You are hereThe Growing Importance of the Personal Finance Game

The Growing Importance of the Personal Finance Game


By Dave - Posted on 08 May 2008

In an earlier era, most financial relationships were simple. A client would bring their business to a (usually local) financial institution. They would be quoted a “price” for services needed (deposit rates, loan rates, service fees, et cetera) which would change only occasionally. Most clients would rarely see a need for more than one of two of these relationships, which might well last most of their adult lives. In that era it would have seemed at least odd--and perhaps even shady or underhanded--to think of personal finance as a "game".

 

Our current era is very different.  Today, greater choice means much greater complexity. Selecting financial service providers is no longer a choice among a small number of similar options. Should you choose a local bank, or a more attractively priced remote provider? Should you bank in person, online, by phone, by ATM, or “all of these above”? Do you want a “one stop shop” for checking, savings, a credit card, home loans, and investments? Or separate “best in class” providers for all of these? Choosing well from this sea of options can challenge even the most financially savvy consumers.  By itself, that leap complexity gives personal finance gamelike qualities.

 

Complexity alone wouldn't make personal finance a compelling game for many of us.  Rather its not just more financial choice, but much more important choice that makes the game worth learning and playing well. Consider retirement planning as an example. Thirty years ago, most workers' retirements were funded primary by a combination of fixed pensions or “defined benefit” plans; social security; and plain-vanilla savings accounts. None of these amounts would be much affected by any choices or strategic planning by the retiree. Instead they were products of income earned and saved during the working career. Today, the situation is entirely different. Outside of certain public sector jobs, defined benefit pensions have been almost completely replaced by “defined contribution” plans like 401ks. Both their level of funding and the underlying investment vehicles they use are a function of the account holders' choice. And compounded over time, those choices have amazingly significant consequences. Similar increases in the importance of choices exists in areas like mortgages, non-retirement investments, and consumer credit.

 

For the first time, we live in an era where in many families, regular attention to keeping the family finances “tuned up” will “pay” that family more than a second or third job. It may be hard to believe, but it really is that significant. If just one family member devotes an average of five hours a week to discovering and implementing the best financial choices—that is, prudently playing the personal finance game—the results will surface quickly, compound over time, and bring that family closer to financial security and prosperity than they likely ever thought possible. One of our main goals at www.rethinkingmoney.com is to help busy people learn the rules, identify the best choices, and thereby make the most of time they can spend playing the personal finance game.

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I am not sure that i understand what Today, greater choice means much greater complexity means
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