Chris Gilchrist: Devils, deceptions and financial planning

Chris Gilchrist 700

Living in the money world can be bad for your mental health. Behavioural economic experiments show that, after participating in exercises where they have to put monetary values on things, people become less empathetic and more selfish. How much does this explain about the financial world? Financial advisers are prone to monetisis: the disease of thinking about everything in financial terms. Financial planners should know better.

A genuine financial plan cannot start from a monetary objective. It must be based on real life objectives. Most financial planners probably do not work hard enough to extract these from clients, who are often reluctant to own up to their dreams. In this, I agree with the life planners: George Kinder, Maria Nemeth et al. Values come first. If you cannot establish values as a basis, there will be no real commitment to the plan. And only sociopaths value money for its own sake. Most people value it for what they can do with it.

Encouraging clients to articulate real life goals and converting them into realistic, measurable and implementable financial objectives is the key role of the planner. Why is this so important? Because if you define financial objectives without an anchor to real life goals you fall into the trap of thinking that more money is good, and are then caught in the devil’s snare of believing that money is good. Money is just money: flavourless and colourless, a neutral thing onto which you can project any emotion, desire or theory. Context is all.

Once you have a financial objective, progress is usually measured in terms of money. But never forget that changes in peoples’ aims and values can alter the meaning and importance of monetary gains and losses. In every generation there are those rare individuals for whom “losing everything” has become a blessing.

Why are values so important? Try this from Pablo Picasso: “I’d like to live like a poor man with lots of money”. Why is this a great aim? Because it embeds values. The poor look after each other, do not worry much about the future, do not hustle for status and just enjoy the present to the full. They are better spenders than savers.

The theoretical detachment of values from money is a notable feature of modern schools of economics. It is a deception and illusion, as is obvious when you question anyone about what is, or ought to be, permissible and legitimate in the money world. Take the Panama Papers for starters. There are limits to how far planners can go in questioning clients’ values but they cannot just accept the status quo because the times they are a-changing, as is visible in changing attitudes to inequality, longevity and much else.

You also have to acknowledge that the devil always has the best tunes. So you really do have to get up and dance, as Picasso did.

Chris Gilchrist is director of Fiveways Financial Planning