The results of Wednesday’s poll are in—you can see them below—but the overall image is of a rather confused consumer. We asked you whether you would be able to access funds quickly in the case of an emergency and an overwhelming majority (84%) said they could. This figure is highly reassuring, given the importance of preparing yourself (and your family) for the unexpected, but is hardly confusing on its own. What muddies the clarity of the overall picture is that while the vast majority claim to be able to access funds at short notice, almost half (45%) of respondents say their family would not be able to cope if they were to face job loss or long-term illness, which puts something of a dampener on the previous statistic.
“It appears that for many the level of available funds may not be sufficient,” comments Alan Dick, Certified Financial Planner with Forty Two Wealth Management LLP. And where, one wonders, would those who claim to be able to quickly get their hands on cash actually obtain such funds? The fear is that some of this 84% may be relying on available credit or accessing other debt in order to borrow themselves more time. But borrowing can be expensive and debts can take a long time to repay.
“Many of the 55% that said they would be able to cope with a job loss or long term illness would probably still benefit from carrying out a full assessment of their financial disaster recovery plan to ensure that they really do have sufficient resources in place and aren’t just responding on a gut feeling,” Dick suggests.
Putting aside the 84% of respondents who have an emergency fund, of sorts, at their disposal, the remaining 16% would appear to be very much at risk and could do well to make addressing this shortfall a priority. In addition, the 45% that believe their family would not be able to cope in the case of a long-term disaster could be playing a game of Russian roulette. As my school economics teacher used to cry: “Failing to prepare is preparing to fail.”
Alan Dick warns: “The 35% that wouldn’t be able to cope really need to take urgent action as the security of their family (for many people their most important assets) is currently at very real risk. Doing nothing simply isn’t an option.”
“It is not just the financial aspects that need to be considered by young families but also the social aspects,” Dick continued. “Parents should ensure that they have a valid will in place and that this includes details of their wishes for the care and maintenance of their children in the event of their death. If is also vital to ensure that anyone named as the guardian of their children is aware of this and agrees to take on the responsibility."
Nick Cann, CEO of the Institute of Financial Planning, sees it as encouraging that poll respondents seem to be aware of short term needs and priorities. However, with the IFP’s Financial Planning Week survey also suggesting that many people have been reducing the amounts they contribute to insurances, Cann says that the fact many families do not know how they would cope if something bad happened coupled with reduced insurances “is potentially very worrying.”
Cann underlines that “Short, medium and long term priorities need to be identified so that all risks can be mitigated.
Looking further into the future, Dick has some additional advice with regards to the 39% of poll respondents who would not feel comfortable selecting a suitable pension plan. “The truth is that a pension is a pension is a pension. They are really little more than a tax wrapper to place around a basket of investments.”
“The truth is the investment performance is of less importance than the amount of money invested in the pension the first place,” Dick continues, adding that the biggest single factor that will make the difference between a comfortable retirement and poverty is working out how much money you will need in retirement and how much you need to contribute each month to have a reasonable chance of achieving your goal. “Just do it!” Dick says.
The Morningstar.co.uk poll also asked whether lack of funds has led to a lack of financial planning and interestingly respondents were split down the middle. 50% said ‘No,’ which Dick thinks is likely an illustration that many don’t have a proper understanding of what financial planning actually is. “If people think that selecting the best pension or ISA is financial planning it is easy to see why they wouldn’t do “financial planning” when they don’t have enough funds in the first place.”
“However, if it is understood that financial planning is actually the process of setting and quantifying goals and putting these into some order of priority, which allows the individual to monitor progress towards achieving what is important to them, it is difficult to see how lack of funds or even surplus of funds would impact on the need to plan,” Dick concludes.
More articles on the importance of setting financial objectives and the relative ease with which this can be done can be found this here.
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