Research
Background
We are interested in lifetime financial planning, but people rarely make long-term financial planning.
From the paper*, we found that:
- People tend to focus on immediate challenges (e.g. having a baby/buying a house/car) to the detriment of long-term planning, and lose confidence in long-term planning.
- People tend to make short-term and quick-impact decisions and ignore long-term planning. (Figure 1.1)
- Significant financial decisions are always instated by triggers, but few triggers prompt them to make decisions.
*Wood, A., Downer, K., Lees, B. and Toberman, A., 2012. Household financial decision making: Qualitative research with couples. Department for Work and Pensions Research Report, 805.
Personal Responsibility
We interviewed more than 20 middle-aged and older people, and found that becoming a parent changes people's concept of financial management.
One interviewee told us, "After having children, I realised that education, childcare, and child-rearing fees are huge challenges, and I had to start thinking about household asset allocation and financial management."
Becoming a parent is a significant life transition for many people, it puts more responsibility on one's shoulders. The sense of responsibility makes people more willing to spend a lot of time researching about childcare. Becoming a parent for the first time, inexperienced and facing the unknown they worry about whether they can be good parents, whether they can cope with the challenges of parenting, and worry about the financial pressures that are coming their way. There will be different financial challenges for a family at different stages (Figure 1.2).
At the same time, due to the delay in the state pension age in the UK, many people will be worried about their future financial security.
Life Income And Expenditure Curve
Life Income and Expenditure Curve (Source: World Bank) depicts the situation of income and expenditure at different ages of life (Figure 1.3):
In the struggle period, the income and expenditure curves go up together, and the income curve will be much higher than the expenditure curve; in the retirement period, the income and expenditure curves go down together, but the expenditure curve will be higher than the income curve, which also suggests that people have to make good reserves for their old age in advance.
However, in real life, not so simple. For a group of high-income countries like the UK, consumer spending has continued to go up, and there has even been a steep rise in spending towards the end of life.
Whereas becoming a parent is within the struggle period where people get a surplus. So we want to help people make smarter financial decisions earlier in life at a critical time-namely pregnancy, but also at a preventive time (the early years of surplus).
