It's often easy to think in the midst of everything lately, finances come first. Not necessarily so, says a new study by AARP Financial. A majority (nearly 60 percent) of boomers, especially, have found much of their financial decision-making comes directly as a result of one or more life crises.
Investment decisions, even in light of a financial crisis, take a backseat to something like a death or serious illness in the family. The distraction gives way to scattered financial decisions, often leading investors to skip the advisor and head straight to family and friends. Not to mention the emotional impact of a traumatic life alteration severely off-tracks near and long term financial goals.
"The most important financial decisions we face are often precipitated by life crises," said Richard "Mac" Hisey, president of AARP Financial Inc., a taxable subsidiary of AARP. "But given the unpredictable nature of these events, these are often times when we may be distracted, emotionally overwrought and vulnerable. As a result, many of us may make poor decisions - or take no action at all - possibly putting our financial security at risk.
"Complicating matters is that it can be hard to find good information and trustworthy advice on financial decision-making in times of life crisis," Hisey added. "As the survey showed, the vast majority of Americans seek financial advice from families and friends - who are well-intentioned but not necessarily financially well-informed."
Long term job loss or long term illness in the family most impacts financial decisions, according to AARP. What's more 54 percent of respondents said it's hard to keep emotions in check even when dealing with finances, and in a word, most are feeling overwhelmed. Ultimately, according to the study, it's women who bear the brunt of emotional events.
"Even in the best of times, if money is involved, there are certain cognitive and emotional factors that can lead to decisions that are not in our best interests," said Warren Cormier, founder and President of Boston Research Group, and co-founder of the Behavioral Finance Forum, who consulted with AARP Financial Inc. on the study. "But life crises come with an additional layer of complications -- and, frequently, with a requirement to act."
Advisors of late are no stranger to emotional financial decisions. How are boomer clients reacting to the crisis? Find out more in the March issue of Boomer Market Advisor.