A family having a financial advisor has had a strong correlation to familial and personal wealth. But people from less fortunate walks of life often believe they don’t need, or simply can’t afford the services of a financial advisor.
The high cost of financial services, the barriers to saving, and a lack of affordable insurance may be a leading cause of poverty in the country. When people live paycheck to paycheck, it leaves them vulnerable to emergencies and the financial constraints that come with it. This is due to a lack of insurance that would cover these life events and a lack of savings. The people that would be most exposed to these problems also find they can’t invest in human capital to better themselves or even purchase a home. This leads to a cycle of poverty and financial restraints.
The way we spend our money often makes little to no sense to an outside observer, the reason being we all have different wants, tastes, and needs. But we have to have a basic understanding of how we behave to understand economies and people’s spending habits.
We originally held the idea that every person from every walk of life had similar thought processes. However, we’re finally starting to understand that people living in poverty have different thought processes, the reason being that financial constraints put more pressure on these people, leading to risk-taking as a way out. But financial services are seen as not important enough, not having enough urgently realized benefits, or too expensive to take part in.
Behavioral economists tend to focus more on the rationales and what the limits of our rationalities are. This is where the “culture of poverty” theories stem from. The idea is that the poor harbor certain personality traits, those being social deviance, laziness, and impatience.
These personality traits may affect the attitudes toward risk-taking, savings, and insurance, leading the poor to view financial services as only available to the rich. The personality traits labeled on the poor may stem from apathy toward their situation and no way out of the cycle of poverty.
Making financial services either more affordable or showing the industry in a different light may lead to opening up these services to new, needy markets. This is a tactic that could benefit both those in the industry and those who desperately need the help of advisors to help them plan for the future.
What are your thoughts on the correlation between wealth and having a financial advisor? Can trustworthy advisors help people escape the cycle of poverty?
This post is not intended to constitute financial advice. For specific information regarding your financial situation, please consult your local financial advisor.