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The Evolutionary Gap: Why We're Not Wired to Plan Financially for the Long Term

When clients first sit down with me, we usually establish between 5 and 7 clear financial objectives. 

These could range from buying a home, helping a child at university, saving for retirement or gifting assets later in life. 

However, when we meet for annual reviews, an interesting phenomenon occurs. 

Clients often recall only two or three of their initial objectives. 

Does that mean their goals have changed? 

Intriguingly, the answer is no. 

The objectives still hold immense value for them. 

Their reaction upon reviewing these forgotten goals is often one of surprise coupled with reaffirmation. 

“Yes, that’s exactly what we want. I remember now. How are we getting on?” 

So why does the memory lapse? What’s happening in between these meetings?

The Problem of Human Evolution and Long-Term Financial Planning

To understand this conundrum, let's journey back 100 years. 

According to the Office for National Statistics, the average life expectancy for a male in the early 20th century was 56 years. 

Fast forward to today, and that number has soared. 

However, our natural ability to think decades ahead has not evolved at the same pace.

In 1925, the UK government introduced the Contributory Pensions Act. 

Back then, the state pension commenced at 65, and with a life expectancy of 56, the average male would not even reach pension age. 

The concept of planning decades ahead was simply not part of our societal or evolutionary blueprint. 

The question then arises: how does this historical backdrop relate to the modern dilemma of financial forgetfulness?

Behavioral Economics

In behavioural economics, there's a concept called "temporal discounting," which refers to the tendency of people to devalue future rewards in favour of immediate gains. 

When we plan for the future, we are essentially discounting its importance in the present. 

This hardwired tendency often thwarts our ability to effectively plan for the long term. Which makes complete sense. 

The example above is only 100 years ago. 

A thousand years ago, you might regard yourself as lucky to be alive during a period where King Cnut’s reign brought economic and political stability after many years of devastating Viking raids. 

The downside is that life expectancy was around 34 years. In 1023, you didn’t need an ISA, you needed to make it to Christmas. 

Cognitive Load

Psychology offers another explanation through the theory of "cognitive load." 

Our brains have limited processing capacity. 

When overwhelmed with information or tasks (like emails, WhatsApp notifications or a busy family life), less essential activities, such as long-term financial planning, get moved to the back burner. 

Sometimes, we receive an enthusiastic enquiry for our WealthMap® service, only for the first planning meeting to stall. 

The reason for the delay is often that the client can’t find time to complete the Fact Find. 

Most people could probably find 30 minutes to complete the task; it’s just with bedtime stories, the final episode of a Netflix series they started months ago, or a book that’s almost finished, it gets pushed back for another week. 

Present Bias

There's also "present bias," where the immediate present is clearer and more impactful to us than the vague future. 

This bias often prevents us from acting in our best long-term interests. That's why you might remember to buy milk on your way home but forget about recalibrating your investment portfolio.

The Imperative Role of Financial Planners

Considering these psychological and behavioural limitations, it's clear why long-term financial objectives are so easily forgotten. 

This is where the role of a dedicated financial planner becomes invaluable. 

A financial planner acts as an external memory bank and rational agent, reminding you of your long-term goals and helping navigate the complexities of achieving them.

As we find ourselves living longer and healthier lives, the need to plan for an extended future is more crucial than ever. 

So, until we evolve to bridge this planning gap—which may take another 10,000 years or so—working closely with a financial planner seems like the most rational choice for securing our financial futures. 

People, quite rightly, don’t walk around thinking about their Expected Rate of Return from their portfolio or home ownership strategies before retirement. 

After all, life’s to be lived. 

That's why a little external help from someone following a process, with rigorous back testing and methodology, goes a long way. 

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