Human beings often make decisions based on emotion, and that’s true of almost any decision there is to make. This naturally also applies to a person’s decision about whether or not to engage with a reverse mortgage product. Much of the ways in which people in the industry appeal to potential borrowers about whether or not they should consider a reverse mortgage is through the way it makes them feel.
This flies in the face of some who feel that emotions need to be taken out of the decision-making process when it comes to finances, but that’s much easier said than done according to Jamie Hopkins, managing director of Carson Coaching and director of retirement research at Carson Group, as well as a member of the Academy for Home Equity in Financial Planning. RMD recently sat down with Hopkins to talk about this and other reverse mortgage industry topics in a new episode of The RMD Podcast.
Hopkins also talks about how the reverse mortgage industry could be transformed by the COVID-19 coronavirus pandemic, with the chief issue shaping the business’ potential future resting on the prospects of long-term care, he says.
People make emotional decisions
When it comes to the idea of people making emotional decisions about their money, it’s simply difficult to divorce the emotion from the process because it is so inherently tied to the ways that people use their money, Hopkins says. That’s not a bad thing, either, he adds.
“People make emotional decisions,” he says. “There’s this kind of balance out there. When you think about behavioral finance, there was this brief period of time – and it still exists today – where people say ‘we need to get emotions out of our money, and out of our decision-making.’ The reality is we really shouldn’t do that. Our brain craves emotional data, and we make better decisions when we include emotional data as part of the decision-making. That’s actually okay.”
That’s not to say that we should allow emotions to override the analytical thinking often associated with making long-term goals, since that can often lead to poor decisions, he says.
“We don’t want to remove that emotion, but we definitely want to put frameworks in place so we can make quality decisions,” he says. “And sometimes [that comes in the form of] education, or access, or even it’s decision framing. Sometimes it’s just having a broader view of the timeline or horizon of the world, so we can make more informed and healthier decisions.”
It’s also worth recognizing that some of the soundest, most basic economic principles including supply-and-demand often have emotional drivers, where logic may dictate demand will fall if cost rises. Sometimes, that’s not the case, since raising a price can add an emotional perception of increased value for a good, and actually cause demand to increase.
“There’s always things that are pushing us in different directions and realities,” Hopkins says. “I don’t even know if we better understand it, but we’re getting there.”
Pandemic benefits for reverse mortgages: long-term care
When looking at the way that the COVID-19 pandemic has affected the state of American retirement, Hopkins says that there could be a potential material benefit to the reverse mortgage industry based on the information he pays closest attention to. That benefit revolves around long-term care (LTC), largely because the need for caregivers and facilities designed to serve an older population is something that will need to be addressed in the years to come.
“I don’t think we necessarily have a retirement income crisis in the United States yet,” he says. “Do we have challenges? Absolutely. So then, this gets to how you define ‘crisis.’ What is a crisis? I don’t think we have a retirement income crisis. Actually, there are less people below the poverty line in retirement than there are in the general population. I know sometimes people say that retirees don’t have enough money, but those people don’t have enough money to meet their basic needs when they’re in day-to-day life already. It’s actually a continuation of not having what you need. Social Security and Medicare do a good job of raising the standard of living for a lot of retirees.”
However, looking at LTC could indicate that a crisis has already arrived, based on the way Hopkins defines it, he says. In his home state of Pennsylvania and in other areas like New York and the Pacific Northwest, many deaths came out of nursing homes and congregate care settings at the onset of the COVID-19 pandemic, which recent data suggest is causing seniors and retirees to reconsider whether or not they should enter such a facility.
“I don’t necessarily know after 2020 that I would want to go live at a nursing home,” he says. “So, I think that we will see some very long-lasting impacts of people saying they want to stay at home longer, then asking, ‘how do you do that?’ Well, reverse mortgages become a tool to provide some care at home, and to actually stay in the home for a longer period of time versus moving into an institutional setting.”
Another potential impact on the reverse mortgage industry could be that costs associated with LTC continue to be unsustainably high, which may understandably cause people to look at solutions which could reduce the cost of such care. Staying in the home as opposed to moving into a dedicated senior housing facility could help to limit some of the cost, though there is still likely to be a shortage of caregivers themselves in the years ahead, Hopkins says.
“The costs are really high, and I think that is something that is nearing crisis level,” he says. “The number of people we have versus the number of available caregivers, and adding in the costs, the burden on Medicaid, all of that is nearing a breaking point, and we have no plan.”
That’s just one way that reverse mortgages could be transformed in the years to come, depending on how well the nation tries to address the rising numbers of seniors compared with associated numbers of resources to properly serve them in retirement.
Keep an eye out for the new episode of The RMD Podcast featuring Hopkins as the special guest.