At the Institute for Financial Wellbeing’s May conference, one topic of discussion was how human behaviour can be modified by bringing people closer to their future selves. Research shows that there can actually be an empathy gap between our current and future selves, with our future self in some instances provoking no more empathy than we would have for a stranger!
This is a very relevant concept when we look at retirement saving, which is by its nature long term and lacking any short-term gratification. Recent data from Aviva showed that almost half of the respondents in a survey of people aged 50 or over regretted not saving into their pension sooner, and almost two thirds wished they had contributed more into their retirement savings at an earlier stage.
The role of a good financial planner is to work with clients on both a technical and emotional level, to help them plan for whatever life may bring. People often seek professional advice due to a life event, such as receiving an inheritance or getting divorced, but the full financial planning process helps people to fully explore both their current and future needs and aspirations.
Looking beyond the transactional
If you are focused simply on your current self, then your needs are often quite transactional, such as wanting to invest a sum of money.
A financial planner can help you to look beyond this initial need and begin to envision what you want your future to look like.
This can initially be as simple as asking open questions, such as what does a good retirement look like to you or if money wasn’t a consideration, how would you be spending your time? Some people may struggle to visualise in this way, so it would then move on to direct questions about travel plans or bucket lists, how you might like to support any children/grandchildren, or plans in relation to moving home or home improvements.
Plans can then be broken down into the short, medium and long term and prioritised, to help you understand what is most important within each timeframe.
Modelling future lifestyle
The next step is to put an estimated monetary figure on each objective, which will include reviewing expenditure and a planner talking you through how your desired future lifestyle might change this.
A cashflow modelling tool is commonly used, which helps to visually demonstrate how achievable dreams and aspirations are. This process is very effective for connecting people to their future selves, as it allows them to see in real time, the consequences of certain courses of action, such as retiring earlier than planned or moving to working part time. This focus on future lifestyle can then help motivate people to take action, such as prioritising saving more into their pension for example, or taking out life assurance.
In a world that’s increasingly fast paced and focused on instant gratification, it’s really important to not be a stranger to your future self. People need to have an eye on their welfare, just as much as they look after the person they are today, balancing long-term future benefit with their current wants and needs.
If you want help managing your finances, please don’t hesitate to get in touch.