When did you last do your financial planning ? The progress at which financial planning in India is growing is nothing to be proud about. It is no doubt slow and the reasons are many and varied. I have tried to jot down some reasons why people avoid financial planning.
Please add if you think I have missed out on any.
Top 10 Reasons Why People Avoid Financial Planning –
1. Low Awareness
The awareness around the need for financial planning is very low in India. Most of the investors do not realize the significance of what good financial planning can help them achieve in life. Low awareness leads to a throw away opportunity and many investors wake up too late in the day to make amends.
2. No clarity on what is financial planning
Many investors do not know what financial planning encompasses. As a result they are unable to understand how their holistic financial disposition can be improved. Buying some random stocks and life insurance policies are construed by many as financial planning however that is simply product picking.
While there is free stuff on the internet to read up on, many people do not understand what they read. It is critical to understand that the four pillars of financial planning, investments, insurance, retirement and income tax, are best done holistically.
3. Little regulatory push
The Financial Planning Standards Boards of India can do much more in advertising the need of a certified financial planner. It has recently taken a step with trying to demarcate an “agent” from a “financial planner” but it has not gone down too well with the financial planning community.
Awareness among the general public about financial planning is badly required in our country. Why people avoid financial planning, Maybe print media, TV advertisements and other forms of advertising will help.
4. Financial Planner in many forms
With so many people masquerading as financial planners, it is difficult for the ordinary investor to decide who is the right person to go to. In India, life insurance agents aka life advisors, relationship managers, tax consultants and brokerage houses act as financial planners. It is obvious the investor will be confused who is the right person to go to.
5. Once bitten twice shy
Many investors have burnt their fingers by going to the wrong people. Once that happens they lose confidence in the system and people who can make their financial lives healthy. So they become wary and do not want to take another chance – they end up managing their own money.
Learn from your mistakes. If you chose the wrong person, share 50% of the blame !
6. It’s a paid service, I want it for free !
I have had many queries from clients who have asked whether financial planning services are free or not. Once I clarify they are not, many take a step back saying other places (banks/brokerage houses) offer this for free. Investors need to warm up to the idea of paying for a service which is gong to make their future financial life better.
Why people avoid financial planning, just for getting free services only !
But, all you get is crap advice and unsuitable products, because they all are generalized ones not the specifically designed according to your needs.
7. It is boring
Let us accept this. Why people avoid financial planning, because it is perceived as a very boring and monotonous exercise. Investors think they would rather go watch a flop movie at the theatre than sit down to collect their financial data in a very detailed manner. As a result, very less priority is given to managing one’s own finances.
There is a mindset change that needs to happen to investors.
8. “I can grow rich myself” syndrome
Many investors think that investing in stocks is going to make them rich and as a result they do not need the services of a financial planner. They watch the stock ticker every day, make money often, lose more often and still continue trading stocks they know nothing about with gentle pushes from their stock brokers. It’s a never ending black hole.
Others take the real estate route and say they don’t believe in mutual funds and gold. Diversification is given a backseat. The “I can do it myself” mania gets the better of the individual with devastating results.
9. No clarity on what to expect from your planner
Often, the expectations investors have from financial planners is blurred. Many want a person just to do fee based financial planning and not talking about product selling; Some want a one stop shop person to do everything for them; Few want a person to do their tax filing as well !
Fee based financial planning is your best bet as it will ensure the planner recommends products best suited for you but if you yourself do not know what to expect from a planner, then it might be a failed collaboration. You might never sign up anyone !
Make sure you know what to expect and don’t aim for something which does not exist in the industry today.
10. Poor renewals
There are many clients I have had who have not renewed their subscriptions beyond 1 year. They think that once they did their planning, it was good for their lifetime. That is a big fallacy investors might want to correct.
The need for financial planning exists each year and investors need to be careful to discontinue. You keep visiting the doctor for regular check ups each year, don’t you? In a similar way, you need to keep visiting your planner. And for God’s sake, we need to earn as well !
Any more points that my readers want to add ?
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If I have to agree with only a single point, it would be point # 8: “I can grow rich myself” syndrome.
While being hands-on with money matters is appreciable, the fact remains that one needs to be competent with the underlying fundamentals of money matters to ensure they do a decent job in self financial planning.
There is so much information available out there on this subject that you are bound to stumble upon it once you start looking for it. But how to churn this plentiful information into actionable items and how to keep track of the investment options and avenues itself is a significant task in itself.
Like the good old saying goes “If you fail to plan, you are planning to fail”. No reason is good enough for not doing at least a basic planing of one’s finances. Non-planners do not know what they are missing out on by being ignorant or unclear on this aspect.
@Jaswinder Singh, I would still say if one can spend time and understand things completely on what is written and what is important to them, anyone can easily create goals and work on them without the financial planner.
But the important point is, we always need a guide. We are prone to making mistakes. The analogy here is, we have the disease and the information and the pill along with it. Don’t you go to the doctor to get the advice to take the pill. If you are fine in taking the pill with the information alone (like only going to the medical shop, which is mostly not recommended), then its your choice.
@Manickkam, You looking to make me going out of business ? – “without the financial planner”. 🙂
@Radhey Sharma, Radhey, from what I have learned of you and the way you work with your clients; I don’t see you going out of business anytime soon 🙂
@Radhey Sharma, No.. Not at all Radhey.. It was meant to stress the importance of financial planner and it was to say how hard it is to do it yourself.
@Manickkam, I was only joking, don’t take it seriously.
The most important thing is “Laziness” and “Procrastination”, which when combined together will give disastrous results.
Most of them fail to realize that financial planning is essential in their life. And they are too lazy and they do procrastinate things because of many urgent and unimportant things lying in front of them.
@Manickkam, So you have done your planning or you fall within a category above here ?
@Radhey Sharma,
Actually, I have a fair amount of idea on financial planning. In fact, I am a vivid reader of many blogs in personal finance as well.
I have my own goals and am working towards it.
@Manickkam, Nice to know that you are self-driven!
Radhey,
Good points, I too am doing my financial planning myself, so far in right track and very much satisfied. Thanks to many financial bloggers like you where we can get good knowledge.
Rakesh
If considering all over India, I believe first two points are main in %…….. and who knows about it more % applys to 8 (merging with 6 and 10), so very less goes with financial planner. And for these reasons only financial planner have good futur in India (reasons to Smile Radhey….)
Also don’t take Rakesh’s comment seriously 😉 and keep writing blogs to educate many readers here.
@Chirag, Thanks for that Chirag. I will continue writing – I am sure both Rakesh and you mean good.
@Radhey Sharma, Yup, we both mean good and good.
Radhey,
Yes, please continue to advise us on various aspects of financial planning. I make sure to visit your blog daily…….
Rakesh
@Rakesh, sure will do do that sir !
You have covered all the vital points. One I can think of is lack of “real” financial planners in the city/country & whosoever is real their lack of reach to the potential customers. Unless the authority or the actual financial planners take effort to reach & educate the people with its importance obviously the exposure will be at snail’s speed in a country like India.
@Sudip D, While this is right, I often think investors need to take a step forward as well.
How much will a financial planner and the regulator do ? If an investor wants to manage his money, he needs to reach out to the right people as well.
@Radhey Sharma, The investors have definitely taken a step forward. This is the reason why you see so many people on your blog & as well as on other financial planning website’s blogs. But so far I have neither seen a single ad of financial planners in the newspapers or on the internet on sites like rediff/yahoo etc. nor any approach by the authorities to reach the potential customers.
I think we have some scope for further enhancing this list of reasons why people don’t do financial planning – and what comes to my mind is procrastination and laziness 🙂
The main reason is absence of financial literacy.The other is plain laziness.I would like to reproduce here what the author of the book -The Rules Of Wealth says :
Most people are too lazy to be wealthy.They may say that they want to be wealthy, but they don’t. They are not prepared to put in the work, study, learn, put in the effort and make it a determined and concentrated focus of their life.
Yes, they want the money but only if it comes to them by accident, by luck, by chance.
@ANIL KUMAR KAPILA, Yes Anil, that is right. They are too lazy, everyone wants to get rich quickly.
Anilji,
Very true when you say most people are too lazy to be wealthy…
There is another common syndrome why people don’t do their financial planning. That syndrome is called “My CA knows it all”.
People visit their CAs between Jan-Mar to save tax and whatever CA suggests are like golden words to them. They feel they don’t need to plan for anything because their CA is taking care of everything. But this is highly mistaken and a wonderful article was written by Hemant to break that myth: –
http://www.tflguide.com/2012/02/chartered-accountant-is-not-a-financial-planner.html
@Vivek,
I used to be one of them. I used to approach my CA in the month of Jan for tax advise but after being financial savy(thanks to Radhey & other bloggers) i do it myself.
Infact i also filed my returns online last year for the first time.
@Rakesh, Thats great Rakesh! I have never filed the returns myself, I enjoy the benefit of company’s facility to do it for me 🙂
In fact the company ask us to declare our tax instruments at the beginning of the year so I end up doing my tax planning at the beginning in order to enjoy less TDS.
Good Insight about topic. Nice post.