Psychology of Financial Planning Flashcards
H.65 Client and planner attitudes, values, biases H.66 Behavioral finance H.67 Sources of money conflict H.68 Principles of counseling H.69 General principles of effective communication H.70 Crisis events with severe consequences
Money Avoidance
e.g. “good people should not care about money”, “rich people get money by taking advantage of others.”
Traits: Try not to think about money or believe they do not deserve money.
Effect: Do not look at their financial statements, unlikely to stick with a budget.
Money Worship
e.g. “Things would get better if I had more money”
Traits: Buy things in an effort to create happiness
Effect: Often have lower net worth, higher debt. May be a workaholic.
Money Status
e.g. “I will not buy something unless it is new”
Traits: Need to keep up the appearance of being successful.
Effect: Likely to overspend. Prone to gambling, financial dependence.
Money Vigilance
e.g. “Money should be saved not spent”
Traits: Are alert and watchful in matters concerning their finances
Effect: Often results in good financial outcomes. Could result in loss aversion and/or underspending.
Compulsive Buying Disorder
excessive shopping and spending that can lead to financial distress.
Shopping and buying can stem from negative feelings and/or events in one’s life.
Buying is a short term positive feeling that can temporarily mask the negative feelings. High credit card debt is a signifier.
Hoarding
Accumulating and being unable to discard possessions that most people would find worthless.
This creates clutter and negatively effects home and work space. This could also be associated with unwillingness to spend money after becoming successful.
Gambling
A recognized mental health disorder associated with the highs and lows of winning and losin
Workaholism
Often associated with anxiety or depression. A workaholic often fear not having enough money and focus on their career at the expense of time with family and friends.
Financial Enabling/Dependence
Financial enabling is when money is used as a form of control (intentional or unintentional), or to keep people dependent. Often seen with successful parents that continue to pay for their children’s expenses after the children could be financially independent, which deprives the children from developing their own financial acumen
Financial Infidelity/lack of transparency
Often identified by one individual spending significant amounts of money without the knowledge and support of the spouse or partner. It becomes problematic when the spending includes incurring large amounts of debt.
Common Sources of Money Conflict
Savings - Not having common savings goals can derail long-term savings plans.
Spending - Differences in determining needs versus wants (luxury versus frivolous) can rise to points of conflict.
Priorities - Family time versus work time or other basic needs such as preferences on where money should be utilized can lead to conflict.
Requests for Assistance from Family and Friends - Conflicts with money can arise between family members, not just spouses. Sacrificing one’s financial well-being while succumbing to requests for financial assistance from others can lead to strained relationships and strained bank accounts.
Conflict Resolution
Remain nonjudgmental. Do not take sides when conflict arises. This may mean setting aside your own values, beliefs, biases, and culture.
View all parties as equal and active participants in the financial planning process.
Possibly defer or reschedule the remainder of the meeting if emotions run high. A referral to a family therapist may be necessary.
Motivation and Decision Making
Framing: be aware of the context of the choice as it will influence the decision.
Default Options and Number of Options Presented: limit the amount of choices so as not to overwhelm the client. Line this up with the steps in the financial planning process: Continuing current course of action, and present two alternatives.
Overcoming Inertia: limit the amount of information to focus on what is relevant for a decision.
Solution-Focused Therapy and The Miracle Question: a process that helps the client recognize their current skills, talents, and strengths that they can use to propel them toward their goals, and in which the therapist (or financial planner) provides reinforcement through compliments and positivity
Choice Architecture
