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.