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Psychology of Money, How to stop chasing status and start building wealth

Understanding how our financial personalities play a part in our relationships with Dr. Alex Melkumian

Conversation can be empowering and solutions based while also can provide anxiety and shame. As we continue over the next two weeks we are going to focus on how to build out health conversations with the people that are important in your life.

When we talk about wealth and our financial lives it is critical that we build healthy communication. We can add strategy, build wealth, and if one person in a partnership or family has more control absent of communication than that creates an unhealthy situation.

What is your financial currency? No I don’t mean the actual dollar bills, I’m actually talking about your personality and how you relate to money.

Family Centered – your drive for financial decisions is rooting in caring for and providing for you family (however defined by you) now and in the future, even after you have passed away.

Independent – you see you financial picture as one that only you can control and separate from advice or instruction of others.

Delegator– the opposite of the Independent, you push off the responsibility to a point of wanting no responsibility and rely on others in your life including a partners or a financial advisor to make all the decisions for you regarding your financial picture.

Incognito – privacy is of the utmost importance to you. You want no one to know your financial picture, carrying everything close to the vest.

Competitor – checking out what everyone else has defines where you want to be at minimum. You would prefer to have a better “this of that”. You find yourself comparing to what other’s might have.

Prestige – think the VIP treatment, you know that you are important and have the expectation that you have the best of the best and usually before anyone else might have the opportunity.

Acquisitioner – finding yourself counting on a regular basis what you have and ensuring that it is safe and protected. You worry more than the other’s because you don’t want to lose you prefer to be able to always see everything you have.

Risk-Taker – that need for speed or adrenaline rush is exactly what you are looking for with your money. You could care less about the downside you are focused on the potential upside and convinced that you will always have a WIN.

Trendsetter – just like skinny jeans are out (well not for me at least) and Zumbas were once cool…you like to have what everyone is talking about. You are the first one to discover the “new” thing and jump on board.

When building a strong foundation of communication, most likely the other individuals that you are partnering with whether your partner, future partner, or a family member has a different financial personality that stems from their previous financial stories that they have been told. So how do you bring those two perhaps very different personalities together? Why does it make a difference?

Here is the deal, I am going to take a moment to specifically chat with those of you who identify as female. Historically women live longer than men. At one point or another women will manage their financial lives solo – by choice, through change in marriage – divorce, or death of a partner or family member that passes wealth along. Taking charge and building a plan of understanding your financial life is necessary for you to be on the right track to ensure that you don’t have a lot of financial surprises but strategy to make sure can live the lifestyle you want and that your wealth outlasts you and not the opposite.

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What is your story?

Which one of the above financial personalities above do you find yourself leaning toward? Where do you think this spins from? What are the stories you tell yourself around wealth? How about the experiences or the stories others have told you?

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What is their story?

The person you are trying to build communication with most frequently is a partner that you spend life with. I will also insert that I have many conversations with clients who are now transitioning into the caregiver role for a family member, hold tight we will drill into these conversations next week! With your partner, what is their personality and story? They may have a different one than you, let’s try to bring the two together.

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Bring it together

Two separate communication styles need to start with a common respect built. Understanding the sources of your experiences and how you make decisions. Setting a foundation through deciding who has strengths in which area. No one person in the partnership can feel secure in the planning if they are left in the dark. Establish together which area each of you can focus on.

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Establishing Regular

Progress Points

After you have establish a standard of where each of you are coming from and who has a passion or strength in the various areas of your financial lives, then it’s making sure that you are checking in. What are the pieces of life that are important to you? How are you feeling like you are in progress towards achieving or living in those important part of life? What parts are still challenging, if any? What advice or resources might you need to seek? Set a regular time frame at least once a month to review these item

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Rationalization How we trick ourselves into making bad financial choices.

Rationalization How we trick ourselves into making bad financial choices.

Lilian Yoffe

Financial problems we face on a daily basis are multifaceted and do not stem from simply one bad habit or just a lack of knowledge in the financial realm of things. However, one commonality among all is the mere fact that we can be our own biggest enemy when it comes to money behaviour. Poor judgement and lack of acknowledgement tend to be the leading reasons as to why debts become uncontrollable. They stem from our human nature – wanting to rationalize our behaviour in order to indulge in short term satisfaction with the things you like and enjoy without consideration of the long-term problems that it may cause.

Humans are good at thinking of ways to rationalize our spending. We make anything an excuse to spend more, whether it be through celebrating a special occasion or convincing that it is a good deal, overspending is not hard to achieve. Psychologically, this type of behaviour attempts to logically justify behaviour that is usually immoral or deviant.1 Fraud describes this behaviour as part of a self-defence mechanism which is an unconscious attempt to disregard the real reason for this unreasonable behaviour. This explains many irrational and immoral financial behaviours, such as overspending, avoidance, and infidelity. These rationalizations can be about ourselves or can be about others, just anything it takes to allow us to receive that brief gratification.

As described above, rationalization is not completely malicious – it can be used as a tool to avoid unwanted emotional trauma. However, continuous self-deception can lead to many problems, financially and psychologically. Unlike healthy financial habits where money decisions are based on logical thought and reflection of reality, rationalization validates our behaviour that is not in line with our values and beliefs. We convince ourselves that our wants are needs that need to be fulfilled. Especially after a year of isolation and fear, the list of events and celebrations that are due may exceed our ability to maintain financial stability. Whether it be going out to a restaurant with friends, planning a wedding with family, or moving houses, the list keeps going. The danger of rationalization spread far beyond overspending and financial inconsistency. It can be distressing psychologically as it can be used to mask our real issues that are deeper than the rationale but never address it. Labelling these core problems require a change in our mentality and habits, which is no easy task. This can also be attributed as one of the factors as to why we lie to ourselves financially.

Now you must be wondering, why can’t we just start over and never lie to ourselves again to be in a good place financially? While it is ideal, an American financial advisor and entrepreneur Ramit Sethi wirtes, “even if we tried to rationally critique our own spending, we would encounter an almost insurmountable number of psychological barriers that prevent us from honest self-examination.”2 Perfection is not something we should strive for, as it could be more damaging than we think. However, associating guilt, shame, and negative emotions with financial decisions is emotionally draining, leading to vicious cycles of lying and instability.

In order to avoid this dreadful cycle, honestly regarding one’s financial status and emotional wellbeing is an integral part of it.

  1. Know your spendings and savings without sugar coating it
  2. Acknowledge how spending makes you feel

It is quite impossible for us to strictly stick to a budget constantly; however, being truthful to ourselves can help us escape from the trap of self-deception that can transform into being deceived by the power and danger of money.

  1. Rationalization. GoodTherapy.org Therapy Blog. (n.d.). https://www.goodtherapy.org/blog/psychpedia/rationalization.
  2. Melissa. (2012, October 26). How and Why We Rationalize Spending. Free From Broke. https://freefrombroke.com/how-and-why-we-rationalize-spending/.

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Emotional Regulation: Taming the beast while harnessing it’s power.

Life is a series of dynamic events accompanied by countless emotions, guiding the path to the next stage 𑁋 whatever it may be for each and every one of us. Whenever there are challenges in our journey, many of us make it our goal to try not to make the same mistake again, or to tackle the problem from a different angle in order to overcome the issue. The next time around when we face a similar problem, the knowledge and the ability to adapt we gained from previous failures act as transferable skills that can help us remain grounded while expanding our horizons to attempt new things. But here is a question for all of us: are we reflective and conscious about our emotions as we are with our success story? Do we acknowledge certain mechanisms that work for you when you are trying to deconstruct large emotions into smaller pieces in order to be able to healthily acknowledge and absorb them? As we tackle this large question, we can incorporate the potential correlation between emotional regulation strategies and the sex (male and female) of the individual and see if it is suggestive of certain trends or stereotypes that exist in our society today. We also look into how it is reflected in the realm of personal and social finance.

Emotional regulation centers around the notion of being able to identify emotions, followed by critical deconstruction in order to respond to these impactful emotional experiences. A pioneer in the domain of toxic positivity and emotional agility, Susan David’s outlook on our current society regarding the management of one’s emotions or the danger of positivity overtaking emotional truth brilliantly sum up the power of emotional regulation. In a podcast with Renee Brown she mentions,

“Rigidity is when there is no space between stimuli and response … when we open our hearts with willingness to the full range of our human experience and our beauty, even if those emotions are uncomfortable … the space is created by showing up to our difficult feelings”1

This space she mentions signifies our values that are reflected in the emotions we feel in that moment. When there is no space, the response to our emotion emulates an action similar to a physiological reflex, where the action seems to be out of control. However, when space is created, it allows for grasping of the emotions. Both emotional regulation and agility revolve around the idea of managing big emotions and breaking them down in smaller pieces in order for us to act in ways that are in parallel with our own values. When making financial decisions, this space could be understanding and acknowledging your anger towards your partner, when without it, it might have led to impulsive money behaviour.

When discussing strategies for emotional regulation, the topic of sex differences tend to arise. A study by Wu, Y., et al. regarding the sex-specific neural circuits of emotional regulation in the centromedial amygdala reports that there are differences between men and women when looking at emotional representation.2 Similarly, Goubet. et al. demonstrated that women use more strategies for emotional regulation and more readily incorporated them than men.3 However, we cannot undermine the significance of separating scientific literature from toxic stereotypes around gender in the field of finance, as it would be a false equivalence.

Despite an increase in the number of females in the field of finance, current literature suggests that prejudice towards women regarding emotional management influence many people’s view towards this area of study. In other words, these harmful stereotypes surrounding women can cause negative emotions, loss of their identify, and decrease in retention at the workplace.4 Additionally, a study conducted of adolescents displayed that there might be a relationship between gender stereotypes and gender disparity in financial literacy.5 While a causal relationship is not be established, it is an indication that our preconceived notion can drive certain mentalities, leading to behaviour. Stereotypes such as “females are emotional spenders and are not good with money” can be easily disproved from the mere fact that human beings do not fit into one box. This toxic characterization can quietly yet lethally situate itself in people’s minds and affect their own beliefs and values.

We have now discussed the power of emotional regulation to align our behaviour without values along with toxic stereotypes that can arise from the misconception of possible differences. When it comes to emotions, we tend to shy away and look the other way, rather than facing our signal from our inner core. Some ways to manage our emotions include6

  1. Practice mindfulness 𑁋 a state of mind where you can access and understand your emotions.
  2. Accepting vulnerability 𑁋 this takes courage and effort to accept your emotions.
  3. Seek improvement, not perfection

While these do not come naturally overnight, its essence can lead to understanding your emotions better, and in turn solidifying your values and beliefs. Financial decisions, too, are a product of our emotions. Just like we have dollars, euro, and yen as our currency for money, our emotions are the currency for our values. Our relationship with money can be healthy and steady when we understand both types of currencies.

References:

  1. https://brenebrown.com/podcast/brene-with-dr-susan-david-on-the-dangers-of-toxic-positivity-part-1-of-2/.
  2. Wu, Y., Li, H., Zhou, Y. et al. Sex-specific neural circuits of emotion regulation in the centromedial amygdala. Sci Rep 6, 23112 (2016). https://doi.org/10.1038/srep23112.
  3. K. E. Goubet, E. G. Chrysikou, Emotion regulation flexibility: Gender differences in context sensitivity and repertoire. Frontiers in Psychology. 10 (2019), doi:10.3389/fpsyg.2019.00935.
  4. C. von Hippel, D. Sekaquaptewa, M. McFarlane, Stereotype Threat Among Women in Finance: Negative Effects on Identity, Workplace Well-Being, and Recruiting. Psychology of Women Quarterly. 39, 405–414 (2015).
  5. A. Driva, M. Lührmann, J. Winter, Gender differences and stereotypes in financial literacy: Off to an early start. Economics Letters. 146, 143–146 (2016).
  6. Sandford, K. (2021, January 12). 10 emotional REGULATION skills for a healthier mind. Retrieved March 09, 2021, from https://www.lifehack.org/844538/emotional-regulation

Author: Lilian Yoffee

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Love and Money or Love and Punishment?

Love and Money or Love and Punishment?

Money is a form of emotional currency in relationships. Disappointment and uncertainty are a normal part of any relationship. However, an inability to communicate your underlying emotions often leads to poor coping strategies such as the need to control, enable or punish your partner. In many cases, the urge to punish comes from a place of fear — the fear of creating intimacy. It is one of the ways to gain control of the situation without being vulnerable but doing so in an unhealthy manner.

While money and wealth are not inherently evil, it can be the source of many immoralities, and expose the dark side of our humanity. Interestingly, financial abuse is seen in 99% of domestic violence cases.1 However, it is not as recognized as a form of abuse or violence, compared to physical, emotional, or verbal abuse. Why is that? Why do we have a hard time recognizing and spotting financial abuse in our relationships? The answers to these questions, often asked by many, can be found through understanding the root of financial abuse. Additionally, we see how our traumas from the past can lead to poor and abusive financial behaviours towards ourselves, and sometimes towards others.

Victim Cycle

Financial abuse is the utilization of money as a tool to control another person.2 It can be seen in many forms: controlling one’s access to money, giving no privacy for financial decisions, giving no social life, or making it impossible for you to leave the relationship with financial stability. By coercing another person into a position where they are not financially stable as an individual, the abuser gains toxic and destructive control in that relationship. Surely, this cycle of abuse is not happening in a vacuum, but rather it is using money as a medium to cause emotional and psychological trauma to another person. Similar to other forms of abuse, the cycle of violence plays a role in perpetuating the hurtful and devastating need for control of the abuser. The four-part cycle consists of: 1. Tension building 2. Abuse or violence 3. Reconciliation and 4. Calm.3 This cycle illuminates certain traits observed in abuse that can be helpful in offering treatment or possible solutions. Though some forms of abuse many not exactly emulate these exact steps, the subtlety of the abuse can also push victims into a corner.

Neuroscience behind it

The perpetuated motion of making it more difficult for the victim to leave the situation behind also lies in the fact that there are neurological changes observed, in addition to the sentiment of fear that the abuser strikes on a variety of occasions. It involves the chemical, oxytocin, normally known as the love drug. Under normal circumstances, it is produced in a brain structure known as amygdala, and it encourages happiness and positive social bonds.4 However, under painful and troublesome conditions, it is produced from the receptors in the lateral septum, triggering a social stress response.4 This stimulates a withdrawing effect of wanting to return to happier times. An example of that could be wanting to go back to times when both people were financially dependent in a healthy way. Although you may think our rational mind can override the decisions made by the neurotransmitters, the emotional effect of this chemical is impactful to the point where it may be very tough to rise up against it.

Such disturbing and traumatic experiences of financial abuse lead to an alteration of our brain pathways and our emotional and decision-making processes. It is utterly crucial to recognize the lasting impact of financial abuse because the solution is not something that is as simple as gluing two pieces back together and pretending that nothing had happened. It is rather a complex situation that requires guidance and support to recover from.

What is Big T and Little T Trauma?

As alluded from above, being financially abused and controlled is a traumatic experience. While one action does not define financial abuse, the characteristics are on a spectrum, similar to how we categorize big T and little T traumas Big T trauma is a reaction towards utterly disturbing or life-threatening incidents, normally associated with PTSD.5,6 Likewise, little T trauma, while these situations may not be life-threatening, is caused by upsetting and distressing situations that do not classify under big T trauma.6 One thing to remember when discussing little T and big T traumas is that it is no math equation. 1 big T trauma does not equal to 3 little T traumas. However, there is a compound effect, also known as the snowball effect, of smaller scale traumas piling up on each other causing extreme emotional and psychological stress and anxiety. An example of that can be how individual money controlling behaviour may not be considered life-threatening; however, the build-up of these experiences and abuses can lead to a much more severe and distressing situation. These lead to the neurological changes in the location of neurotransmitter release and the amount of hormones released.

Interestingly, childhood trauma can lead to poor financial decisions. This can be accredited to the fact that as a child, there were some coping mechanisms that were used during distressing times that are manifesting as an adult. Erica Sandberg writes that irrational and compulsive actions such as excessive spending or excessive saving can be rooted in the fact that the brain is now programmed to overreact to situations due to past experiences7

We see that financial abuse stems from the desire to manipulate and gain control in a relationship in order to assert its dominance over the other person. However, the effect of financial abuse is measureless and unquantifiable — it leaves emotional scars on those who have experienced it.

How to Cope:

Financial abuse is in no way, shape or form a manner to show one’s love. It is just a mask for one’s insecurities or a product of one’s past, which in neither case is acceptable. However, for the victims, it is very important to understand that healing is a process. While one’s perspective may have changed drastically in addition to an altered emotion-based decision-making process, this is not the end of the road. Some steps that may be helpful in this process are:8

  1. Recognize triggers
  2. Set boundaries
  3. Understand that healing is a process
  4. Seek professional help
  5. Acceptance

Control and abuse are not tolerated. The importance of recognizing self-worth and signs of financial abuse cannot be stressed enough. While you might dismiss some uncomfortable and unwanted actions as trivial, it is important to recognize certain patterns and realize the depth and severity that financial abuse can reach.

Control or punishment, is not synonymous with love and it never will be.

    1. Barr, A. (2019, January 22). Financial abuse & strategies to stop the cycle. Retrieved February 23, 2021, from https://www.aimeebarrlcsw.com/single-post/2019/01/22/Financial-Abuse-Strategies-To-Stop-The-Cycle
    2. Forms of economic abuse. (2019, October 10). Retrieved February 23, 2021, from https://www.goodtherapy.org/learn-about-therapy/issues/financial-abuse
    3. https://www.healthline.com/health/relationships/cycle-of-abuse#the-cycle
    4. He, J. (2019, November 06). Gray matter: Neuroscience reveals why abuse victims can’t just walk away. Retrieved February 23, 2021, from https://dailytrojan.com/2019/11/05/gray-matter-neuroscience-reveals-why-abuse-victims-cant-just-walk-away/
    5. Monroe, J. (2020, November 13). Young adult trauma: ‘big t’ and ‘little t’. Retrieved February 23, 2021, from https://www.newportacademy.com/resources/treatment/adolescent-trauma/
    6. Clancy, C. (2019, December 20). What’s the difference between big “t” and little “t” trauma? Retrieved February 23, 2021, from https://journeypureriver.com/big-t-little-t-trauma/
    7. Sandberg, E. (2014, November 17). How trauma leads to destructive financial choices. Retrieved February 23, 2021, from https://www.creditcards.com/credit-card-news/trauma-destructive-financial-choices-1264/
    8. Coping with traumatic stress – the snowball effect – kristin cuthriell. (2013, December 16). Retrieved February 23, 2021, from https://thesnowballeffect.com/2013/12/16/coping-with-traumatic-stress/

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Love and Money

Lilian Yoffe

Love and money. These two seemingly unrelated subjects actually cross path in surprising ways. As February is known as the month of love, it is timely to discuss the role money plays in all relationships. Financial conversations, though can be tricky and cumbersome at times, are essential in establishing a healthy relationship between you and your partner. It is a great way to strengthen your relationship by eliminating a taboo element in a relationship. However, money can also be used to sabotage a relationship in numerous ways – as, a medium for enabling, control, and punishment. Remember, money isn’t our enemy. However it is up to us to decide what kind of relationship we are going to have with our partners in regards to dealing with finances.

Financial enabling can be characterized as the act of a pseudo-helper where you get the sensation of lending a hand to those in need, while in reality perpetuating the deep seeded problem. While this issue can definitely be seen in couples, this dynamic can also be observed in a parent-child relationship. The enabler is unable to say “no” to a financial demand by the one who is financially dependent. It can stem from the good intentions of the enabler and also from the pursuit of the enabler to help their partner.1 However, this is not helpful for the dependent because the main issue is not dealt with, and it is rather a band-aid solution.

Contrarily to enabling where order and system is not established, control and punishment using money show opposite traits. While the essence of control and punishment are very different, the actions and effect tend to be overlapping. Both can be characterized as financial abuse entailing control of the victim’s ability to use, or acquire money. The need for control can be rooted in different aspects of one’s financial emotions, such as the desire to gain control in the relationship2 or the fear of uncertainty. Money becomes a very accessible medium to cast one’s superiority and dominance over the other as it plays a vital role in everyone’s lives — more simply put, we all need money, so taking that away from someone creates great tension. Unlike physical or verbal abuse, financial abuse in the form of control is less recognized by the public despite its common occurrences in society.2 Similarly, the origin of punishing your partner through money can also be identified as the yearning to gain control in the midst of uncertainty or variability. All our relationships are dynamic; however, the inability to recognize and adapt to changes makes us fear change. It can lead to negative emotions such as pain, hurt, and a sense of isolation.3 More importantly, there is no punishment out of love.

What does this mean?

It means that while money can be used in so many meaningful ways, it can also become a knife that hurts us all. Take a step back and see if what you are doing “out of love” is actually a reflection of your values and beliefs. It is never too late to recognize that what you are doing might be hurting your partner rather than helping. There are three easy steps you can follow to establish a healthy financial relationship with your partner:

1. Recognize that what you might be doing with good intensions, could be hurting your partner.
2. Establish a clear and transparent line of communication.
3. Keep both partners in the loop, and do not avoid money conversations just because it is uncomfortable

Love is beautiful. Don’t let money ruin and destroy the harmony.

1. Kahler, R. (n.d.). When parents can’t say no: Financial enabling. Retrieved February 08, 2021, from https://kahlerfinancial.com/financial-awakenings/money-psychology/when-parents-cant-say-no-financial-enabling
2. Smith, A. (2016, August 10). How money is used as a weapon in relationships. Retrieved February 09, 2021, from https://www.kiplinger.com/article/spending/t065-c023-s002-how-money-is-used-as-a-weapon-in-relationships.html
3. Posted by: Team Tony, T. (2019, March 14). The negative effects of punishing someone in a relationship. Retrieved February 09, 2021, from https://www.tonyrobbins.com/love-relationships/stop-punishing-partner/

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How a mix of psychotherapy and financial advice could solve your money issues once and for all

(Wall Street Journal) – When Sheri Reid Grant inherited millions of dollars from her parents, she went into a downward spiral. Six years later, she still gets teary talking about it.

“Everybody thinks money is the answer, and here I had all this money, and all I could think about was not getting it right,” she said.

Grant, 53, was a middle-school teacher in Michigan when she inherited the money.

Paralyzed with fear, she became convinced that any move she made would not only destroy her father’s legacy but ruin her children’s and grandchildren’s future. She suffered through stomach pains, couldn’t get herself out of bed and lost interest in daily activities. The money weighed on her every thought.

Help finally came, not from a financial adviser or a psychologist, but a combination of the two: a financial therapist. The treatment helped her uncover the root of her turmoil: Her father had raised her to believe she didn’t know how to handle money, so the inheritance felt like a trap, something she would never be able to manage.

“If I didn’t have a financial therapist to help me manage the inner chaos and stress, I would have imploded,” Grant said.

And though her circumstances are unusual — few Americans attain her wealth — Grant believes financial therapy can help anyone. Because it isn’t just about how much you have; it’s about your beliefs and feelings toward money. And, boy, do we have a lot of them. Money is, after all, the thing that stresses out Americans more than anything else, according to a 2018 survey — as it has been every year since the American Psychological Association started posing the question in 2007.

‘Only about 20% of financial planning clients respond to logic and education.’

Rick Kahler, financial adviser

In Grant’s case, financial therapy helped her overcome her paralysis and escape self-defeating behaviors such as refusing to look at credit-card statements or avoiding asking her bookkeeper to pay bills.

“Financial therapy helps me with the emotional and the behavioral side of making decisions around money,” she said.

What is financial therapy?

Financial therapy sits at the intersection of financial advice and psychoanalysis. It’s therapy that helps people uncover the source of emotions guiding their money decisions and, in the process, end self-destructive behaviors related to money.

“A person can benefit from financial therapy when their behaviors are not in line with their values,” said Rick Kahler, a Rapid City, S.D.–based financial adviser whose firm, Kahler Financial Group, has employed for the past eight years a financial therapist who is both a certified financial planner (CFP) and a clinical mental-health counselor. “Another way to say that is when someone is stuck or when someone knows I should be doing this — I should be saving, I should be spending less, I should be paying attention to my retirement — but it doesn’t happen.”

Kahler considers a team that includes both therapists and financial planners to be the gold standard for financial-advisory services.

Certifiable

Though it’s been around in various forms since the 1990s, financial therapy is now poised to become more standardized and more prevalent. Until now, the occupation has been loosely defined, and anyone could call themselves a financial therapist.

The field encompasses a range of professionals — from psychotherapists to marriage counselors to social workers to certified financial planners — all looking to help clients understand the emotional underpinnings of their behaviors around money. Starting this year, practitioners will be able to be certified by the Princeton Junction, N.J.–based Financial Therapy Association as a financial therapist after taking a 100-question exam and meeting requirements including logging 500 hours of experience.

Demand for financial therapy is poised to grow, said Debra Kaplan, a Tucson, Ariz.–based licensed mental-health therapist, speaker and author of “For Love and Money: Exploring Sexual & Financial Betrayal in Relationships.” Kaplan has an MBA and first got interested in the psychology of money while working as a commodity options trader on Wall Street. This past decade of stock-market prosperity has coincided with the rise of a generation that is open to self-reflection, she’s observed.

“This is a generation that is introspective by nature because of wanting a work trajectory that is self-gratifying and satisfying, not just a paycheck,” Kaplan said. “Therefore, financial therapy is perhaps coming into its own at a time that has a demographic that would benefit from what it has to offer: delving into money and work and what it means.”

And as traditional financial planning becomes increasingly automated, with investors relying on robo-advisers and index funds, and talk of artificial intelligence helping clients make asset allocations, Kahler sees a bright future for financial therapy.

“The financial-planning profession gives lip service to the fact that it’s about the relationship,” he said. “I don’t think emotional issues are going away. To be relevant, the financial-planning profession needs to embrace financial therapy.”

The case for financial therapy

After nearly 40 years in the financial-advisory business, Kahler, 64, has come to the conclusion that only about 20% of financial-planning clients respond to logic and education. That small minority will, for example, stop overspending if an adviser tells them to. But, for most people, “it goes way deeper,” he said, and they need more than monthly budgets to change their behavior.

Kahler sees a parallel with dieting. We’re bombarded with information about calorie counts and daily walking steps to stay fit, but most Americans are still overweight. “It’s not about the money,” Kahler said. “The money is a symptom of a deeper problem. Until we get down to that emotional issue, the behavior isn’t going to change. You’re just putting a Band-Aid on it.”

Traditional financial planning is not equipped to address that reality. In fact, financial planners call clients who don’t do what they’re told “noncompliant,” Kahler noted.

A financial therapist, on the other hand, will help someone uncover why they can’t seem to get around to opening those 401(k) statements; why they continually overspend on their credit card, even when they’ve promised themselves they wouldn’t do it again; why they have plenty of money and yet won’t spend any of it to repair their dilapidated house or car; why every fight with their spouse seems to be about the household budget; why they’re losing sleep about money and can’t seem to focus; or why they have a secret bank account they’ve never told their spouse about.

How it works

Tackling people’s issues around money with a financial therapist is different in every case, but it often involves examining a client’s core beliefs about money and how they came to hold them. Do they chase money? Are they terrified of running out of money? Is their sense of self-worth tied up in how many figures are in their salary? Do they avoid thinking and talking about money at all costs? Do they think money is irrelevant? Often the discussion will lead back to childhood, when our parents taught us, either consciously or unconsciously, what and how to think about money.

Those “stories” about money are sometimes called “money scripts,” a term coined by Brad and Ted Klontz, a father-and-son team of financial psychologists. Ted Klontz is Sheri Reid Grant’s financial therapist. One of her money scripts — that women don’t know how to manage money — was reinforced every Christmas when she was growing up in Michigan. Her father, an industrial engineer by training, made his fortune after buying a manufacturing company outside Detroit that made automotive parts. Her three brothers worked for the business, but Grant didn’t. At Christmas, the family would gather to open presents, an event that culminated with her dad opening a box of envelopes and handing out distribution checks to her brothers.

The message — that she didn’t know how to handle money — later fueled her “money avoidance,” which manifested in Grant refusing to look at, for example, credit-card statements. Money scripts may seem irrational to an outsider, but for the person living them they are completely logical. Identifying them helps clients recognize the roots of their money-related anxieties, and eventually, it’s hoped, end their harmful financial behaviors.

There’s no exact formula for helping a client change behavior; financial therapy is more art than science, Kaplan said. But as the saying goes, “If you can name it, you can tame it,” so Kaplan will sometimes have clients make an inventory, in writing, of exactly what they feel when they take money-related actions that they want to change.

A client who was going into debt to lend his friends money because he felt it was his duty to rescue them might write down that when he gives a specific friend money, he feels he’s a good friend; when he doesn’t, he feels sad and guilty. In therapy, that client may come to realize his lending habit is more about his own self-esteem, and Kaplan would help him find healthier ways to foster self-esteem. “I’m not going to reprimand them, but I want them to notice what comes up when they engage in that behavior,” Kaplan said.

‘They thought we were a cult’

The origins of financial therapy date to the mid-1990s, when a leaderless group of financial planners — they came from across the country and first met as a group in Colorado — called the Nazrudin Project began gathering once a year to discuss the intersection of emotions and money. The rest of the financial-planning field balked. “They thought we were a cult,” Kahler remembers. “Planners just did not feel that the financial-planning profession had any business mucking around with emotion.”

Compared with the country’s 85,000 CFPs, the Financial Therapy Association’s 300-plus members, including 32 outside the U.S., form a small, but rapidly growing, group of practitioners.

There is still some debate about the best way to bridge therapy and financial planning. Financial therapists now come from one of two “home disciplines” — either the financial-planning field or mental-health counseling. But a certified financial planner who offers financial therapy is not equipped to treat people coping with serious mental-health problems, and a psychotherapist shouldn’t give investment advice, said Alex Melkumian, a Los Angeles–based licensed marriage and family therapist who offers financial therapy.

“For your money, you want a fiduciary,” Dr. Melkumian said. “For your emotional health, you want a licensed psychologist or therapist who knows how to treat the diagnoses you have and respects confidentiality.”

Therapists should not be handing out financial-planning advice or telling clients what investments to buy, he said. Clients can idealize their therapists and try to please them. “Imagine if I’m saying you have to invest in this particular fund, or this is a strategy that will work for you 110%, and then it doesn’t work,” Melkumian said. “There would be resentment between them and me as the therapist, and it would cloud the treatment and make it ineffective.”

Some financial therapists post disclaimers explaining they can’t treat acute mental-health disorders; others say upfront that they won’t give investment advice. One possible solution to this conundrum is to have therapists and financial planners work side-by-side with the same clients, a strategy that Melkumian and Kahler, among others, advocate.

“When you start playing in the area of mental health, ethics and transparency and intention is so important,” Kahler said. “People are more vulnerable about money than anything else, so it absolutely screams for integrity from the providers.”

Under the Financial Therapy Association’s new certification program, certified financial therapists will be fiduciaries and must adhere to an ethical code that includes avoiding “controlling financial elements of the client’s life that may interfere with doing what is in the client’s best interest.” They won’t be allowed to sell financial products.

Does financial therapy work?

The field is so new that there hasn’t been a lot of research on its effectiveness. One 2018 study by professors at Kansas State University found that 13 couples who were taught a “love and money” curriculum — techniques similar to what they might encounter in financial therapy — felt happier and less stressed about money afterward, and reported significant reductions in money-related stress when they were interviewed three months later.

But true-believer clients like Sheri Reid Grant don’t need research to convince them of the benefits.

“The financial issues I struggle with are universal,” Grant said. “The only difference is a few zeros at the end of my net worth.”

She said therapy can be emotionally taxing, but she sticks with it in part because of her children: “I feel a huge responsibility to break the chains of family dysfunction around money instead of passing them on to my kids.”

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MarketWatch Article by Leslie Albrecht