Author: Tiffany Havinga


Thinking about thinking – some behavioural biases to be aware of

We’ve all been overwhelmed with the amount of data thrown at us from left, right and centre in the wake of the COVID-19 pandemic, whether related to the virus, vaccine, or policies surrounding both.

We source information on Google in addition to what we hear on the radio, see on TV, or talk to our doctors, families and friends about. Not only are we operating in an era of information overload, but we also find ourselves in a time where we are all searching for answers because we are feeling so uncertain and vulnerable. In most cases, we can quickly and easily find answers, but how do we know those are the correct answers?

When our brains are so overwhelmed with lots of information or complex information, it tries to simplify data or take mental shortcuts or judgements (heuristics). Have you ever used the rule of thumb? Our brains do this to help us rationalise the data and minimise the time and effort we spend solving problems. These shortcuts often create an over-reliance on possibly incorrect deductions, which may have been influenced by our behavioural biases.

These biases result from years and years of data processing in our brains and can be stronger based on the way we have been brought up or the environment we find ourselves in. I was able to find more than 70 biases that can be categorised into cognitive, emotional and social biases. Here are some biases that may be more prevalent in the wake of the Covid-19 pandemic. The first bias to be aware of is the confirmation bias, where we favour or seek information that confirms our existing beliefs. For example, whether you are for or against the vaccination, chances are you will be able to find information that supports your argument.

Pessimism bias is dangerous because it allows us to overestimate the chances of having a negative outcome – how many times have you expected a worse outcome from our family meetings with President Ramaphosa? When markets fell so drastically, there was much talk about a U-and not a V-shaped recovery – we all felt quite pessimistic at the time.

Spurred on by lively debate, many of us may have experienced the backfire effect, where our theories and thinking have been challenged, or evidence comes to the fore that contradicts our beliefs. As a result, it causes us to believe in them even more strongly. A believer in Crypto currencies may feel inclined to buy more Bitcoin after reading an article that contests its value.

We have all uttered the phrase “in my day,” or “when I was young,” or more recently, “before Covid”. This may indicate that you are experiencing the declinism effect, where the past is romanticised or remembered as better than it was and, sadly, the future is expected to be worse than it is likely to be, which could result in missing great, innovative investment opportunities.

The availability heuristic makes us favour information which most quickly and easily jumps to mind. We make decisions based on information easily retrieved from our mental storage compartment – a bit like always wearing the shirt on top of the pile in your cupboard because it is the most easily accessible. Perhaps you have recently heard someone having a bad experience with a Retirement Annuity resulting in you deciding not to invest in one. But what are the reasons for the “bad” Retirement Annuity, and are they applicable to your situation?

The bandwagon effect; everyone else is buying gold and therefore so must I.

It’s challenging to change a bias — our minds are hardwired to create these shortcuts to help us. The difficulty is that they may negatively affect our decision-making and problem-solving abilities, as well as our emotions and moods. Having an awareness of your biases can help you see beyond them and absorb information rationally. Now that you have processed even more information, have you considered the mental shortcuts you have taken in reading this article?


Covid-19 and your Spending Plan

“How long will my money last?” and “will I have enough to retire on?” are probably the most asked questions during RetiremeantTM Planning. Our aim as Planners is to make your money graph last beyond the age of 100 years, and during these discussions, the most likely responses we receive from clients are “don’t worry, I will be gone long before then!” or “I hope I don’t live that long!”

Whilst we fully understand this sentiment, we do need to be prudent with your RetiremeantTM capital and consider the unforeseen and “what if” events which could impact your RetiremeantTM journey. The 2008 sub-prime lending crisis is a prime example; unexpected illness or life changing events leading to unplanned expenditure is another – and so is Covid-19.

The aim of our Planning approach is to ensure that our clients maintain their lifestyles, in spite of market volatility or unforeseen events – we certainly don’t want you to have to cut back on your spending or tighten your belts when markets don’t perform the way we hope. But no-one could have foreseen the drastic impact of Covid-19 on our finances. Not only are the markets affected, but our lives have been impacted as well.

I write this article sitting at my dining room table, pondering where I can tighten my own belt (which is tough because working from home means my kitchen is only five steps away.) But I do have to revisit my budget, and I’d like to share some tips and thoughts to keep in mind in case you’re doing the same:

1. Automatic savings
None of us will be travelling or going on holiday in the near future. We won’t be going out for dinners or enjoying a weekend braai with friends or family, and we can only shop for essential items such as medicine and food. Our travel and fuel expenses will also reduce.

2. Payment holidays
This term has typically been linked to mortgages. Basically, it means that you take a break from your monthly payment, for a short period of time of one to three months. At the end of the holiday, your payments must start again. This means that your payment term will extend, for example by three months.

Insurers have also been facilitating payment breaks. You must be aware that you stand the risk of not having cover for the month that your premium is not paid.

Before making any adjustments to your monthly payments, please make sure you fully understand the consequence. We encourage you not to make use of payment holidays or breaks where possible.

3. Services that you are not using
Gyms across the country have been forced to close, with the larger gyms freezing your membership during the lockdown and therefore, your monthly payment.

Personal grooming trips to the hairdresser or barber, manicures and other treatments will also fall away in the lockdown period. I am sure many of us will use this time to pamper ourselves at home – at greatly reduced costs.

Domestic help is a tough one. Even though your gardener and domestic helper cannot come to work, we do encourage you to continue supporting them where you can.

4. Payments which may increase
Staying connected and reaching out to our friends, loved ones, and others in need with the help of technology, has been a positive experience. We are all learning much more about the technology available to us and it allows us to feel a sense of togetherness. We are using more data, but many internet and cellular providers have announced that they have reduced their data prices, which should be a big help.

If technology is unchartered territory, keep a lookout for Chartered Tips on how to stay connected with technology.

5. Non- negotiables
Covid-19 is a health risk. Your medical aid premiums and proper nutrition are more important than ever. We encourage you not to cut back in this area. Continue your medical aid premiums, eat healthily and stay as active as you can within the confines of your home. If you are left with no alternative, rather opt for a less comprehensive plan than cancelling your medical aid entirely.

Remember that your Planners are available telephonically or to meet with you online to discuss any question you have relating to your budget, the prevailing market conditions, or planning in general. We will get through this together – as American singer, Jimmy Dean said: “I can’t change the direction of the wind, but I can adjust my sails to always reach my destination.”


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