Economic Outcomes: What Your Clients Think Matters

Jean Boivin, Deputy Governor of the Bank of Canada delivered an interesting speech to the Canadian Association for Business Economics on August 23, asserting that how people form expectations is important when it comes to monetary policy, and ultimately, responsible financial decision-making. Tax and financial advisors should take note, as they have a direct role in influencing those expectations with professional strategies, processes and procedures.

"Economic outcomes are the result of people's collective decisions,î said Mr. Boivin, "and these decisions depend on how people think and what they expect the future to bring.î

Those expectations are crucial, because they allow people to think long term. Since the inception of the Bank's inflation-targeting regime, for example, "well-anchored inflation expectations . . . have led to a better allocation of economic and financial resources and a more stable economy overall.î

He concludes that "effective communication and greater common knowledge can . . . make it possible to . . . make more informed decisions; and, ultimately, reach better outcomes. A better understanding of expectation formation and effective communications can positively reinforce each other. This is not only true for monetary policy, but for decision making in general.

This speaks to a pro-active need for more, not less constructive communication between advisors and their clients in volatile times. To review the entire speech see: http://www.bankofcanada.ca/2011/08/speeches/how-people-think/