Contributed by: Matthew E. Chope, CFP®
I recently read an article about cognitive decline as we age. The article shocked me and made me realize why a strong partnership with a good financial planner can be absolutely vital as we get older. The research article by Michael Finke, John Howe, and Sandra Huston called “Old Age and the Decline in Financial Literacy” describes the situation well. The authors provided a financial literacy test to older populations and found that while financial literacy tends to decline by about 1% per year after age sixty, financial confidence remains the same. The chart below illustrates this dangerous paradox:
One of our most important responsibilities as financial planners is to make sure that our clients are thoughtful about their financial decisions. We consider ourselves managers of risk even more than managers of return, especially for our older clients. This is paramount in what we do because many clients are focused more on matters of living – health, family, etc. – than on diving into the details of their investments or retirement cash flow in order to know their best path forward.
As I was reading the article about the average confidence vs. literacy I was stunned at the widening differential gap between financial literacy and financial confidence. The gap at age 70 was 15% but widened to over 40% by age 80! This gap is where people become permanently financially damaged by poor decisions. Most of the work we do is focused on helping reduce the probability of poor decisions. It’s akin to the doctors Hippocratic Oath, “first do no harm”. Our goal is not to make people rich, but to structure a solid foundation to ensure our clients never become destitute.
Here are some questions to consider:
- Do you have the time, energy, interest, knowledge, and desire to implement all kinds of financial decisions on your own? Do you enjoy financial planning?
- Will you overcome the inertia of inaction to put together all the various pieces needed to create and implement an effective and coherent overall plan?
- Will you continue to periodically update your plan?
- Have you determined how to make sure your planning will be maintained properly if other family members need to take control of it?
- Are you working with a financial planner who does more than just manage investment portfolios – who helps you with all aspects of your financial picture -- and helps you to implement suitable financial planning decisions?
If the answer to any of these questions is “I’m not sure” or “no,” please reach out to a Certified Financial Planner™ professional to discuss how they can help.
Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc.® Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Matt Chope and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.