© 2001, National Endowment for Financial Education. All rights reserved.
In October 2001, the National Endowment for Financial Education convened a
group of experts from the academic communities of psychology and financial
planning for the purpose of discussing how an individual's psychological issues
with money often affect his or her ability to make rational decisions during a
lifechanging event. The dialogue focused on four major life-altering experiences:
involuntary job loss, becoming suddenly single, inheriting a financial windfall,
and remarriage. Participants identified common mental and emotional
implications relevant to the life-altering event, critical financial decisions that
need to be made within the context of time, key action steps an individual should
or shouldn't take within the first year of the event, and resources and professional
assistance available for individuals seeking help. A report on the think tank
follows.
FINANCIAL PSYCHOLOGY AND LIFECHANGING EVENTS
A Meeting Sponsored by the
National Endowment for Financial Education (NEFE)
Denver, Colorado—October 3-5, 2001
A sudden death, an unexpected job loss, a surprise financial windfall, even a leap-of-faith
decision to remarry. What do these seemingly disparate situations have in common? They
each represent significant lifechanging events that can throw people into sometimes-
traumatic states of transition.
They’re also financial planning challenges—and they demand more than “financial
planning as usual.”
The client experiencing a lifechanging event represents as much a psychological
challenge as a financial planning challenge. Because major life changes can trigger deep,
unexpected, and profound emotions, an individual’s ability to actively participate in
decision-making—the cornerstone of a successful relationship between planner and
client—may be negatively affected. Worse, emotions and psychological reactions to
lifechanging events actually can become a barrier. In fact, people in these situations may
feel they need a shoulder to cry on more than they need financial advice. It can be
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disturbing, overwhelming, and even seem offensive to try to focus on money and
financial matters when a client is experiencing a personal crisis.
If financial planning for these clients could always be resolved by a “wait and see”
strategy, the challenge wouldn’t be as complex. However, the financial impact of a
lifechanging event can have both immediate and long-lasting repercussions—in some
cases, decisions made in the aftermath of a personal crisis are those that clients may be
unable to recover from. Unfortunately, many people who experience a lifechanging event
are the least prepared psychologically to work through financial issues and are most at
risk of making poor financial decisions—or of not making decisions at all.
How should financial planners help? How can psychologists and other mental health
professionals recognize the need for financial expertise? Can a holistic approach result in
a healthy and ultimately enriching transition for the client? What are the critical financial
decisions that need to be made in the context of the lifechanging event? What are the
benefits to clients of the two disciplines working together to assist clients during
lifechanging events?
In October 2001, the National Endowment for Financial Education® (NEFE
®), a
nonprofit organization headquartered near Denver, Colorado, held the “Financial
Psychology and Lifechanging Events Think Tank” to address these issues. A
groundbreaking forum for discussion, it was the first time that practitioners from the
fields of financial planning and psychology joined together to identify and understand the
common psychological implications of various lifechanging situations and explore how
psychological, emotional, and behavioral reactions may affect a client's ability to make a
successful transition. Twenty professionals from the psychology/counseling, financial
planning, and allied professional fields participated in the think tank, forming
multidisciplinary teams to examine four common lifechanging events:
• involuntary job loss
• suddenly single
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• financial windfall
• remarriage
The keynote speaker and facilitator for the think tank was Kathleen Gurney, Ph.D., CEO
of Financial Psychology Corporation of Sonoma, California. Dr. Gurney has spent the
last two decades helping financial advisors and financial services firms gain insight into
the psychology of money management and individuals’ financial behavior.
The multidisciplinary approach allowed the participants to address various issues, such as
• the relationship between psychology and financial planning, and how
incorporating both can meet the needs of individuals seeking advice and
planning
• ways to share knowledge about both the financial and psychological needs of
clients in transition
• the roles that different advisors can play in individuals’ well being
• guidelines for making referrals to professionals with specific expertise
The think tank provoked some intense and spirited discussion among the participants as
they challenged themselves and one another to broaden their thinking about how to
address the unique needs of clients experiencing lifechanging events. Despite differing
opinions in some areas, the participants agreed on the following key points.
1. Understanding the “self/social/financial dynamic” is imperative for both
planners and psychologists. People who are going through a lifechanging event
are likely to experience significant alterations to this dynamic, which violates and
threatens their established sense of “Who am I?” Their disorientation can even
result in a familiar client looking totally unfamiliar to an advisor.
2. Many people do not seek help from either a mental health counselor or a
financial planner early enough in the process. Individuals who get “stuck” in
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the transition, or who are unable to begin defining their new sense of self, can
inadvertently derail their financial situation. “And the worse the financial picture
is, the longer and more complicated the transition is,” said one psychologist. Both
planners and psychologists must look for the signals indicating that a client needs
specialized help. Planners should err on the side of caution, advised Dr. Gurney,
especially if they are uncomfortable with clients’ emotional issues. Similarly,
psychologists exposed to financial issues outside their comfort zone should urge
people to seek guidance from a financial advisor.
3. A psychologically based financial planning approach can have a tremendous
positive effect on helping clients work out their new sense of self, especially as
it relates to how money “serves” the new sense of self. Several participants said
that this can be particularly acute with the client who realizes a sudden financial
windfall. But for anybody going through a lifechanging event, the search for—and
definition of—the new self can result in a successful transition if he or she is
working with a financial advisor who is sensitive to the range of emotions that
may play out. If not recognized and respected, emotions are often “acted out” in
ways that can be financially harmful.
This gathering of planners and psychologists and their collaborative sharing to address
the needs of clients in transition may result in new ways of thinking about old situations.
As Dr. Gurney said, “We all have blind spots—reflexive parts of ourselves—that may
impede us from helping people. We can use this information to ‘step out of’ our own
realities. It may help us better answer the question: ‘What is expected of us during our
clients' lifechanging events?’”
Financial Psychology’s Role in Financial Planning
Financial planners have traditionally approached their work for clients in a rational,
analytical way that helps meet specific, concrete goals and objectives—a retirement nest
egg, a college savings fund, a long-term-care contingency plan, or an estate plan that
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takes maximum advantage of tax incentives. But clients in crisis are more focused on
their pain than their portfolio. People who experience an unexpected departure from life’s
“plan” are thrown off balance by new, unfamiliar, and often unwelcome emotions, which
can dramatically affect the nature of the planner-client relationship. As one financial
planner put it, “Many of us often feel like we’re therapists. Suddenly, it seems, clients
look to us for help with their emotional issues, as well as their financial ones.”
Feelings about money can either motivate people to make financial decisions that help
them reach their goals or impair them from doing so. Financial psychology attempts to
understand the role those emotions, and their corresponding behaviors, have on financial
decision-making. As summed up in one of Dr. Gurney's books, “In all forms of human
behavior, there is a relationship between how you think and feel about a situation and
how you act upon that situation. Money is no exception.”1 Because emotions are more
pronounced during lifechanging events, planners must be particularly sensitive to the
effects of these emotions on clients—and to their own ability to address them during the
relationship.
If money and emotions are at the root of financial psychology, understanding the role that
both of these play in financial planning is critical. Why do people have “issues” with
money? How are these altered during a lifechanging event? Money is not only a medium
of exchange, it is also a substitute for love, a symbol of power, a benchmark of success, a
tool for doing good deeds, a source of great anxiety, a scapegoat, a flash point in a
marriage, and an emotional force of its own. Clients facing an unexpected and traumatic
change in their lives may suddenly find themselves confronting new feelings about
money, as well as old or buried feelings, and intense manifestations of their current
feelings about it. Planners who can adapt their style and process to accommodate these
powerful emotions and their place in the planning process will be successful in building
better, more meaningful relationships and will inspire clients to have confidence and trust
in them.
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However, it’s not always easy, according to many of the think tank participants. As one
planner stated, “We really do need the ‘marriage’ of these two disciplines. The planner
has to look at how a client is going to get through a lifechanging event financially. But
we’re often at a loss as to how to deal with the emotions.”
Planners are not always comfortable with this “soft side” of financial planning. Nor do
they necessarily know how they should integrate it into their practices. During the
discussion at the think tank, one planner commented, “I think it’s fine to talk about
financial psychology and to ask clients the questions about feelings and values, but I’m
not always sure what to do with the information.”
Clearly, there are differences in both the approaches to and the outcomes of the
counseling provided by financial planners and that of psychologists. But there is also
common ground between the two, as shown in the following quote.
The work in both processes is personal and confidential, so the
tendency in the process is that there’s a risk for the client to feel
vulnerable . . . The client is going to be looking for—and the
therapist and the planner are going to be looking to establish—a
sense of trust and safety and comfort. But the distinctions between
the two are important because the expectations of both processes are
very different and the contact and the goals are very different. The
similarity is in the relational and personal and confidential process.
The result is that planners have the opportunity to hear emotional
issues . . . Emotional issues are going to impact how somebody
decides what to do with their money . . . and there are going to be
financial issues that are going to cause emotional problems. Because
of the degree of intimacy with the relationship, there can be a
blurring of the boundaries at times2 . . .
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The “psychologically aware” financial advisor can build better rapport with clients and
develop better interviewing techniques as a way to break through some of the barriers
that keep clients from articulating their emotions. Active listening is part of most
planners’ training. However, asked Dr. Gurney, “What if the client isn’t talking? What if
they’re unable to explain how they’re feeling and what they want from their planning
relationship, especially during a crisis?”
In many cases, this inability to articulate is best served by advisors’ behavior, not their
words. During the think tank, Dr. Gurney led a discussion on how Americans are feeling
about and reacting to the tragic events of September 11, 2001. All of the professionals
attending the think tank admitted their own struggles with emotions that millions of
people experienced—guilt, anxiety, shock, fear, a period of uncertain adjustment,
concerns about personal safety, an attempt to reconnect with others. These emotions
mirror those of the person experiencing a lifechanging event.
Financial planners can adapt both their style and their process for helping clients in
transition by using the techniques that many planners used to reassure clients after
September 11—setting an example of stability, confidence, strength, and leadership;
showing genuine caring and support; reminding clients to try to relax to minimize the
impact that emotional stress can have on physical wellness; reassuring clients that not
making dramatic financial changes during a traumatic period can be a sign of patience
and prudence, not cowardice; and reminding them that the steadfast pursuit of their goal
of financial freedom—even in the face of personal crisis and seemingly insurmountable
obstacles—is the most courageous act they can perform3.
Perhaps the most important thing that advisors can provide to clients going through
lifechanging events is a sense of perspective and context. This context can include
helping individuals understand that transitioning is a multi-step process best taken a step
at a time, and that developing a keener sense of themselves—their weaknesses, strengths,
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perception of risk, need for people or privacy—will help them become better, more self-
confident people.
The Self/Social/Financial Dynamic
Emerging from the discussion was a realization that three essential identities of an
individual are affected when a lifechanging event occurs. The point at which the three
“identities”—self, social, and financial—overlap is key to both understanding and
successfully advising clients who are experiencing lifechanging events, according to Dr.
Gurney. During a traumatic and transitional period, it is important to acknowledge that
people are reevaluating and redefining their own sense of self. Money plays a central role
in this, and questions about it can create trauma. In other words, “Am I now defined—in
my own self-view and by the others in my life—by money? Am I a different person
because of it? Are expectations of myself and the expectations of others shaped by my
‘financial status’? Who am I because of, or in spite of, my financial situation in life?”
During a lifechanging event, people also are reevaluating their social self—their
relationships with others. The new social dynamic includes the need to set boundaries, to
“present” one’s self in a new way in a social context, and to either strengthen or sever old
social relationships.
The new financial self includes understanding and responding to financial issues such
that they are “reasonable, realistic, and rewarding for the individual,” said Dr. Gurney.
This recalibration of the self/social/financial dynamic may also pose a challenge in the
client's search for a financial advisor and in the client’s expectations of the relationship.
“People may go to an advisor and ask ‘What can you do for somebody like me?’ The
problem is that they’re still trying to figure out who ‘me’ is during their
self/social/financial re-evaluation,” said one participant.
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Dr. Gurney also noted that it is important to remember that feelings about money are not
static. They will change over time and are frequently subject to rapid change during times
of unexpected life changes. In psychological terms, what happens to people during these
times is social anomie. “It’s the sense of the old rules no longer working and the new
ones not yet put into place,” said one participant. “People are very vulnerable at these
times.”
In fact, they are not only vulnerable, they are frequently “unreachable,” said another
participant. This aspect of financial psychology requires a delicate balance on the part of
the financial advisor, who is trained to coach clients to take action toward a future goal.
“It’s important to remember that for most people going through a lifechanging event,
there is so much going on psychologically, and emotions are so powerful and often
conflicted, that everything is ‘noise’ to them,” said one participant. “It’s difficult for the
client to even hear what you have to say. Skillful listening and acknowledgment of the
client's feelings are probably the most important things a planner can do to establish the
credibility necessary to raise the appropriate financial questions, and at the right time.”
But incorporating an understanding of financial psychology into helping those who are
experiencing a lifechanging event goes beyond just active listening, said a participant. A
useful psychological tool is to put the “issues” into the hands of the individual by probing
with such questions as: “What are some things that you thought might help with your
situation?" "What are the areas of your financial life where you have decided you can
comfortably make some changes?”
The transition from the former self to a new, different self is an opportunity for positive
change. “While there is certainly anxiety over change in life,” Dr. Gurney noted,
“advisors can help enrich people’s lives with a successful transition.”
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Financial Psychology and Four Lifechanging Events
In addressing four common lifechanging events—involuntary job loss, suddenly single,
financial windfall, and remarriage—NEFE think tank participants worked as
multidisciplinary teams to examine how the needs of people going through such events
can be addressed in a holistic way. Each team used role-playing exercises to facilitate the
discussion, with a psychologist/counselor assuming the role of the client. The teams
discussed the following issues:
• common psychological implications associated with each lifechanging event
and how these may affect the individual’s ability to deal with financial
decisions
• the critical financial decisions that need to be made within a context of time
• information or advice that can exacerbate psychological problems or financial
decision making
• areas of mutual concern and solutions from both planners’ and psychologists’
perspectives
The teams discovered that, although each type of lifechanging event carries unique
emotional, behavioral, and psychological considerations, many are common to all such
events. The most common manifestations among all lifechanging events are:
Emotions—conflicting feelings, anger, anxiety, insecurity, paralysis, uncertainty,
confusion, and the sense of being overwhelmed or out of control.
Psychological issues—distrust of others, the need to trust others, the need to set
boundaries, the need to stabilize, the need to feel “safe,” the desire to gain
something meaningful from the transition, social change, reevaluation of self, and
reevaluation of values.
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Understanding the emotions involved can help financial advisors frame a successful
transition “from the lifechanging event back to life,” said one participant. It requires
awareness, understanding, and a modified approach to traditional financial planning in
order to answer the question: “For the client going through a lifechanging event, what
does a successful transition look like?”
Following are the key findings and recommendations from the think tank teams for the
four common lifechanging events mentioned previously.
Involuntary Job Loss
During the full-employment, economic growth years of most of the 1990s, financial
advisors likely had few clients who suddenly found themselves in the lifechanging
situation of losing a job involuntarily. That has changed dramatically—currently, there
are just over 8 million Americans unemployed, with one million of them having lost their
jobs in 2001 alone4.
People who experience involuntary job loss face the financial concerns of supporting
themselves and their families, of financial security for the future, and of the effect on
their life-style. They typically expect a financial advisor to reaffirm their financial
strength and bring clarity to an otherwise unclear situation. Because of their uncertainty
and paralysis, clients may expect to be guided to financial services or products that are
best for them, rather than taking a more active role in the decision making, and to be
“walked” through the paperwork involved. Clients may also expect, or be willing to
consider, a financial advisor being empowered to serve in the role of “ad hoc” power of
attorney—seeking and acting on information about severance, health insurance, and other
financial benefits from the previous employer. In addition, because of the sense of panic
that can accompany job loss, they may be completely out of touch with what important
financial decisions need to be made and may be extremely defensive about preserving
their current life-style.
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The person who has suddenly lost a job may experience a range of emotions, including
anger, depression, shock, disbelief, self-doubt, fear, and helplessness, which can often
result in behaviors such as substance abuse, isolation at home, and family conflict. There
is often an overwhelming sense of loss—of the job itself, of their “office family,” of a
network, and of their daily routine.
Financial advisors working with these clients need to perform immediate financial
triage—identify spending patterns, analyze fixed and variable expenses, discuss life-style
changes, take an inventory of assets, develop a contingency plan during the job search,
and create an awareness of financial mistakes to be avoided, such as cashing out the
40l(k) or going on a spending binge. At the same time, the advisor must work through the
client's psychological barriers to moving forward financially. These barriers can include
the client’s inability (usually temporary) to adequately “process” information, the need to
reevaluate and reexamine values, the reframing of financial and life goals, and the need to
have closure with a former job and employer.
Although financial planning during an uncertain emotional and financial event such as
job loss may be viewed, by both planner and client, as “restrictive,” it can actually be
“liberating,” noted one participant. “The opportunity with these people is, above all, to
put them on a solution track,” said this participant. “And while it’s difficult to put the past
behind you, it is an opportunity to start over in a new direction.” At the same time, noted
another participant, it’s crucial for the advisor to recognize that, depending on the point at
which people seek help, they may not be receptive to this philosophy. As this participant
put it, “It’s tough to say to this person: ‘The financial planning process is going to make
you feel really good.’”
The participants agreed that an advisor’s critical listening skills are extremely important
to helping this type of client. “While clients may be talking about short-term financial
problems, there is always an ‘underneath’ agenda,” said one participant. “That agenda
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includes questions like: ‘What do I want to do with my life and my career?’ ‘How can I
take this loss experience and transform it into something better for me and my family?’”
The advisor who is tuned in to this hidden agenda can take the opportunity to refer the
client to a career counselor or “life coach.” In addition, advisors who observe physical
manifestations of anxiety or clinical depression—excessive sleep or insomnia,
psychomotor difficulties (such as speech changes), crying, or physical agitation—should
suggest that a client seek help from an experienced health professional. The advisor’s role
is to recognize the limits of his or her expertise and attempt to direct clients to
professionals with specialized training.
Because of the need to get another job—or, in other words, to take some action—this
client may move quite quickly through the paralysis stage. This is in contrast to the
person who has lost a spouse or has just received a financial windfall. With these
lifechanging events, some decisions can and even should be postponed.
The need to move ahead relatively quickly can help the planner create a new short-term
and long-term financial plan that the client can be engaged in. The suddenly unemployed
client also can be encouraged to decide how to reshape the budget, eliminating the
conflict that can result from the planner imposing cuts in spending. “We can tell clients:
the best cost-cutting tool is an open mind,” said one participant. “Ask them: ‘Which life-
style changes would enrich your life, reduce your stress, and save you money?’” The
direction of the discussion on budget should be placed in the hands of the client as much
as possible, which provides better motivation. By bringing psychological insight into the
planning process, planners are better able to connect with their clients and, more
importantly, to have their messages heard. “Action is energizing and empowering,” said
one participant, “even if it’s just maintaining a routine at home. It moves the rebuilding
process along.”
The financial planners on the Involuntary Job Loss team acknowledged that they are
more likely to have clients with upper-management or executive-level jobs, and job loss
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for these people is more likely to come with a bigger “cushion” and less-pronounced
long-term emotions. They were reminded, and humbled, they said, that in our current
economy, 40,000 people in the airline, service, or travel/tourism industry who have lost
their jobs are less likely to seek financial planners as a first line of help, or to be able to
afford financial planning. For these people, the primary channel is often a credit
counseling service. Some financial planners are offering pro bono advice to people of
lower financial means and, in these cases, emotions need to be thoughtfully and carefully
addressed. One planner commented, “There were many more nonfinancial issues and
emotions with the person who has lost a job than I had anticipated.”
Whatever the previous job or income level, participants agreed that it is important to
understand the person’s relationship to money and to help him or her redefine that: “The
money must do a ‘job’ for this person,” emphasized this participant.
Suddenly Single
People who are suddenly single may find themselves in this situation because of death or
divorce. Both situations can represent the death of a dream—“the death of an almost-
realized dream with a failed marriage, and the death of a realized dream with the
unexpected loss of a spouse,” noted one participant. While there are some discrete
differences in psychological and financial implications, there also are many common
threads in these two situations.
These clients face the financial concern of surviving on their own, are uncertain about the
financial resources that will be available, and may have little confidence in or ability to
seek qualified help with issues they feel they should know how to handle on their own.
Because of the often-devastating effect on most people of the death of their dream, they
may expect a professional to “fix” everything—to make it all okay. They may become
dependent on the professional, even seeking to be “parented” and looked after, yet at the
same time desiring self-sufficiency.
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Common emotions of people who find themselves suddenly single include grief, denial,
numbness, paralysis, inertia, anxiety, anger, and depression.
Initially, the person frequently experiences numbness and a paralyzing inability to make
decisions. The advisor must identify the immediate steps to be taken, such as locating
important information, initiating probate of the will, or insuring that beneficiary and
guardianship arrangements are in place for the suddenly single parent. Advisors may also
begin identifying and contacting the other professionals who will be involved and assure
the client that it’s acceptable, even preferable, to postpone major financial decisions. For
some people, the acts of gathering data and finding paperwork can actually be
therapeutic. “It starts a sense of normalcy,” one participant commented.
As clients progress further into their transition, they—and their advisor—may be
confronting a deep and complex set of emotions that can last for a year or longer. The
advisor needs to maintain a slow but steady pace on financial decisions, but will also
have to introduce, albeit slowly, what the client will need to deal with in a substantive
way in the months and year ahead.
People who are suddenly single also are vulnerable to opportunists and pressure from
financial “solicitors”—and even from their families. Plus, at some point, many will have
to deal with issues of work and will need to face questions such as: "For financial
reasons, do I need to begin or return to work?" "If so, what will I be happy doing?"
Conversely, in many situations, a financial settlement suddenly makes things
possible—such as leaving a job—that weren’t possible before.
As clients begin to accept their situation, begin to take control, prepare to make bigger or
longer-term decisions, and develop their new sense of self, they are able to dream again.
“That’s when we have to begin attaching costs to their dreams,” said one planner.
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Planners may find that these clients are resistant to or uncertain about replacing changes
from other advisors that the former or deceased spouse put into place. Or, they may be
interested in making those changes quickly. In either case, the planner must probe for the
emotions that are driving this decision. Like clients who are experiencing other
lifechanging events, those who are newly single must be allowed adequate “processing”
time and space, "and," as one participant said, "many clients who are suddenly widowed,
in particular, just aren’t in a processing mode.”
The cognitive dissonance associated with a lifechanging event such as divorce or being
widowed typically shuts people down. “How do we move people through this period
when they have to pay attention to the money?” asked one planner. “The most important
thing is to acknowledge their feelings and reassure them constantly: ‘Here’s where you
want to go and here’s how I’m going to help you get there.’ It’s really helping them be
good to themselves.”
People who become suddenly single often have money “issues” that have as much to do
with their new social dynamic as with their new financial dynamic. “It can be as simple
as who pays for dinner when the newly single person is out with couples,” said one
participant. “Along with that are the complexities of who’s threatened by who pays. This
is all part of the new boundaries on money within social contexts.”
Members of the Suddenly Single think tank group cautioned that an advisor who
“inherits” a client due to a spouse’s death may have to approach the relationship from a
“day-one” perspective. “In a perfect world, couples do their financial planning together,”
said one participant. “When they don’t, this person represents a truly ‘fresh’ client for the
advisor.”
The newly divorced person also presents complex challenges for an advisor, not the least
of which is that emotions often revolve around the fact that the ex-spouse may still be a
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part of this person’s life because of children and financial support. “The simple fact that
the ex-spouse is still ‘out there’ can be a barrier to moving ahead with major decisions,”
said one participant.
Recently divorced clients’ emotions frequently revolve around anger and betrayal, and
they may act out these emotions by making radical, even irrational, decisions — selling
the house to avoid memories of the failed marriage or making large, impulse purchases or
gifts to family members to “take control” or to “get back at” the former spouse. Planners
must help individuals get beyond the emotions that can inhibit rational decisions on
significant long-term concerns, such as the need for or ability to earn income and whether
the new financial situation is realistic to support future goals. In addition, planners
working with those who are separated and about to be divorced may be confronted with
the thorny situation of common, but incorrect, financial assumptions about divorce.
“There are lots of myths out there—such as ‘It’s the law that I’ll get half of our
assets’—that may need to be debunked by the financial advisor,” said one participant.
The psychologists on the think tank team recommended that, in working with clients who
are suddenly single through a death or divorce, planners consider the analogy of being a
physician dispensing medicine. Many times, physicians know that when patients leave the
office, they won’t take the medicine. “A ‘prescription’ is one thing; compliance is
another,” said this participant. “The way to get beyond the emotions and get clients to
actively participate in their financial decision making during this difficult transition is to
get them to tell you why they think the medicine isn’t right for them, so to speak. When
clients—or patients—express their concerns, it alleviates their ambiguities and helps
them do their part.”
Financial Windfall
Some participants on the Financial Windfall think tank team commented that, until
challenged to think about and discuss it, they hadn’t thought in terms of a person who
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receives a financial windfall feeling anger, fear, embarrassment, or bitterness. Sudden
money, however, is such a powerful event in people’s lives that it often brings a flood of
emotions.
“It’s unique,” said one planner. “The power is in the abundance of money, not the
scarcity of it. It carries many unexpected financial junctures for those who experience it.
It is, by definition, almost more a psychological event than a financial event.”
The client who's received a financial windfall has received a large sum of money either
unexpectedly or in a short period of time—a lottery win, a divorce or insurance
settlement, an inheritance, or a large stock option realization. The group further defined it
as “an amount of money that people would be hard-pressed to earn through their own
efforts.” While these individuals may not positively affect their financial well being
through personal effort, they certainly may negatively affect it after the arrival of sudden
money.) This aspect of receiving a windfall typically leads to loss of identity and an
intense seeking of “the new me.” Other common emotions include feelings of instability,
isolation, guilt, shame, elation, fear, being undeserving, or being out of control.
The fears of the client with new and sudden money can be numerous—whether old “ties”
will or should be severed, of being excessively stingy or generous, confusion on how to
“use” the money, and fear of responsibility and of making the wrong choices.
Psychological reactions to sudden wealth may include avoidance of others and the
money’s new “demands,” feeling frozen by indecision, going on uncontrolled spending
binges, or hoarding the money. It is critically important that financial advisors and
counselors recognize that people who experience a financial windfall suddenly fear that
their relationships with friends and family are defined by their money, not by who they
are. “Are they suddenly the person who always has to buy lunch? If people perceive
themselves that way, there’s a lot of self-doubt about how others view them. They don’t
know who they are anymore,” said one planner.
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The advisor counseling the recipient of a sudden windfall must recognize this person’s
needs: strengthened confidence about money and investments, a “reality check” on the
new financial situation, a sense of safety and security in dealing with an advisor, a period
of stabilization, a structured “sabbatical” to recalibrate the new self/social/financial
dynamic, and the ability to trust an advisor. The latter, a participant noted, is common
with people of previously modest means who have no experience with planners or
planning and now suddenly find themselves with more money than they could have
imagined.
Receiving money suddenly also forces people to confront their prejudices about money
and people with money, their own history, and their childhood-based beliefs about
money. Financial advisors working with these clients also must help them learn to make
the distinction between money and wealth. Said one participant: “Wealth is a variety of
things that can make a life rewarding. Sometimes money can do that, and sometimes it
can’t.”
Similar to other lifechanging events, these people go through various stages—from
innocence to denial to ignorant acceptance to personal growth, and ultimately, to control
over their financial resources and how those resources “serve” their new sense of self.
“It’s a continuum of emotions not unlike the stages of grief or sorrow after a death,”
noted one participant. A common, and difficult, emotion is related to the dramatic shift in
focus, said another participant. “If your focus has relentlessly been on who you are as
defined by your work, then who are you if you’re no longer working? Suddenly, there is
no concern about earning money, only about dealing with the money you got.” The
participant who had experienced a financial windfall added her own, personal experience:
“I had always felt like I would be successful, but suddenly I realized that nobody would
ever think I’d done it on my own. It would be because of what happened to me.” The
real, often deeply disturbing sense of loss that many people feel goes counter to the
common view of a financial windfall—that it is a gain. The new sense of self in the
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self/social/financial dynamic requires redefinition without work or a career if work is no
longer a necessity or is something the person chooses not to do.
The participants also pointed out that an actual loss often accompanies a financial
windfall—an inheritance because of a death, an insurance settlement because of an
accident or medical malpractice, even a windfall from the sale of an entrepreneur’s
business. “There’s an enormous amount of ambiguity and emotional conflict with any
type of financial windfall,” said one participant.
Counseling these clients also requires understanding their crisis of purpose, often
exhibited by the comment “nobody knows how I feel,” particularly as it relates to their
new sense of identity. “It’s not impossible, it’s not even that difficult—except that
nobody around them is in this situation, so being this new person who doesn’t have to
work, can spend money freely, or can dramatically change their life puts them in a
completely different position than everybody else they know,” said one participant.
“Clients with sudden money experience some very difficult emotions that we must be
cognizant of. For them, it’s not even about the money or what it can buy, it’s about who
they are as human beings.”
Both psychologists and financial advisors can allow, even encourage, “dreaming”
through the use of a decision-free zone, or sabbatical. A healthy and structured period of
time without the pressure of decisions allows the client to move beyond a sense of
responsibility and into one of permission, said one participant. “It also allows an
individual time to envision the person he or she wishes to become. It’s a time for
‘modeling’ the ideal life.” The sabbatical period also is a good time to permit clients to
indulge their thinking about a “wish list”—all of the things they want, without censoring
themselves, even if it’s only temporary. This exercise—committing to paper the
purchases they’d like to make or the gifts they’d like to give—has several advantages.
When it comes time to act, advisors can then guide people to pick their best ideas and
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make informed and realistic choices. As a result, clients will feel more in control of
spending, which is a key step toward coping effectively with wealth.
Perhaps most important is the advisor’s ability to allow individuals enough “space” to
make decisions without feeling targeted—by the advisor. “We may be one of the very
few people in their lives who know all the intimate details about the new money, and one
of the few they want to trust completely,” said one participant. “Pushing too hard for
decisions will violate that trust.”
Finally, advisors counseling clients with sudden money must honestly confront their own
feelings about money, particularly if they feel these feelings may get in the way of
offering clients objective advice.
Remarriage
Many people who plan to remarry, or have already remarried for the second time or
more, wrestle with difficult and competing emotions. On the one hand, there is
tremendous optimism about the future. On the other hand is the “train of responsibilities,”
with which people in a second marriage often walk down the aisle. Although there are
exceptions, people remarrying face issues relating to a meshing of values, including those
about money, differences in money “styles,” the need for financial self-disclosure, and
practical concerns—such as where to live and how to deal with children and stepchildren.
Frequently, the person remarrying is concerned with “protecting” himself or herself,
fearing another failed marriage. In addition, the new union may be of two people with
significant disparity in assets, debt, and earning potential, all of which can incite strong
feelings.
“There are significant unique emotions with this client,” said one participant on the
Remarriage think tank team. “Marriage is so much about ‘the heart,’ and financial
planning has tended to focus on ‘the head.’”
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The financial advisor working with an individual preparing to remarry will likely
confront emotions such as insecurity, mistrust of others (including, perhaps, the advisor),
wariness, optimism, and a variety of fears—of repeating the same mistakes, of losing
financial independence, and about how to handle obligations to support children and
other family members with fairness. Although many couples try to resolve their emotions
and fears through prenuptial agreements, not all the participants agreed on the need for
one, or on the planner’s role in creating one. (It was also noted that many family and
divorce lawyers are increasingly hesitant to prepare prenuptials because of the emergence
of malpractice suits.) A successful outcome for a prenuptial agreement is highly
dependent on the emotional stability of the couple while the agreement is being created,
the participants agreed. And while couples need to ask themselves and each other the
difficult questions about finances and their money styles before marriage, it also may take
a couple several years to seriously address the issues, said a participant. Often, these
discussions are precipitated by emotions being acted out—arguments over money or one
party becoming more withdrawn or secretive about money. Women may have found
themselves without any control, or even involvement, in financial matters in a first
marriage, followed by a period after the marriage ended of having to be in control. A
second marriage poses the challenge of maintaining this independence inside a new
emotional and financial union.
The couple that has already remarried may be experiencing money conflicts but may be
hesitant to air these issues because they do not want to jeopardize their new relationship.
Financial advisors can be a catalyst and positively influence this behavior; in fact, the
couple may expect their advisor to raise issues or questions they are unable or unwilling
to raise themselves. Whether the financial professional is working with a couple planning
to remarry or the couple who already has married, it is critically important for the advisor
to create a “safe” environment in which to discuss issues, which requires a probing, yet
nurturing, approach. The role-play exercise by participants on the think tank team
revealed that the financial advisors in the group often made the client feel “grilled,” did
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not adequately translate financial jargon, and did not thoroughly address the anxiety
exhibited by the client, as expressed in the role-playing exercise.
The group identified some key questions that financial advisors should include when
working with these clients. From a financial and a psychological perspective, advisors
should ask the following questions: "What caused you to seek financial advice?" "How
do you think I can help you?" "How are your money styles different?" "What’s important
to you about money and your relationship as a couple?" "Are you both sharing your
financial information with each other? If not, why not?" "Do you have the same financial
goals?" "Similar values?" Answers to these questions will help address the variety of
financial planning considerations for people remarrying, which include both the big
issues—such as child support and alimony to a former spouse—and the smaller issues,
such as decisions about equal allowances and gifts to children.
While an ideal situation for those planning to remarry is to begin financial counseling
prior to the marriage, there is some risk in that, noted one participant: “Would we create a
lot of uncertainty and anxiety at a time when the couple is trying to move forward and
connect their families?”
As with clients experiencing other lifechanging events, financial advisors working with
clients planning to marry again must place a high priority on knowing how to “frame” the
issues within a relevant context, which will help the client more easily understand the
planner's advice. For clients who have remarried and are experiencing emotional conflict,
either individually or as a couple, advisors can be particularly helpful by recognizing the
potential results of this conflict—such as making inappropriate or financially harmful
decisions. However, the planner shouldn't also try to assume the role of a trained
psychologist or counselor, who is more equipped to explore the “why’s” of clients’
emotions.
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Integrating Financial Psychology and Financial Planning
Why the sudden focus on getting into clients’ minds and hearts? According to Dr.
Gurney, much of it has to do with some major financial events during the last 20 years.
“After 1987, when the stock market crashed, financial advisors saw clients making a lot
of irrational decisions—because of their emotions. This was exacerbated, at the other
extreme, with the unprecedented bull market of the 1990s. People’s expectations got out
of line because of the emotions they had about their money, their investments, and the
market.”
Although the spotlight during the 1990s was often on the “numbers,” there also was an
increased interest in clients’ emotions and psychological behaviors. Life planning,
values-based planning, and stewardship-oriented planning became topics of discussion,
meetings, and articles. Behavioral finance became a hot topic as advisors sought to
understand how investor psychology affects the markets. (According to Dr. Gurney,
behavioral finance is related to financial psychology in the sense that both look at human
dynamics and how those shape behavior.) Clients’ needs began to be discussed by some
planners in terms of their life goals, not just their financial goals. As evidence, The
Journal of Financial Planning now features a “Money and Soul” column, Financial
Advisor magazine includes a “Psychology of Advice” column, and there are now life-
planning tools for advisors to use with their clients.
“Financial advisors are realizing that feelings and psychological behavior often have a
major impact on their relationships with clients and on how clients make financial
decisions,” says Dr. Gurney.
However, she cautions that many financial planners are still much more comfortable with
the technical side of financial planning than the emotional side. Many participants at
NEFE's think tank agreed. “We have planners in our practice who can do a great financial
plan but don’t want to get anywhere near the soft stuff,” said one participant. Another
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participant put it this way: “Sometimes I really want to say, ‘Drop the psychology. We’re
talking money.’”
Planners who simply are not comfortable with exploring their clients’ emotions should
tread carefully, according to Dr. Gurney. “It’s perfectly acceptable for planners to feel
that this is just not their strength. The ones who find this less stressful are those who are
more comfortable discussing their own feelings and may have done some ‘work’ on
themselves. Advisors who are open to working through clients’ emotions, especially the
emotions that come to the surface during a lifechanging event, are generally those who
understand their own attitudes and feelings about money.”
Financial psychology can help advisors communicate more effectively with their clients
and enhance the planner-client relationship. It can also be a valuable tool for working
with people experiencing lifechanging events. “It’s the difference between interacting
and interviewing,” as one think tank participant put it. However, there is some risk
involved in going beyond the accepted fundamentals of financial planning, especially if
the planner feels uncomfortable or poorly suited by personality to address emotional
issues. Those advisors may actually do more harm than good, said one participant.
“People often go to planners with the expectation that they’re going to be helped through
their emotional dilemmas and then are traumatized when they’re not.”
Minimizing the risk is based partly on setting expectations for the relationship at the
outset. According to Dr. Gurney, planners need to set their own boundaries. “Although
many clients go to planners expecting them to address ‘the whole person,’ it may not be
fair to expect that from all advisors. It’s important for advisors to tell people that certain
areas are not their expertise. That’s where a team concept can be very helpful.”
A team of professionals—which could include a mental health professional or licensed
therapist, an attorney, a mediator, or a career counselor, depending on the client’s unique
circumstance—that can address the entire spectrum of needs is a very effective structure
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for many planners and clients, particularly for those confronting a major life transition.
“It indicates to the client how each of these professionals can help and how their efforts
will coordinate on this person’s behalf,” said one participant. Some clients, however, may
resist this approach, said another participant. “Broaching psychological ‘needs’ is a
delicate area.”
Some planners may resist, too. “This may be asking the financial advisor to be the one
that opens up Pandora’s box,” said one planner at the think tank. But, added another,
establishing the multidisciplinary team at the beginning of a client relationship
“destigmatizes” the approach. “It opens things up in a very nonthreatening way,” said this
planner.
Ultimately, absent a planning environment that includes both a financial focus and an
emotional focus, individuals going through lifechanging events may fail to make a
healthy transition into the next stage of their lives. Instead, they may act out their
emotions in ways that are financially harmful. At one extreme are people who feel so
powerless about the possibility of becoming financially destitute—the bag lady
syndrome—that they spend until they are broke. At the other end of the spectrum is the
client in a personal crisis who does nothing.
Most people, according to Dr. Gurney, are in the middle. “They’re fearful of being unable
to manage the change in their lives.”
To help clients feel confident enough to manage this change, advisors need first to focus
on helping them prioritize both their emotional needs and their financial needs, the group
agreed. This act alone can help people feel less overwhelmed. In addition, those who seek
help from financial advisors during a lifechanging event need to address the burning issue
in their gut—fear.
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“The client must be helped to say ‘What I’m most afraid of is . . .’,” said Dr. Gurney.
“People’s biggest fear, though, is talking about fear. None of us can discuss it easily.”
Clients can be their own biggest asset when they can adequately recognize their degree of
emotional trauma and clearly communicate to their advisor what they believe is realistic
for them to accomplish or undertake, she added.
Where Do We Go From Here?
Some of the think tank participants believe that the financial planning profession is
naturally, but slowly, evolving toward a more holistic, psychologically based approach,
but that it will take more time. “Financial planning is, at best, just over 30 years old,” one
participant reminded the group. Professions such as law, medicine, and even accounting
have been around much longer—and even they are still evolving. For example, think of
the subtle difference today between a physician and a healer.
A philosophy of partnering—using financial psychology to link planners and
psychologists for the benefit of clients experiencing lifechanging events—is a way to
build meaningful relationships between consumers and advisors. Financial psychology
can inspire individuals to have confidence and trust in financial professionals when
advisors know certain things about their clients: how they think and feel about their
money, what their “subjective reality” is, what they can emotionally tolerate and sustain,
what they want and need to achieve with their money in their life plan, what they expect
from their advisors in managing their money, and what is reasonable, realistic, and
rewarding for them to achieve with their money5.
This philosophy can also create meaningful relationships with clients if advisors know
certain similar things about themselves—their own attitudes and feelings, how their
personal biases may affect clients, how to adapt and target their communication to build
rapport and engender trust, their skills and capabilities in dealing with clients and their
specific needs, and when to make a referral to other professionals as appropriate6.
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“Practicing” financial psychology is not a one-way street—it’s not just for financial
advisors who are looked to for help with major life transitions. Clients can help
themselves by:
• recognizing their own feelings and trying to assess their ability to work
through them
• not making hasty decisions or decisions made in isolation. By working with
an experienced financial planner, clients will realize which decisions must be
made and which can be postponed.
• understanding that many feelings that seem abnormal are actually normal
during a time of personal crisis
• pacing themselves and understanding that where they are today in a
lifechanging event may be very different than where they will be tomorrow
• turning outward. Although it’s easy to become self-absorbed, and actually
desirable to be introspective, it’s also important to keep asking: “What does
life expect of me?”
By bringing together financial planners and psychologists to discuss the needs of clients
going through a life transition, NEFE hopes to make planners aware of the emotional
and psychological implications in such events and of ways they can address them in their
relationships with clients. The Foundation further hopes that the information from the
think tank might help consumers who are seeking financial guidance be more aware of
how a range of emotions common to significant life transitions may influence their ability
to make sound financial decisions.
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Endnotes
1. Kathleen Gurney, Ph.D., Your Money Personality: What It Is and How You Can
Profit From It. Doubleday, 1988.
2. “The Fine Line Between Therapist and Planner,” Sudden Money Institute Quarterly.
Sudden Money Institute, Fall 2000.
3. “Managing Client Confidence,” www.financialpsychology.com
4. USA Today, December 13, 2001
5. Kathleen Gurney, Ph.D., Your Money Personality: What It Is and How You Can
Profit From It. Doubleday, 1988.
6. Kathleen Gurney, Ph.D., Your Money Personality: What It Is and How You Can
Profit From It. Doubleday, 1988.