This year has not been a year of clarity. Uncertainty in many areas of life is high and emotions have been stirred. We have all heard the adage that people make financial decisions based on greed or fear, but I have not seen fear dominate like it has in 2020 since the Great Recession.
I asked a group of colleagues what mistakes they have seen people make this year and almost all of them were rooted in fear.
Impulse Purchases
Covid-19 kills people, and it is highly contagious. We all know life is short but Covid has shown us it can be even shorter than we think.
The heightened awareness of life’s fragility caused a couple of our clients to make impulsive purchases in reaction to various uncertainties. One of our elderly clients bought a sports car. I admit, he looks good sitting in it with the top down, but he probably should not be driving any car let alone one that can go zero to 60 in under four seconds and tops out at about 170 mph.
Another client bought a boat. “If I don’t do this now, I may not be able to later,” he told me. He is right about that, of course. Nonetheless, from a financial standpoint, it is unlikely that this will turn out well. Fortunately, he is an experienced sailor so I am confident he can get value from the use of the vessel. In addition, they have ample resources and will likely suffer more from the hassle of unloading the boat in the future than the monetary cost.
Unfortunately, some who are buying things for similar reasons cannot afford the financial impact of impulsive buys. Stacy Francis, CFP, CDFA, CES, president and CEO of Francis Financial in New York, tells of a client that wants to buy a vacation home outside the city. The purchase would require a significant cut in expenses and additional years working for the husband who is in his early 60s.
Says Francis, “I am not comfortable, and we shared this. They are being emotional and see this as a safe haven from the city unrest – rioting from earlier this year and concerns about a third wave of the virus. They have put in an offer on the home anyway.”
Life Choices
Trying times can make us impulsive about life choices as well as purchases. A colleague told me of one of his clients who was a flight attendant for a major airline. The client became so fearful of losing his job or getting the virus when flights resumed, he “preempted” the airline and quit to pursue a musical career. Music has always been his passion.
I support pursuing one’s passions, but some forethought would have been much better for him financially. If he had been let go, there would have been an exit package. If he had not been let go, the reduced flight schedule would have provided more time for practicing his guitar and writing songs. Today, his playing is better than ever but there is no place to play and the airline will not take him back.
Careers are big life choices but at least as important is who we choose to share our lives with. Several colleagues reported clients who are realizing they are not married to the right person. Most don’t know who they should be married to, but they are convinced it is not the person to whom they are currently bound. Being trapped together at home 24/7 can be illuminating.
Shiny Objects
While fear stoked the impulse buys of shiny objects like boats, for some, fear drives them to want gold or other precious metals in large quantities as a doomsday hedge. This year’s events provided plenty of reason to harbor political anxiety. We are seeing significant societal change and it is hard not to worry when there are violent demonstrations and mounting federal debt. As a result, the gold salespeople are out in force, reinforcing the fears.
In the more extreme scenarios, an eye toward practicality can help some clients realize that if there is a true collapse, having gold may not save them. Exactly where and how do you spend your gold? Do you chip off a flake from a gold bar? Will your friendly neighbors stay friendly if they know you have gold on hand?