It’s easy to think of financial advice as being about numbers. Interest rates, exchange rates, returns generated. But it’s about much more than that.
In large part, financial advice is about psychology. To a large extent, it’s about addressing emotional and behavioural issues that get in the way of achieving of our longer-term financial and lifestyle goals.
Good financial advice is about developing plans that work in the real world (ie, are human friendly). It also involves helping people work the plans.
The term “akrasia” is used within some rationalist communities to describe the state of acting against our own better judgement. It’s a phenomenon that’s all too common.
The example that hits home for most people relates to diet and exercise. If you’re like me, living healthfully isn’t so much an issue of education (there’s always more to be learned, but two great things to keep in mind are: “Eat food. Mostly plants. Not too much.” Or: “Eat a crapton of vegetables.”). It’s a behavioural issue. Every time I reach for a biscuit or a piece of chocolate or pour a glass of soft drink I know I should be eating a piece of fruit or a vegetable or drinking water.
Like many people, I have systems in place to encourage me to act more healthfully. I try to make fruit and veges more accessible, and try to make sure that sweets simply aren’t available – it’s better to avoid temptation than resist it. But some weeks and months are better than others.
The same dynamics are at work in other domains of our life. They’re especially important when it comes to money.
For example. I don’t expect to retire for at least another three decades, if not longer. It’s really easy to forget this and prioritise the here-and-now over my long-term retirement goals.
But if I want the peace of mind of knowing I can look forward to a comfortable retirement, I need to be diligent and be accountable. To myself. I need to ensure that, in the broader scheme of things, I’m not acting against my own better judgement.
A financial adviser who understands this, and can help his or her clients navigate their psychological biases and failings, is not focussed on numbers alone. In large part, they are a behavioural coach, helping their clients act according to their best judgement.