There has been a lot written about the financial skills, or the lack thereof, of joe investor. I have to agree that the average investor lacks the basic financial planning skills but that's because the system is rigged against us! Here are the main reasons of financial illiteracy that is so prevalent today:
- Our schools and colleges do not teach basic personal finance skills. Since I did my schooling in India, I thought I was at a disadvantage when it came to investing and retirement planning. To my surprise, the average investor is no better. At least, I was starting with a level playing field!
- We don’t like discussing it with friends & family. According to a recent Fidelity survey, 30% of couples have different opinions about retirement dates and lifestyle choices.
- We just don't have the time or desire to plan our finances. Lets face it - life happens! We all have lives and something or the other gets between us and financial planning.
- Experts wants us to think it is "rocket science". In fact, I think the main premise for the financial industry existence is that we would ne lost without these "helpers"!
- Lastly but most importantly, it's us! In spite of our best intentions, we sabotage our plans because of our biases. This is a separate post (perhaps several posts!) in itself but suffice it to say that overconfidence, anchoring, loss-aversion, stubbornness and other factors result in mediocre or poor investor performance. More on this later...