A Nudge In The Right Direction
Malik Shehu, CFA, MBA
Wealth Advisor | Cool Beard | I write and speak about pensions and financial planning. Passionate about helping individuals create and maintain wealth. Fascinated with behavioral finance; gave a TedX talk on it.
When I did the #CFAProgram, Level 1 was a breeze, Level 2 was a nightmare, and Level 3 was an induction to the real world.
There was one topic in Level 3 that got my attention: Behavioral Finance.
Long story short, I like how people think. And I like understanding the "Why?" in life. #BehavioralFinance made me understand why economic participants do what they do.
In my early years as a #financialadvisor, I noticed people didn't like hearing my advice. It frustrated me SO much because, "Why won't you listen?!"
It was only later in my #career that 2 things hit me:
1. "No one likes being told what to do". Telling people they should change their lifestyle will be met with stubbornness. "Why are you telling me that I make poor lifestyle choices? I am offended, so I won't listen". Which leads to...
2. Human beings are #emotional.
These two things made me understand people on a deeper level.
This subsequently ties to the #NudgeTheory. The purpose behind the theory is to make big and small interventions, aimed at making people act in their self interest. Therefore, instead of telling people what to do, gently push them to SEE why their way is unhealthy and how your way will rectify the current problems they face.
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Most times, they know what they are doing is wrong, but change is hard, so it is up to you, their advisor, to gently guide them and not violently shake them. If they get daunted at the huge #change they need to make, they will throw their hands up in the air and continue that habit.
Bite sized changes + the power of compounding = great results.
Moreover, in behavioral finance, it is advised that when trying to deal with #emotionalbiases, you should try and adapt to it.
Now this is important because I look at it like this:
If someone likes having fun and it's killing their finances, telling them to stop having fun will make them want to pour water in your face. If, however, you tell them they can still make sound financial decisions AND still have fun, they will most likely give you a hug.
And this is why I reckon people don't like receiving financial advice. Because they want to remain in their habits. And while they know it's bad, as their financial doctor, it's up to you to try and assure them that they can do some of the things they like to do while still leading a healthy financial lifestyle.
If you'd like to learn more about how you can find a balance between your finances and your lifestyle, book a consultation today!
Finance Professional
2 年Straight up ! incremental change beats being radical.
CEO @ Column | LinkedIn for Leaders
2 年“Financial doctor” is a great metaphor because it forces advisors to approach their practice just like a medical doctor would - without shaming or judgement, and with empathy and encouragement.
Supply Chain Professional PRINCE2 Practitioner
2 年Indeed - ever seen how someone who is about to bath or wash dishes acts like when you tell them to do the thing they were about to do? Resist - especially the older we become because like you say its not that we dont know what is the right thing to do. Its also important to highlight the adage “its not what you know but what you do with what you know that matters”