Short-term bias is putting Britons at serious financial risk — report
Posted by Robin Powell on January 19, 2018
“Waiting helps you as an investor,” Charlie Munger once said, “and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.”
Unfortunately, it seems, very few of us were born with that particular gene, and perhaps there’s something about the way we live now that makes it even harder for us to put up with a little short-term pain for the sake of long-term gain.
New research by the digital wealth manager MoneyFarm paints a pretty grim picture of our addiction to short-term thinking. For its report, MoneyFarm Decodes Short-Termism, the company interviewed more than 1,000 adults across the United Kingdom. These were its main findings:
— 63% of people agreed they “live only for the moment”;
— 70% of people said they had no plans in place for retirement;
— 77% admitted they didn’t look more than five years ahead;
— 31% said they didn’t plan more than six months in advance; and
— one in five people said they had no long-term plans at all, whether, health-wise, career-wise or financially.
Interestingly, 39% of women said they were not financially prepared, compared with 26% of men.
Asked to explain their failure to plan, 42% of people blamed everyday responsibilities, 22% put it down to a tendency to spend now rather than save for later, while 17% said they were simply distracted.
Jonathan Openshaw, an expert in future trends and one of a panel of experts quoted in the report, believes another major contributor is that people have too much choice as to how to spend their time and money.
“With a surfeit of choice,” he says, “comes a paralysis of action. Because you have so much information, it is hard to know how to act effectively. We need to reposition how we approach long-term challenges and we need to start seeing them as opportunities rather than threats.”
Commenting on the report in FT Adviser, MoneyFarm director Scott Gallacher said:
“The majority of Britons are taking an extremely high risk approach to future planning. They are sleepwalking their way into an uncertain financial future, exhibiting very little proactivity when it comes to money matters in particular.”
Professor Ivo Vlaev, a behavioural scientist from the University of Warwick, said that we are “in danger of creating a nation addicted to the quick-fix of instant gratification at the expense of important, basic long-term life goals, such as health, wellbeing and financial security”.
Whatever the reasons for this present bias — our tendency to overvalue immediate awards at the expense of long-term outcomes — it is clearly is a problem. Well done to MoneyFarm for helping to stimulate debate on such an important issue.
You can download the report by following this link: