WHAT WE SHOULD DO AND WHAT WE ACTUALLY DO -THE BEHAVIOR GAP

It was easy when over last forty odd years I experimented and practiced my personal financial matters like financial planning and equity investments. I carried out my own reviews and did the course corrections and thus achieved my Financial Freedom. After retirement and migrating to US I decided to teach and benefit suitable students who enroll on my web site. The web site was specially designed and launched for this purpose and unique proposition of the efforts was that students will get to decide what they want to pay as “Guru Dakshna” and surplus was to be given in charity as I believe that anything offered free is not valued.

Response was good but experiences forced me back to some research and reading trying to understand why these people after deciding to enroll and filling the KYC and in some cases even after taking an introductory audio video session procrastinated. I was learning and also trying to understand this behavior which was puzzling me.

I did some research and revision reading to help me in understanding this behavior and find a solution to it.

For recommending to read to learn right basics in matters of personal finance I thought of  my old favorite book “Richest man in Babylon” I got hold of the book and read it again just to confirm that it was the ideal one to read and still relevant.

Behavioral aspects still continued to puzzle me and what were these particular aspects which puzzled me :

1. Some not understanding their need for insurance and paying for endowment policies at the cost of not covering risk and opportunity to save.

2. Paying for high interest rates for credit card dues, as much as 39% besides some other charges and putting money in mutual funds or SIPs .

3.  Buying shares of companies businesses of which they don’t understand and just because some one recommended it or they read it some where and not knowing if it fits in their life goals and purpose.

4. Keeping large savings in bank Fixed Deposits at low interest rates but not learning to invest in equity.

5. Not keeping the spouse and grown up children informed about family finances

6. Confused about buying a house or to continue in rented one.

7. Not thinking of retirement or death or losing the job or some other emergency in life.

8. Thinking that even a small saving will affect their quality of life and need for disciplined regular saving and in some cases spending beyond their incomes.

9. Ignorance of Tax considerations and benefits of compounding.

10. Reluctance and inability to talk about money matters and not knowing with whom to talk about it.

11. Confusion due to thinking that money matters are too complex. This is due to media over dose of marketing of insurance and equity investments by  mutual funds, ETFs, brokers, advisers and planners and their voluminous unrealistic complex financial plans.

12. Avoiding investing in equity because it was considered by them as too risky and akin to gambling but not thinking of learning ways to benefit from it and reducing the risk.

Broadly one reason was neither parents nor education had given them the practical knowledge. Second was taking generic advice from random people who don’t know their life position and financial position well. Correct advice, education  or support was not available or was too costly and most advisers had vested interests which clashed with what was best in the client’s interest. too.

Third  aspect was behavioral for which I was looking to find a book to recommend as essential reading , the contents of which will be well aligned  with my thinking and experience of over 40 years experimenting with financial planning and equity investments.

My efforts bore fruit when I found a book “The Behavioral Gap” by Carl Richards. Reading of this book will help people to :

1. Avoid tendency to buy high and sale low.

2. Avoid pitfalls of generic financial advice.

3. Invest their time and energy the real assets wisely.

4. Quit spending time and money on things that don’t matter.

5. Identify real financial goals.

6. How to meaningfully talk about money specially to the children.

7. Simple but not easy financial planning for life.

8. How to stop losing money saved from hard work.

9. Its never too late to make a fresh financial start and age is not a bar, even after

 retirement many will live for long and face hardships when funds dry up.

I plan to cover all of the above and some other aspects in my future blogs.

Here is a quote from the author: CARL RICHARDS

“We have all made mistakes, but now its time to give yourself permission to review those mistakes, identify your personal behavior gaps , and make a plan to avoid them in future.The goal isn’t to make a “perfect” decision about money every time , but to do the best we can and move forward.  Most of the time, that’s enough”

We restart with our earlier planned series now after this brief but essential digression from the next blog.