Updated 03 September 2020
Most of us feel pretty confident in our own financial decisions, and believe that we don’t need experts to help us with life’s most important events. But is this confidence based on extensive knowledge of finance – or a dangerous lack of it?
When was the last time you sought professional financial advice? Maybe it was when you bought your most recent property, or moved up a tax bracket, or decided to sort out your pension plans. But the answer may well be ‘never’. Our recent survey found that for most of life’s key events, from starting a family to starting a business, a majority of people choose not to seek financial advice. And it’s not for the reason you’d expect.
You might think it’s the cost that puts people off. Not so. The survey found that on average less than 10 per cent of respondents were deterred by the expense. Rather, the two main reasons given were, ‘I don’t think it would have made a difference to my decision(s)’ and ‘I was confident that I could make my own financial decisions without seeking professional advice’. These two answers, which together account for around 60 per cent of reasons given, carry broadly the same implication. Which is: ‘A financial adviser can’t tell me anything I can’t work out for myself.’ Really?
Either we are a nation of finance wizards, with a dim view of those who claim to know better, or there is some denial going on here. But now the illusion starts to crumble. The self-assured responses given above were a lot lower for one particular question. We asked one group of people, those who had not sought financial advice when buying a property as an investment, why they hadn’t done this. Only 50 per cent said either that the advice wouldn’t have made a difference, or that they were sure of their own decisions. Meanwhile a new response came onto the radar: ‘I forgot’.
What do you mean, you forgot?
This question was the only place in the survey where the ‘I forgot’ response was significant (at 12 per cent). Elsewhere, it hovers close to zero. What does this mean?
First, let’s look at what ‘I forgot’ means. It’s basically saying, ‘I didn’t do it, but I know I should have.’ When we break down the responses, we get an even more interesting picture. Women were almost twice as likely as men to admit they ‘forgot’ to take financial advice (perhaps upholding the stereotype that men don’t like to ask for directions). And for 18-34 year olds this answer clocked a massive 42 per cent, only to plunge to absolute zero for both older age groups. The younger generation is far more ready to admit that not taking financial advice was a mistake.
More people recognised the need for financial advice in this scenario (if only in hindsight), because buying a property for investment is a purely financial transaction. People don’t tend to say they ‘forgot’ to take financial advice when starting their family, because it simply didn’t occur to them that they should. And yet events that seem very personal in nature may turn out to be even more costly than the obviously ‘financial’ ones.
The real reason why people don’t seek financial advice may be not that they know too much, but that they know too little. If you don’t know how much you don’t know, then you can be tempted to think you know it all. But as you approach any of life’s major events, just an informal chat with a financial adviser can reveal how much more there is to learn.