A. This is a good question that has raised not just financial professionals but also behavior scientists' interests. Here is one possible explanation that ties to how human brains work:
Based on one research, it's found that consumers typically account for their wealth in 3 buckets:
- current income
- current asset
- assets to support future income
These mental buckets matter!
For example, a household that feels poorer is likely to constrain its current income to get back on track - and focus blame for its shortfall on its latest expenditures. Meanwhile, a household wealthy in net worth terms may still feel poor and unhappy if it doesn't have a reasonable amount of cash on hand.
What these mental buckets lead to? A prioritization of your behaviors and actions!
When current income matters more than current assets, it's difficult to be satisfied with the status of the longer term buckets until the near term needs are satisfied.
What's the implication? Annuitization is not viewed as a priority! We will discuss this in the next blog post.