• November 2014

The Five Scariest Financial Mistakes People Make

By Howard Pressman, CFP®
CERTIFIED FINANCIAL PLANNER™
Egan, Berger & Weiner, LLC

I really enjoy a good scare; in fact I used to love horror movies. I say “used to” because I think the genre has become cheesy and silly, rather than scary. Current films rely on special effects instead of on plot and acting. Gratuitous blood and gore has replaced spine-chilling stories, masterfully brought to life. Think “Psycho,” “The Shining,” and “The Exorcist.” Those were classics.

But what are the five scariest financial mistakes I see people make? Those are classics, too

We’ll start at the bottom and work our way up to the truly terrifying.

5. Not Having a Plan. There are a lot of moving parts to consider when making good financial decisions for your family. Insurance, retirement, education, debt, investing, and much more must be coordinated in a deliberate fashion. Studies have shown that those with a comprehensive plan fare better than those without. Take Dr. Samuel Loomis for example. As Mike Myers’ psychiatrist in the “Halloween” film series, he had a plan. He had a good idea who the killer was, he knew where he might be able to find him, and he was prepared. And in the movie, those without a plan often wound up dead. (Spoiler alert!: In the end, it was Dr. Loomis who was the killer. Well, at least we all thought he was …)

4. Not Having an Investment Strategy. I know plenty of people who find investments scary, or at least intimidating. There are a lot of choices, and the financial services industry likes to toss around technical terms and acronyms with reckless abandon. According to the National Bureau of Economic Research, after two years of tenure, as many as 54 percent of employees are still using the default investment option in their 401k. Without evaluating the appropriateness of this investment given their age, goals, and attitudes, these employees are at best not making the most of this opportunity. At worst, they may be putting themselves at tremendous risk for a large loss, should the market sell off.

3. Not Having a Proper Estate Plan. Now this is really tailor-made for Halloween. Imagine being able to control your financial affairs … from beyond the grave! HAAAA HAAAA HAAAA! (That was my attempt at a Vincent Price style laugh—work with me here.) No, it won’t look like Michael Jackson’s “Thriller” video, but this is still pretty cool. Proper estate planning ensures that your wishes will be followed after your death and that a plan is in place in the event you are unable to make decisions for yourself. You can direct what happens to your money, your possessions, and even your children. A proper estate plan consists of a will, power of attorney, a living will, and perhaps a trust. What really sends shivers up my spine, though, is when parents of minor children don’t have a will in place to appoint someone to care for their kids if they’re no longer around.

2. Not Having Appropriate Life Insurance. Today, zombies are quite en vogue. Popularized by TV shows like “The Walking Dead” and movies such as “Shaun of the Dead,” the undead are truly taking over in some respects. But as popular as zombies are, I have yet to see a movie where one of them returns to life to continue working and providing for his or her still-living family. Can you imagine a zombie working some place like, I don’t know, maybe the DMV? No, that’s not going to happen. Fortunately, life insurance exists to ensure that your family is financially protected in the event you’re eaten by zombies. So while re-animated humans don’t scare me, knowing that a lot of families risk financial ruin if a breadwinner dies certainly keeps me awake at night.

1. Not Saving Enough. While I could spew statistics ad nauseam, much like Linda Blair’s spinning head in “The Exorcist,” suffice it to say that the body of evidence showing that Americans don’t save enough is quite substantial. But at the end of the day, people aren’t swayed by statistics. Experience has shown me that most people who aren’t saving enough are well aware of this fact. The reality is that many of them are paralyzed with fear and afraid to confront some powerful demons. Often, getting help and making financial changes require us to confront the ghosts of decisions past and perhaps admit that our prior course of action was incorrect. Sometimes people feel guilty, and that they’ve let down their spouse and family. These are powerful emotions, and it’s easy to see why some people opt to ignore the issue altogether. But just as two priests were able to free Regan from her demons in “The Exorcist,” a professional financial planner can help exorcise financial demons and free a tormented soul.

While I reluctantly acknowledge that no theater audience will ever be frightened by such financial issues, these really are the things that scare the pants off of me. The good news is that these matters are far easier to defeat than Jason Voorhees in the “Friday the 13th” movies. Axes, torches, and chainsaws are unnecessary here—just a few hours with a superhero financial planner can save the day. I won’t wear tights or a cape, I promise!


About Howard Pressman, CFP®
Financial Planner

  • 16 years of experience in the financial industry
  • Georgetown University Financial Planning graduate
  • CERTIFIED FINANCIAL PLANNER™ Practitioner
  • Financial Planning Association National Capital Area chapter board member

Pressman has written numerous articles on financial planning for local newspapers and for the CFP® Board’s newsletter. He volunteers with several local not-for-profit organizations, lecturing and teaching financial planning basics to families who may not otherwise have access to a financial planner. He is a lifelong Washingtonian and lives on Capitol Hill with his wife Erica and their daughter Tali.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Questions, ideas, other scary thoughts? Send an email to Howard Pressman.

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