SEOUL, Sept. 21 (Korea Bizwire) – A new study has warned that a significant number of South Korean retirees and those soon to be retired are making financial decisions emotionally during their preparation for retirement.
According to the study by Prudential Life Insurance Company released on Thursday, the ‘retirement emotion quotient’ among South Koreans aged between 45 and 69 was estimated to be 54 out of 100.
The Retirement Emotion Quotient (EQ) is a measure invented in 2006 by Prudential and experts in the field of behavioral finance at the University of Connecticut, which is used to determine an investor’s EQ scores and how affected by emotions their investment decisions are.
When investors are level-headed and have better control of their emotions, they often receive a high retirement emotion quotient.
Findings from the study show, however, that only 15 percent of the South Korean respondents made a rational decision, while over four in five scored poorly, which meant nearly 86 percent were swayed by their emotions when making important financial decisions to prepare for retirement.
The study also found a correlation between the retirement emotion quotient and how well prepared the respondents were.
Unsurprisingly, groups with a higher retirement emotion quotient turned out to be better prepared for retirement.
Groups with a lower retirement emotion quotient, on the other hand, were found to be more aggressive with their investment decisions, according to the study.
Around 23 percent among those who scored a low retirement emotion quotient preferred making aggressive investments, while the figure stood at 13 percent among those with a high retirement emotion quotient, with the gap being 10 percentage points.
Similarly, the number of respondents who hadn’t reached their savings goals varied between the two groups, with the figure for those with a lower retirement emotion quotient being 78 percent, 10 percentage points higher than the other group.
Among the most prevalent types of emotions affecting South Korean investors were ‘regret’, ‘a negative mindset’, ‘lack of motivation’ and ‘complacency’.
A sense of ‘regret’ was observed commonly among those who had experienced a financial failure in the past, as many of them feared repeating the same mistakes.
Some expressed ‘complacency’, saying retirement preparation was not just a personal responsibility but also the nation’s, while others said they had been postponing decision making as they felt overwhelmed by the workload required to properly prepare for their retirement.
Hyunsu Yim (firstname.lastname@example.org)