15 December 2003

A new University of Queensland PhD study is shedding light on how baby boomers approach financial planning decisions.

Dr Malcolm Johnson`s research has found that the cognitive age of many baby-boomers is 10 years below their actual age.

“It is quite common for a 50-year-old to think, act and feel like a 40 year old,” Dr Johnson said.

“This denial of ageing may subconsciously postpone the recognition of a need to plan for retirement, resulting in insufficient income at a time when they really want to explore new lifestyle options. The bottom line is that 70 percent of baby-boomers believe they will need an income exceeding $30,000 per year in retirement, but only 20 per cent expected to receive this amount.”

Dr Johnson is Chief Executive Officer of Enstil Financial Strategies, and anchors a talkback radio show on financial planning. He will be awarded his PhD at a University of Queensland graduation ceremony tonight, December 15 at 6pm at the UQ Centre, Union Road, St Lucia.

He conducted three studies as part of his research, the findings of which have been presented to the Australian Securities and Investments Commission (ASIC) as well as at a number of conferences including the International Macro-Marketing Conference in Bergen, Norway.

Dr Johnson is believed to be the first person in the world to apply a psychology perception model to a model of financial planning, to understand why baby boomers approach financial planning decisions in particular ways.

He conducted three studies - a pilot study in Brisbane and Melbourne; a quantitative study of University superannuation members and a third study of self-employed people and employees in South-East Queensland.

Dr Johnson’s research confirms a Canadian study in which people ranked talking about money matters with family as difficult as talking about death, with more than one-third avoiding family money discussions altogether. His firm works with individuals or families to blend their unique financial personalities into a viable wealth creation strategy. “The first step is to help people understand their financial DNA, recognizing that their money personality, behavioral traits and tendencies influence their financial decisions and investment outcomes.”

Dr Johnson has assessed that many baby boomers have been preoccupied with property investments, thinking they will never lose on property. "A lot of remorse is now setting in as interest rates rise and the viability of some investment properties becomes more questionable," he said.

“Understanding how you react to investment risk is critical to getting a good night’s sleep”. His firm uses a robust psychometric instrument that helps guide the right balance of diversification across the asset classes including cash, fixed interest, property, and Australian and international equities. “For example, we recognize that husbands and wives are likely to have different risk profiles and we work with these differences to create an appropriate investment strategy”.

"Many people think that financial advisers are not interested in seeing them unless they have a lot of money. I’ve seen this in the industry and it is a very offensive attitude. Our approach is to help people of any age to build wealth through investment strategies tailored to their circumstances. I found in my research that some people on lower incomes had achieved greater net wealth than some on much higher incomes, simply because they had a plan and were committed to it. It doesn’t matter where you start, the key issue is to take action.” Dr Johnson said that procrastination was often the result of not knowing who people could trust to talk about something that was very personal and which could be quite emotionally charged.

Dr Johnson also identified a significant gap between anticipated annual income in retirement and the level of superannuation people would have at retirement. On average, respondents had a shortfall of $600,000 in superannuation funding. “If people delay seeking advice, there may be insufficient time in which to earn additional income to cover the savings shortfall”, he said.

Another intriguing outcome was that while 74% of people admitted they were not very confident in preparing their own financial plan, only 17% actually had sought professional advice. “Reliance on D-I-Y investing is fraught with difficulty, and ‘deep-down’ people do recognize the value of good advice, guidance and mentoring,” he said.

“Trust is the key. Good financial planners will not only have the highest qualifications but they must also excel in communicating complex issues in simple terms, and in demonstrating a sincere concern and respect for people.”

Dr Johnson, a lecturer for nine years in the UQ Business School, completed both his MBA (1986) and his PhD studies at UQ part-time. He was supervised by Professor Janet McColl-Kennedy and Professor Victor Callan.

He said while it was difficult to study part-time, it was possible to maintain enthusiasm "if you keep the focus on why you are studying. Develop clarity before you start, and commit to your studies," he said.

"You should also remember that when you study you are also committing others - such as your family - so get their agreement and support. You can`t do it by yourself."

Media: For further information, contact Dr Johnson, telephone 3225 0888 or visit www.enstil.com.au