Blog 1 of 3 in the Introduction to Financial Therapy blog series.

Introduction to Financial Psychology blog series

This brief blog series will illustrate how the growing field of Financial Psychology can revolutionize people’s turbulent relationships with money. Through understanding the roots and influence of their personal financial psychology, individuals find themselves able to discard the inherited programming that drives their financial decisions, and that no longer serves them.

The complete list of blogs in this series are at the bottom of this article.

What is Financial Psychology?

The field of Financial Psychology is a burgeoning discipline that associates people’s thoughts and feelings about money with how they manage it. While personal finance tools are widely available and have grown and improved over time, clean and clear financial management still seems challenging for the average American. Even today, when financial education is easily obtainable for free through the Internet, many people continue to struggle with debt, stagnate in underearning, and substantially overspend their resources, leaving nothing for a rainy day. The numbers are staggering:

The result? Massive Financial Stress. In fact, Financial Stress is cited as the number one cause of stress in the United States. According to the 2019 Stress in America survey, work (64%) and money (60%) are the top two stressors and are obviously interrelated (American Psychological Association, 2019). Financial advisors found that, in addition to helping clients navigate negotiations around money, they had to incorporate therapeutic approaches to assist them in making clear and rational decisions around their financial issues.

In the face of historical data and challenges such as these, it became obvious that the problem wasn’t simply a lack of understanding about how money works. Neither was it a problem with social class—indeed, many raised in poverty rose to riches, and many raised by upper middle-class parents found it difficult to earn a living on their own as adults. Psychologists began to investigate the connection between finances and emotions to better understand the influence of beliefs and feelings on specific behaviors around money.

The Challenges of Money

Dealing with money is unavoidable. Whether paying rent and living paycheck to paycheck, paying a mortgage and saving in a 401-K, or living off a managed trust fund, one consistently has to make decisions around money that may play a large part in overall well-being. Such decisions are frequently stressful, which can take a huge toll on emotional health. The burden of financial stress inevitably affects all aspects of life including relationships, family, work, and personal security. Time and time again, merely learning how to manage money has proven powerless in solving financial stress. Rather than addressing solely the practical money behaviors that have caused poor outcomes, financial therapy works to uncover the triggers that cause a person’s emotional responses to finances which often lead to poor decisions around money—both now and down the road. Once people are able to recognize their individual financial triggers, they are in a much better position to put their personal finances in order and, in the future, refrain from the same emotional behaviors that caused and maintained their problems.

Financial Therapy

This is where Financial Psychology, delivered as financial therapy, helps people to change their relationship with money. Financial therapy provides an informed process to support people in changing how they think, feel, and behave around money. This results in an overall improved relationship with money, typically an improved income, lower stress, and easier interaction around financial decision-making.

For a free consultation about your best course to financial stability and health, call 818.600.2264

References:

American Psychological Association. (2019). Stress in America 2019.

Fay, B. (2018, February 21). America’s Debt Help Organization. Retrieved September 21, 2020, from https://www.debt.org/