Checking Financial Health vs Physical Health

Anna Lusardi in her post compares getting regular checkups of one’s health with doctors and of financial health with financial advisors. We do the first quite a bit and forget about the others.

If we consider how we take care of our finances in light of how we take care of our physical health, we might come to some interesting conclusions. Everyone knows that regular health screenings are important. Underlying health conditions are not always obvious: nothing hurts, no obvious symptoms are experienced, everything seems fine until one finds a lump while taking a shower. In matters of health, we know that it is best to catch a health condition before it is at an advanced stage. Doctors have long recommended regular physical checkups, and we subject ourselves to routine tests and visits to the doctor even when we feel healthy and in good shape. We also take the usual health precautions, getting flu shots in the winter, washing our hands carefully, taking vitamin and mineral supplements (at least for those of us over…ahem, 40). Recommendations like these abound in doctors’ offices, in the media, and in everyday personal interactions. Everyone knows what precautions they should be taking on a daily, monthly, and yearly basis to maintain their physical health.

But how about financial health? What are we doing to make sure we are doing well in our financial planning? What precautions are we taking to make sure our finances stay healthy? Are we setting aside a buffer stock of savings that can shield us against negative shocks such as loss of income or an unexpected expense? Are we managing our debt wisely and making good investments?

Well there is surely a problem. People don’t get their financial health check-ups as regularly and in some cases not at all.

I don’t know much about developed economies. So would focus on India.

Lusardi puts it mainly as a demand problem- People don’t demand for financial check-ups. However, Supply of financial health is as big a problem. Atleast in emerging economies like India.

You know there are certain qualifications/process associated with becoming a doctor but what about financial doctor/advisor? Most of the time the financial advisors push products/design plans which help them and  not the customer. People are weary of all this and thus avoid fin health check-ups. When we think of a doctor, he/she is usually seen as highly competent and trustworthy. The image is not exactly kind for a financial doctor.

I think the culture will only change if we have some kind of proper recognition for financial advisors. Who is a financial doctor? There are too many programs which make you understand finance. Like you do MBA in finance, Post Graduate programs in finance/securities markets, Economics courses with finance specialization, PHd in economics/finance , Chartered Accountant etc. With each you can do a bit of financial advisory.

But this is not enough. What you need is a proper course which equips students with understanding the needs of the customer and designing finances for them. It should have inputs from behavioral finance so proper nudges can be designed. The course has to be properly accredited and signal sent to the public that a person holding this qualification is reliable. There is also a need to have a systemic check that the financial doctor is not just taxing the public or nudging them so that only the doctor’s bank account is gaining.

Otherwise, the concept of financial health check-up is never going to really pick-up. It is not just a demand problem alone.

5 Responses to “Checking Financial Health vs Physical Health”

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  5. David Clayton Says:

    A career in financial planning is still lucrative despite the worldwide financial crunch. As long as money is used in our economy financial planners will be needed. You have to pay your dues to become a financial planner but once you pass the test and prove your mettle, you can expect a handsome return for your efforts.

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