Why Is Financial Planning So... Hard?
Why is financial planning so… unpleasant for most clients and challenging for most advisors? Here’s an example to help explain it:
- Two trains – Train A and Train B – are 100 miles apart and moving towards each other.
- Train A is going east at 20 miles per hour.
- Train B is moving west at 30 miles per hour.
- How long will it take until they meet?
When I use this example in training sessions, I can watch participants cringe and squirm in their seats. Aaaaaghhhh. The dreaded word problem! Attentions drift. Brains seize.
In reality, this is a relatively simple algebra problem. What happens when we add a third train… and a fourth train; with different start times and directions? When faced with these types of problems, it doesn’t take too long before most people either just guess or give up. A simpler approach – avoid them. It’s typically the point in math at school where people begin to fall out and confess to their family and friends “I’m not a math person.”
So what does this have to do with financial planning? Consider the number of ‘moving trains’ in a financial plan! The simplest retirement calculators usually have six variables (changeable or moving parts) that can affect the result. Very basic financial planning illustrations typically have 10-20 and often more.
If people have a hard time understanding problems with a few moving trains, how are they supposed to get their arms around problems with 10 or more? The fact is that most people can’t, don’t, or simply won’t.
posted by PSullivan @ 8:52 PM
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