The psychology of financial planning
Talking about money can get uncomfortable fast. While planning for retirement is the most logical step in creating the future you desire, there are unconscious roadblocks many people have to overcome to heed the advice of their financial planners who are successful often self-describe as both planners and pseudo-therapists.
With these facts in mind, the CFP exam is now incorporating psychology into the requirements for certification (starting in 2022).
From the CFP:
UPDATED PRINCIPAL KNOWLEDGE TOPICS
An important result of the 2021 Practice Analysis Study is the updated list of Principal Knowledge Topics. Major changes in the 2021 Principal Knowledge Topics list include:
- A new category called the Psychology of Financial Planning.
- The consolidation of the prior Education Planning category and underlying topics within the General Financial Planning Principles category.
The updated topics will be incorporated into the CFP® exam starting with the March 2022 exam. CFP Board Registered Programs will revise their curricula to incorporate the updated Principal Knowledge Topics in 2021. Effective immediately, CFP Board will begin to grant CE credit for programs that address the new topics.
Many people find that, as they approach retirement, they have not accounted for the lifestyle they want to maintain and wish they could change spending or saving habits earlier in life.
In 2019 a study from the Employee Benefit Research Institute found 40% of American households between 30 – 65 will run out of money in retirement, with 67% of millennials having nothing saved for retirement at all. To be fair, most young people have a hard time imagining 5 years from now, much less 45 years into the future.
The good news is, with proper motivation, small investments compound, creating huge retirement savings, if you start in your 20s. All is not lost for those of us well past that age, but sharing these insights with the younger generation is a gift we can give them.
So, what can motivate a younger person to save for retirement when life is so fun (and budgets are so tight) right now? One student tried bringing young people face to face with their retirement-aged selves. They took photographs and, using computer imaging software, aged them. When faced with their future selves all participants agreed that saving fro retirement was now a priority.
The student project was based on a 2011 study by social psychologist Hal Hershfield, who showed that, faced with an older version of themselves participants chose to put away more for retirement than those who had not seen the aged version of their own face.
At Retirement DNA, we know that the building blocks of retirement are based in sound planning, wise investment, and good financial education. That’s why we conduct custom plan audits to review where you are, where you want to be, and how we can help you get there.
