The main driver of behaviour, whoever you are, is fear of loss. It’s fear that’s not necessarily bound to actual risk but feeds off what’s most available from memory, an idea known as the availability heuristic.
That’s the view of Daniel Kahneman, an Israeli-American psychologist who got the Nobel Prize in a totally different discipline, economics, in 2002. No mean feat, and it hints at why Kahneman has been described as the world’s most influential living psychologist. Steven Pinker, a famous American thinker, says this about him:
“His central message could not be more important, namely, that human reason left to its own devices is apt to engage in a number of fallacies and systematic errors, so if we want to make better decisions in our personal lives and as a society, we ought to be aware of these biases and seek workarounds.”
Much easier said than done, especially when we don’t have deadlines to help us. I am an accountant and yet I only just started contributing to my pension. Beforehand my perception (perhaps unconsciously) was that the cost of sitting down and getting it done, as well as the financial cost of making the contributions, outweighed the benefits.
As soon as I did it, however, I felt the opposite was the case: there was a higher opportunity cost attached to all those years I could have been paying in but didn’t. This is pretty normal, and it’s well documented as the inspiration for auto-enrolment pensions in the book Inside The Nudge Unit.
In many cases, when US employers offered stunning pensions packages with generous state top ups, it made no difference whatsoever. People didn’t know or care what they were missing, but they knew they had better things to be doing, and so they let the availability heuristic undermine their own interests.
With auto-enrolment there is a deadline to choose a deal, otherwise a template deal is done for you. In that case the fear of loss works, it encourages action rather than inaction. I think the same is often the case with dental practice owners — they could do with deadlines to spur them into action.
The split role of business owner and clinician is hard. You’re busy and put off important matters like pensions and exit plans because there’s no immediate pain attached to delay. Before you know it it’s next year and you’re in the same place, still kicking your business review or marketing plan forward into the long grass. Without a business manager there’s absolutely no one to answer to. There’s a cost to that. Over two or three years that cost mounts.
Many a principal has thought “I want to retire in 10 years” but when they’ve finally done the maths they’ve realised they need to sell for a higher price tag to have enough left over to live on. Pension yields aren’t what they once were.
It can be a shock, especially if you’ve been living well for the past decade, drawing £100k or £150k a year, safe in the belief that your £1m asset — the practice — will be your pension. If it’s not going to be enough then your path for the next five or 10 years must change. If that sounds scary, why not see whether your fear of loss, in this case, is a misperception, and whether some of those invisible opportunity costs you’ve been paying are real? Get in touch on 01872 300232 or email us at hello@hivebusiness.co.uk.
