Lesson 3 of Fundamentals: Elements of Financial Planning And Behavioral Considerations Flashcards
1
Q
Introduction to Financial Planning
A
Financial Planning is about allocating scarce resources
Should I consume today or postpone consumption?
- The answer is based on personal utility curves, that is, if a person has a propensity to live for today or spend like there’s no tomorrow.
Opportunity cost
- is the highest valued alternative not chosen.
Example:
- For a family that chooses to live off of one’s spouse’s income and have the other spouse stay at home with the children, the opportunity cost is the foregone salary of the stay-at-home spouse.
2
Q
Environmental Factors
A
Characterized by opportunities and threats to the individual
Economic Factors:
- GDP,
- Inflation,
- Interest rates
Social Factors:
- Customs,
- Beliefs,
- Status Symbol
Political Factors:
- Forms of government,
- Protectionism
Legal Factors:
- Antitrust Acts,
- Consumer Protection
Technological Factors:
- Current & New Technology
Taxation Factors:
- Income,
- Property,
- Payroll,
- Sales Tax
3
Q
What to know about external factors?
A
- The Planner Must forecast trends in the external environment, such that any planning may take advantage of opportunities to achieve goals and mitigate any threats (risks)
- Any changes in external forces will impact a client’s beliefs, economies, unemployment, and inflation
- External environment shapes the way people live, work, spend, save, and think.
-
EXAM TIP:
- Questions surrounding the external environment may address changes or opportunities and threats in the external environment and a planner’s recommendations.
- Interest rates have decreased and the mortgage rates are given for a client. A planning opportunity may be to refinance the mortgage at a lower rate. Most likely changes to the external environment may appear in a CASE.
4
Q
Three-Panel Approach Introduction
A
- If a client is above a benchmark it would be considered a strength.
- If a client is below the benchmark it is considered a weakness.
These benchmarks should be memorized.
5
Q
Active Listening
A
- Using restatement, paraphrasing, summarizing, open-ended questions, and questions that show interest.
- Reading questions attempt to prompt or encourage a desired response.
- Care must not be used not to become manipulative.
Examples: “What plans do you have for this year”
Bad Examples: “Do you plan to vacation this year?”
6
Q
Reflective Listening
A
- Listening to understand the message that the speaker is conveying (or having difficulty conveying) both verbally and nonverbally.
- Repeating the perceived message back to the speaker to get their confirmation of their message, feelings, and next steps.
7
Q
Nonverbal Behavior
A
Nonverbal cues may give information they are unwilling or uncomfortable verbally communicating.
- People often say what they believe others want to hear,.
8
Q
Voice Communication
A
- Tone and pitch can be at odds with what is being said.
- Volume can emphasize or deemphasize a point, though shouting could indicate anger or hostility.
- Use phrases “see what I mean” and “imagine that” for visual learners.
- Also utilize examples, charts, graphics, and other visual aids.
- Clients who pay attention to every spoken word or ask for an explanation of various words are likely verbal learners.
- Graphics can be supplemented with carefully selected words.
9
Q
Motivational Interviewing
- Partnership
- Evocation
- Acceptance
- Compassion
A
- Developed to support changes in behavior.
- Avoids giving advice and
- conveys empathy and acceptance guiding client to discover their own motivations to change.
- This is a collaborative process
- Draw out priorities, values, and wisdom to explore reasons for change and support success
- Nonjudgemental, seeks to understand clients perspective
- Promotes and prioritizes welfare and well-being in a selfless manor.
10
Q
Other communication tips
A
- Respect the client’s time & be punctual
- Planner must ensure client knows their information is confidential, by not identifying details about other clients.
- Show a genuine interest in the hobbies, activities, vacations, and children of the client.
- Manage client expectations
11
Q
Psychological Barriers to a Successful Financial Planning Engagement
- Prochaska an DiCliemnte Five Stages of Change Model
A
12
Q
Legacy
- The Big Three documents include and all clients should have otherwise it could be considered a weakness
A
- Will
- Durable Power of Attorney for Healthcare
- Advanced Medical Directive
13
Q
Money Avoidance
A
EXAMPLES:
- People get rich by taking advantage of others
- Good people should not care about money
- I do not deserve a lot of money
TRAITS:
- Try not to think about money
- Believe they do not deserve money
EFFECT:
- Often do not look at financial statements.
- Likely to suffer from financial denial and or financial enabling.
- Unlikely to stick to a budget.
14
Q
Money Workship
A
EXAMPLES:
- Things would get better if I had more money
- Money is Power
- It’s hard to be poor and happy
TRAITS:
- Buy things in an effort to create happiness.
EFFECTS:
- Often have lower net worth and carry credit card debt.
- Likely to suffer from workaholism.
15
Q
Money Status
A
EXAMPLES:
- I will not buy something unless it is new.
- Your self-worth equals your net worth.
- People are only as successful as the amount of money they earn.
TRAITS:
- Need to keep up the appearance of being successful.
EFFECTS:
- Likely to overspend
- Prone to suffer from gambling disorder, financial dependence, and or financial infidelity (Couples lie to each other)
