Understanding the difference between needs and wants – The Value of Financial Planning in uncertain times.

26th March 2020

 
What is the difference between a need and a want?
At a recent conference run by Distribution Technology, a senior member of the Financial Conduct Authority, Head of Life Insurance and Advice Supervision Debbie Gupta, said;
“Advisers consider what a client wants, but few consider what the client really needs”. Put simply; needs are something that you must have for survival. Wants, on the other hand, are good to have, but arguably not necessary for survival.
 
Humans though are fascinating creatures. We often tend to mix the two up.  For example, you or a colleague has had a tough day at your workplace. They might say;
“I really need a holiday!”
Is that right? Is it the case that the only way you are going to survive is by taking a holiday? Well possibly that is the case, but the chances are that you meant to say “I really want a holiday!”
 
Financial Planning looks at both needs and wants and considers the availability of both.  By looking at a person’s assets and liabilities and income and expenditure throughout their lifetime, a  Financial Planner can help the client to understand what their needs are (food, clothing, the cost of having a roof over their head etc.) and whether or not they will have enough financial resources pay for the things that they want (holidays, a new house in the country or money to gift to the next generations).
 
The challenge, though, is identifying what is truly a need and what is more likely to be a want. It gets even more complicated though because many people would argue that a financial life which solely pays for your needs is not necessarily going to be fulfilling. Which leads us to an essential financial planning question;
“Are you prepared to risk not having enough later in life to pay for your needs, to satisfy your wants in the shorter time frame?”
 
It usually comes down to degrees of risk. If there is a modest risk of running out of money later on in life but having a fulfilled life now, many might be prepared to take that risk. Especially in these uncertain times Financial Planning isn’t just about the numbers. It’s also about how you feel about things, the so-called soft facts and helping clients identify what is and may continue to be achievable considering their financial circumstances. In the present uncertain world the advice of a qualified Financial Planner is likely to be even more essential for many.    
 
 
 Duncan Arthur, APFS MCSI Cert (DM)
 Director of Financial Planning
 Blackadders Wealth Management