As detailed in the previous articles in this series, bad thinking creates bad habits. The myths that prevail in today's thinking about managing personal finances and building personal economies lead to financial disaster. This article looks at the final two myths.
Myth No. 6 : My financial advisor knows
This may be the biggest myth of all. Some of my best friends and clients are financial planners and advisors. They perform a valuable service, especially those who are specialized and focused on one particular aspect of the market and have an open mind toward the processes that you and I go through. I frequently refer clients to these professionals when they are in a position to use their expertise and services.
The general public, however, continues to support the myth that big companies with famous names (I call them Behemoths) automatically provide quality financial advisors. Recent history shows proves that assumption to be false. In fact, quite the opposite is true. Many of the well-known financial firms recruit anyone who is willing to endure their training and who can obtain the licenses required to sell financial products. A large percentage of those recruits fail within one year.
Moreover, these so-called financial planners have very little leeway in terms of the planning they actually perform. Computer programs generate most of the charts, graphs, and spreadsheets that they call a plan. In addition, the Behemoths structure the outcomes in great part to assure the selling organization that the planner (sales rep) highlights company products and does not present anything to you that might land the firm in court.
Many -- if not most -- of the "plans" that these programs regurgitate are not plans at all. They are nothing more than sales presentations that encapsulate and perpetuate the conventional wisdom embodied in the myths we are discussing.
It's a Stepford World and the well known financial planning firms see you as the Stepford Client of a Stepford Planner.1
Myth No. 7: I'll never quit working
I actually believed this at one point in my younger life. It's true, in a way. It's true if you mean that you will always pursue life goals. It's not true if you mean that you will always work to earn an income to support yourself.
Ask any of the thousands older than age 50 who have had to find a job after a layoff if the work they were able to find was in fact equivalent in either pay or satisfaction to the work they had before. You discover that most of the time it is not.
You will also find out that many of those folks are trying to find ways to retire. They do not want necessarily to quit doing useful things, they just want to be able to spend their time and their lives doing something valuable to themselves and others -- whether or not it produces income.
Consider another case. Sally was a successful consultant with a Fortune 500 company. The company put her on a highly sensitive and visible assignment that required long hours, extensive travel and intense focus. Long months into the project, the 16-hour days, restless nights, bad diet, stress and physical exhaustion claimed Sally physically, mentally, emotionally and spiritually. She crashed.
At age 56, she is unable to work and is limited to her Social Security disability income of less than $1,500 per month. The bear market in 2001 and 2002 decimated her retirement funds and her prospects for any kind of future work are minimal at best.
The myth is that we will have an ability to find work or even to do work in the future. It is naïve at best to be unprepared for the probability that we will be challenged in some way in this regard.
Afterthought: The seven myths are wealth destroyers. Bad thinking creates bad habits. Myths result from consistent bad thinking. Bad thinking transmutes into bad habits, which in turn fortify the myths. It's a destructive and mind numbing cycle.
America's understanding of personal economics today is as unsophisticated as the understanding of disease was a hundred years ago. You may question whether some or all of the myths are valid or whether or not they apply to you. It is more difficult to question the facts that surround and support them:
- Americans are addicted to debt; they have come to believe that credit is more important than savings. Proof? Americans have a lot more debt than they do savings.
- Most Americans are naïve when it comes to personal economics. Proof? Americans have a lot more debt than they do savings.
- Most personal economies are in a shambles. Proof? Americans have a lot more debt than they do savings.
- Americans save too little, invest too much, and often do both in the wrong places. Proof? Americans have less than a month or two of cash to cover budgetary needs and most have lost over half of the money the invested in their retirement accounts.
- All investment markets are based on pure unrelenting risk. Proof? None needed.
- Most financial plans are actually nothing more than marketing materials individualized to support a sales effort. Proof? Think about it.
- Most Americans are unprepared for their future -- especially if it is not the future they planned. Proof? In addition to the above: inadequate life insurance, disability insurance, long term care insurance, wills, trusts, guardianship for children... need I go on?
In the next part of this series, we will look at the Seven Mysteries that are wealth creators. I hope that they help you debunk and replace the Seven Myths.
1An elderly client of mine was allowing her daughter and son-in-law to live with her. She asked me to counsel the young couple on building a personal economy. After several months it became apparent that both were unwilling to deal with the issue. They refused to balance their checkbooks (they each had one), formulate and live on a budget or curtail their spending (they were spending all of their money and nearly $3,000 of mom's money each month) so I withdrew my support. The daughter was hired as a "financial planner" by one of the Behemoths just a week before I withdrew.
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