By Brad Thomason, CPA
I’m about to make one of those broad, sweeping declarations which is so often misguided, mistaken, and just wrong. You folks get to decide if you think I’m right or wrong on this one. But I’m pretty sure I’m right.
Here goes: Most of the people who are interested enough in financial planning to actually engage in it, are people who already have some amount of wealth.
The hope of financial education and planning is that it can serve as a pathway to wealth creation for just about anyone who decides to put in the time and the effort.
The reality of it though is that it is primarily the domain of those who already have some money.
To further refine my statement, I would say that if you took all of the people who spend time engaged in purposeful financial activities, the majority would be those who already have some wealth, and the minority would be engaged for aspirational reasons.
Moreover, if you took the population of those who did not have money, the majority would be doing nothing, and again, only the minority would be those who engage for aspirational reasons.
So if that premise is true, and we start thinking about what that could imply, I think one of the plausible conclusions is this: part of the motivation for actual engagement is tied to the fear of losing what’s already been gained. Those with more to lose are less interested in losing, and as such, are willing to spend more time and attention on financial matters than those who don’t (from the perspective of owning a pool of assets) have anything to lose. Conversely, if the prospect of merely having more were sufficient motivation for the typical person, we would see the aspirational pathway clogged with a whole lot more travelers than is actually the case.
I think that matters, because people often react negatively to the idea that decisions are being made out of fear. I myself have even made such arguments on occasion. But whether we find it palatable or not, is a different matter than if we should allow ourselves to be so motivated. We may not find fear to be an attractive motivator, but that doesn’t mean it’s not a legitimate one.
To dig into that a bit further, now is probably a good place to point out that this discussion is one of those instances of a word in common use having a different connotation than it does in technical use. That word here, is fear. The term fear is often used as a stand-in for what psychologists and sociologists would actually refer to as loss. Loss, as a technical term, means either that you were hoping for something valuable and didn’t get it, or you had something valuable in the past and don’t anymore.
That’s really what we are talking about when the term fear is used in a financial discussion.
Or to restate the original premise with cleaned-up terminology, we as financial decision makers are often motivated by wanting to avoid loss.
Which seems like a pretty rational desire; and as such, a pretty legitimate motivator, doesn’t it?
There is good reason to not be ruled by the things we fear (or want to avoid, if you prefer that phrasing). Yet those sentiments come from somewhere, and it is not automatically certain that such sentiments are the simple products of irrationality or ‘being emotional.’ I can make a very good, totally objective argument for the notion that losing assets you spent decades accumulating is a bad thing. Bet you can too. The trick then, is to do the work of introspection necessary to determine if that fear that’s pushing you to do or not do something is just a case of bad nerves, or the result of being aware of potential loss which will do real and substantive damage should it come about.
So my suggestion is this: don’t worry about trying to shake off the feeling that fear is an unattractive motivator. If someone tells you fear is a bad motivator, just say ‘ok.’ You don’t have to move to the viewpoint that you like it. Just don’t let the fact that you don’t like it cause you to ignore your inner voice when it is telling you that there’s something that needs attention. If you assume out of hand that such feelings are simple paranoia, you may find yourself on the receiving end of a loss which you knew was shaping up, and which you knew how to avoid before the fact.
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