream into existence. A second supposition is that we are overly-optimistic judges of our own performance. Extending this line of thought, I might understand that most couples are in the hospital for three nights but most couples are not as fit, intelligent and strong-willed as the two of us (to say nothing of our exceptional progeny!). A final notion implicates focalism or a tendency to estimate the time required to complete the project, but failing to account for interruptions on the periphery. Sure, it may just take a few hours to have the baby, but there is recovery, eating, entertaining visitors, and the requisite oohing and aahing over the new arrival.

Whatever the foundational reasons, and it is likely there are many, it is clear enough that the American investing public has a serious case of failure to adequately plan. Excluding their primary home value, most Americans have less than $25,000 in retirement savings. 43% of Americans are just 90 days away from poverty and 48% of those with workplace retirement savings plans fail to contribute. Perhaps we think we are special. Maybe we are simply too focused on the day-to-day realities that can so easily hijack our attention. Without a doubt, we may wish that the need to save large sums of money for a future date would just resolve itself. But wishing it won’t make it so any more than wishing for my son’s hasty arrival did. I got off no worse than a few bad pictures and some unsightly hair; those who plan to save for their financial tomorrow’s won’t be nearly as lucky.

Views expressed are for illustrative purposes only. The information was created and supplied by Dr. Daniel Crosby of IncBlot Behavioral Finance, an unaffiliated third party. Brinker Capital Inc., a Registered Investment Advisor