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Five step financial planning proposal
13 May, 2008
As the credit crunch continues, JPMorgan Asset Management has produced a white paper suggesting the government take a leading role in improving financial planning within the nation’s psyche and is suggesting consumer friendly solutions to do so in order to help tackle the nations mounting financial crisis.
The asset manager has compiled extensive evidence of the extent and nature of the UK’s financial issues and concluded that even well intentioned ‘middle Englanders’, who are actively saving money, might still be at risk of problems in the future.
The white paper ‘Changing Fortunes: setting guidelines for financial wellbeing in the UK’ is calling for the implementation of simple, easy to follow messages designed to help solve the nation’s deteriorating personal finance situation. The recommendations support government investigations into financial wellbeing and make suggestions for a solution based on a widespread consumer campaign similar to the recent drink driving and “5 a day” healthy eating initiatives.
The Changing Fortunes paper initially makes the case for the need for financial guidelines and then reveals:
• The apparent giant gap between what individuals perceive they need to save for retirement and what they would actually need to save to achieve their desired pension pot upon retirement.
• A nation of well intentioned savers but not investors – this group are not making the most of their savings by holding them in cash rather than inflation beating investments
• A debt silo where people’s savings are negated by servicing expensive debts at the same time
JPMAM is recommending a ‘5 a day’ style five step process to help with financial planning, and a savings ‘rule of thumb’. It has also created the JPMorgan Debt Obesity Scale™ as a simple tool to help people understand their financial wellbeing.
The report explains that, to be used effectively, capital has to be deployed in the most efficient way however the personal financial planning of many individuals in Britain is often haphazard and illogical. The ‘Financial 5 a day’ process helps consumers understand what their financial-planning priorities should be and in what stages to make the most of their money:
1. Arrange life/income insurance
2. Build a rainy-day cash fund
3. Pay off expensive debt
4. Start an ISA & pension
5. Review your position