Planners advocating long-term financial plans should appeal to the prefrontal cortex of their clients' brains.
Financial planners hoping to convince clients they need a long-term financial plan should appeal to the prefrontal cortex of their clients' brains - and steer clear of the limbic system altogether, according to United States researchers.
"The prefrontal cortex [is] the analytical part of the brain that controls contingency planning," Harvard economics professor David Laibson told website InvestmentNews.
The limbic system is the procrastinator that lives for the moment and prefers immediate lump sums, rather than the promise of long-term security, Laibson says.
US researchers found emotions play a significant role in making financial choices, but most are unaware of it. Only a third of 1000 people surveyed by New Jersey planning firm Prudential Financial Inc believed their emotions affected their investment decisions.
Laibson's research is being used by firms to understand why many clients are not saving enough for retirement. Planners who dream of reading their clients' minds should take note.
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