As tax year end comes round again, I revisited the blog I wrote this time last year on the subject of procrastination, and why investors put off making decisions about money.
For as long as I can remember, I’ve had an interest in why people procrastinate, as well as the psychology of deadlines, and how, putting things off until the deadline arrives, can have a significant impact on not only your financial wellbeing, but also your mental and physical wellbeing.
You see, procrastination is not a healthy personality trait to possess. There is a great deal of research that shows those who are chronic procrastinators risk developing health problems such as compromised immune systems, higher prevalence of colds and flu, gastrointestinal problems, and insomnia. They also have ‘higher than normal’ stress levels, leading to a raft of other serious health problems. Clearly, putting things off until tomorrow has far-reaching impacts.
However, when you mix a procrastinator with a deadline, things can get really messy. In a deadline situation, people will first put off what they need to do, then put it off a bit more, then a bit more, until the point when they realise they have no choice but to act. Emotions then become heightened and people start to run on stress hormones in order to meet the deadline. This has a knock on effect to anyone interacting with the person, for example an adviser who is constantly having to remind them that April is just around the corner!
It’s fair to say at this point, especially in relation to financial wellbeing, imposing a deadline can be a useful strategy. In relation to tax year end, the April deadline provides a kind of imposed nudge, a compulsory line in the sand if you will, to make people act. Not doing this would allow people to plod along and put off making important financial decisions. Think of those people who haven’t got adequate savings, or those who fall outside of auto enrolment and still haven’t got a retirement plan. This is because there is no deadline to ‘force’ them to act, and we all know that in the main, deadlines make people act. Lack of a deadline simply provides an excuse not to act.
But why do people put off important decisions/actions right up to a deadline? We know that some people don’t pay their bills on time. Some file their tax late to HMRC. Others do all of their Christmas shopping on Christmas Eve. Is it laziness? Bad planning? Competing priorities? Lack of confidence? Or is it a mixture of all of these things?
One thing is clear: our research suggests that under confidence plays a significant role in financial procrastination. In my previous blog, I mentioned the 30% of the UK adult population who suffer from under confidence, meaning these people are more likely (than those who have greater confidence) to put off making important financial decisions. Under confidence makes people ‘feel’ as if they do not have the requisite knowledge to make an informed financial decision, so they make the decision that not making a decision is the best decision!
Perhaps one of the solutions is to promote those financial products that have a deadline (Isas) more frequently than just in the run-up to April. I don’t recall ever seeing a giant poster in London Waterloo station during the summer months prompting me to “save into an Isa now!”
The beauty of the financial adviser/client relationship is that there can be a continual reminder of the impact of delaying investment decisions, and a demonstration of the impact of waiting till the deadline arrives. But more importantly, it allows a discussion to be had with the client, exploring any tendencies to delay, and in the process, learn more about the behaviours that could be harmful to their financial wellbeing. Once you’ve done that, a plan can be put in place to mitigate against those behaviours.
Helping people to a better financial future runs much deeper than providing advice on products and investments. It’s about having a detailed understanding of the person in front of you, especially their financial behaviours, and working with them to create a plan that will help them achieve their financial objectives.
If you have a client who is a chronic procrastinator, first, seek to understand why they behave like that, remembering that it may be under confidence. Then put a plan in place (something as simple as a newly imposed tax year end deadline) to help them avoid the negative impacts of delaying. If you can coach people to act in this way, not only will this be great for their mental, physical, and financial wellbeing, it will be great for yours too.
The word deadline comes from the American Civil War. When building temporary prisons, vertical pilings were set into the ground to form the surrounding prison walls. These were relatively easy to scale, so any prisoner approaching them would be shot. This internal perimeter would be demarcated in various ways (or in most cases not at all), but its purpose was crystal clear. It was termed the dead line: the point beyond which one could not go.