“What is your personal money story?”
Financial professionals should explore this question with clients to help them evolve the personal stories that shaped their inner relationships with money. Financial psychologists advise that discussing clients’ personal money stories removes emotional barriers to future discussions about spending, saving, investing and retiring.
Stephen Lippa, vice president of education and digital strategy at JA Canada, left a recent professional roundtable convinced of the importance of personal money stories. In a blog post, Lippa called for “tools and questions to help uncover individual money stories.”
“We need to first help people see their own attachments to what money represents to them…so the more pragmatic skills and conceptual understanding can get through emotional defenses,” Lippa wrote. “Each of us has a story, and with courage we can share it.”
The emerging focus on unpacking personal money stories follows a rich vein of research illuminating the link between personal decision-making and human emotion. Jennifer S. Lerner’s paper, “Emotion and Decision Making,” in the 2014 Annual Review of Psychology succinctly put that “many psychological scientists now assume that emotions are the dominant driver of most meaningful decisions in life.”
New studies reveal how emotions such as fear, anxiety and stress influence financial decision-making.
A recent survey of financial professionals in 15 countries conducted by Natixis Global Asset Management found that “making emotional decisions is the No. 1 investor mistake.”
An American Psychological Association 2014 survey, “Stress in America,” found that money tops the list of the nation’s stressors. Subtitled “Paying With Our Health,” the survey showed that 72 percent of adults who were questioned felt stressed about money at least some of the time and 22 percent experienced extreme stress about money. The APA also noted “money and finances have remained the top stressor since our survey began in 2007.”
Based on these kinds of insights, some financial planners are examining the emotional aspect of their practices. They are teaming up with coaches, psychologists and counselors or taking classes and reading books on financial counseling.
Financial psychologists Bradley Klontz and Ted Klontz coined the term “money script” in their 2012 research, “How Client Money Scripts Predict Their Financial Behaviors,” published by the Financial Planning Association. This research continues to impact finances and psychology.
The Klontzes’ research, along with additional research by Sonya Britt, program director of the registered Certified Financial Planner Board programs at Kansas State University, showed how childhood memories profoundly influenced adult attitudes toward saving, spending, investing and planning. The researchers define money scripts as typically unconscious beliefs about money, handed down by ancestors, learned in childhood and passed along through generations.
According to the experts, these emotional triggers were imprinted long before anyone opened their first checking account. Personal money scripts also drive adult financial decision-making. Positive money scripts can lead us to make sound decisions while troubled scripts can affect our decisions in major ways.
“Financial planners can assess client money scripts as a part of their data gathering process to provide a shared language to explore the impact of money beliefs on financial behaviors and to predict potential risks to clients’ financial health,” according to the research.
It makes perfect sense for financial professionals to tease out their clients’ personal money stories given the importance of deeply held emotions and attitudes on the topic. It’s important to help clients evolve their scripts to meet the complex demands of saving for retirement in the current economic environment.
Many people find money a difficult subject to discuss. The 2015 Fidelity Investments Money FIT Women Study found that eight in 10 women have refrained from talking about finances with those close to them. The national survey found that only 47 percent of women are confident in discussing money and investing with a financial professional on their own.
How can financial professionals overcome resistance to capture personal money stories? The burgeoning field of financial therapy provides insight into the best approach.
Keep the mood light by beginning with a conversation rather than an interview. Be patient and supportive as the storyteller sorts through memories and shares feelings.
Gently align the storytellers’ background, memories and emotions with their current financial outlook. Encourage storytellers to embrace their strengths, discard old baggage and evolve their story to meet current challenges.
Guide the conversation with low-key but open-ended questions that can’t be answered by a simple yes or no. For example:
» “Were you raised to save money or spend money?”
» “Do you recall the first time you earned your own money?”
» “Would more money make you happier?”
There are times when clients aren’t keen on answering questions. In this situation, another technique can be borrowed from a therapist’s office.
When you ask an open-ended question and your client demurs, answer it yourself, or tell the story of another person you know, such as your father or aunt. This gives your client another perspective and highlights your comfort dealing with what might feel like dirty laundry to them.
Sometimes, no matter how hard you try, you can’t get a client to open up. In these instances, you should employ patience and a little reverse psychology. Try guiding them to the answer by making an assumption based on the facts available. For example, you could say, “It appears from your spending habits that you are more of a live-for-today instead of save-for-tomorrow kind of person. Have you always been this way?” This might prompt the client to respond in an attempt to refute your incorrect assumption.
The exercise should be enlightening for all — including the advisor. Understanding what a client’s economic situation was in childhood can provide insight into their present investing preferences and tolerances.
A person who grew up on the lower end of the economic spectrum might be more conservative and cautious. Likewise, a person who grew up with greater advantages might have a higher risk tolerance and demand more input into financial strategies. Cultural background, ethnicity and even religion can impact money attitudes.
Money scripts also can reveal trouble areas, ranging from compulsive spending to wealth aversion.
When Couples Share Money Stories
Sharing money stories can be extremely helpful for couples. Many couples tie the knot without revealing to each other their full financial pictures.
A 2016 Ameriprise survey found that approximately 31 percent of married couples — even the happiest ones — clash over finances at least once a month. The most common quarrels revolved around major purchases (34 percent), finances and children (24 percent of respondents with kids), a partner’s spending habits (23 percent), and important investment decisions (14 percent).
One important takeaway from this survey is that 40 percent of couples who disagreed about money said that an advisor had helped them make money decisions when things turned tense. By discussing their individual money scripts, partners can gain insight into the other’s attitudes toward money and better understand why they do what they do.
Rick Bowers is an award-winning journalist, author and filmmaker with expertise in planning for creative retirement. Rick may be contacted at [email protected]
Lisa Klingberg, managing partner of Inver Consulting, has 20 years of experience in wealth management, banking, Treasury, mortgage and capital markets. Lisa may be contacted at [email protected]
Together, they wrote this article exclusively for Jackson National Life. While Jackson commissioned Rick Bowers and Lisa Klingberg to research and write this article about retirement and financial planning, they are not affiliated with Jackson.