“Financial planning” – two very strange words to the average Israeli. While statistics have shown that the majority of people in Western countries do not necessary invest tremendous amounts of time in planning their financial future, my experience in Israel tells me that the percentages are significantly lower here. Why does the average Israeli, never mind your average English-speaking oleh, avoid spending time trying to optimize the use of their financial resources, either on a short term, month to month basis or in the long run? Let’s posit some potential theories:
- Attitude – Israeli society can sometimes seem to fly by the seat of its colloquial pants. Fundamental societal issues like water usage, education, illegal immigration, the environment, fire-fighting, etc., which need foresight and long term planning, are ignored until they reach epidemic, emergency like proportions, when decisions are made willy nilly, without proper planning. Individual financial planning follows a similar pattern. The “it will be all right – ye’heye be’seder” attitude dominates.
- Lack of free time – Israeli society’s six- day work week doesn’t allow for much leisure time. And even if we only work five days a week, we all know that Fridays cannot compare to Sundays. No more long lazy Sundays, which could be used for equally important but less immediate and critical activities like financial planning.
- Low financial literacy – The general level of financial literacy in Israel is incredibly low. The average Israeli does not understand how the financial system works and how to get it working for them and not against them. We don’t understand the banking system, our pension funds, or how to maximize our income within the tax system. This lack of financial acumen translates into a large minority of Israelis who actively plan, especially among the youth and olim. We don’t teach our children to brush their teeth when they turn 18, so why do we wait for them to finish high school, army or their education before starting to teach them about financial management?
- Financial Procrastination – I’m sure it comes as no surprise that we tend to shy away from large, complicated decisions that we don’t understand or that are difficult to implement. When the impact of our decisions can be decades away, as in the case of retirement planning, we tend to push off things and tell ourselves “we’ll get to it later.” Unfortunately, “later” often never arrives.
- Pure fear – When facing an unknown future and its profound consequences, fear can lead to paralysis and avoidance. It’s much easier to sweep a complicated issue under the carpet than to face it head-on.
So now that we understand why so few plan, the big question remains: why should I educate myself about financial planning, and why should I begin to plan my finances more carefully? What difference will it make?
First of all, financial planning, like planning in all areas of our lives, reduces stress and allows us to relax as we attempt to implement our plan. When we have our sights set and know where we’re heading, we don’t need to think about our plan or our budget on a day to day basis. As psychologists can explain better than I, avoidance causes stress and reduces our quality of life. Dealing with our finances can have a positive impact on our day to day happiness.
Secondly, once in place, our plan will give us a feeling of confidence and a sense of security. Like so many areas in life, confidence can play a major part in success. Financial education can help us to make sense of the inevitable obstacles we will face and give us the opportunity to make changes with confidence and competence.
Thirdly, planning helps us to prepare for the future by ensuring that our financial resources, whether our monthly wage or our longer term savings, are being used the way we want them to be. Budgeting helps us prioritize where we want to spend our money. Investment management focuses on growing our assets to meet our current and expected future needs. Retirement planning ensures that we have savings plans in place for accumulating assets and using them effectively in retirement for maximum flexibility. The list goes on …
Given its obvious advantages, financial literacy is no longer a luxury for the wealthy. It needs to filter down to the average person, not because we’re trying to accumulate wealth for the sake of wealth, but because we all want to use our money effectively in order to accomplish the bigger goals in our lives. The social protest movement has focused almost exclusively on what others need to change to make the system better. Let’s not forget that a more efficient and focused use of our resources can have no less an impact on our financial health.
Don’t be overwhelmed. Get started today!
In future weeks we’ll explore ‘starting the year off on the right foot’, Israeli taxation, the Israeli investment scene, and more. I would be interested in hearing your questions and feedback.