Why Some People Aren’t Benefiting from Personal Finance

As we mentioned in our last post, personal finance is a set of tools that allow you to manage your spending over time to get the most out of your life. Unfortunately, these tools aren’t being used by everyone, and we’re missing opportunities for more people to benefit. Three hurdles get in the way of our ability to take full advantage of our money.

Challenges to getting the most from your money

First, you need a reason to seek out a personal finance topic, the WHY. For this, you need to know that there’s a problem and that a tool exists to help you.

• For example: you likely need to save for retirement to avoid drastically changing your standard of living when you stop earning an income.

• Challenge: there are countless other, more prominent problems that compete for your attention.

Second, you need to learn about the topic in question, the HOW. For this, you need to source out options and learn enough to select one.

• For example: you need to decide how much money to set aside for retirement, where you should put it and whether or not to invest it.

• Challenge: there is a slew of options to consider, most of which reference technical jargon and fine print.

Third, you need to follow through, the DO. For this, you need to change your habits and not get sidetracked throughout.

• For example: you need to change how much you spend, set aside money and invest it according to your plan.

• Challenge: habits are difficult to change, and your subconscious mind is wired to be bad at managing money.

The good news is that there are options available to help with these challenges. Let’s discuss what’s being done today and where we can focus our attention to help as many people benefit from personal finance tools as possible.

Initiatives in place today to help you with money

• Financial literacy efforts

  • Blogs, books, foundations and the addition to school curriculums help with the WHY and HOW challenges.

• Automatic enrollment

  • Government and employer pensions that provide retirement savings automatically help with the DO challenge.

Opportunities to help more people with their money

• More employer financial wellness

  • Financial literacy and employer programs can help with the WHY, HOW, and DO challenges. There’s a natural fit for the source of your money to help you get the most out of it. In addition, employers benefit when their employees aren’t financially stressed throughout their careers.

• Further simplification of offerings

  • The financial services industry can do more to consolidate offerings and speak in plain language to address the HOW challenge.

• Talk openly with others

  • We can all discuss money more openly and share opportunities with others. With so many things competing for our attention, a friend or family member can help cut through the noise. This allows us to address the WHY and HOW challenges.

• Additional automated solutions

  • Examples include automatic tax filing, notices from the government when there are programs not being used and new products that incorporate behavioural nudges can help with the DO challenge.

In summary, to help more people benefit from personal finance tools, we need to help people find the WHY, simplify the HOW and automate the DO as much as possible.