Financial Advice Reimagined
Brought to you by Milford. Coaching better financial behaviours to improve lifelong money relationships and create more sustainable advice businesses
In this special production
Relationship With Money
Our emotional relationship with money is complex and confounding.
Driven by beliefs shaped in our childhood and largely subconscious, our attitudes to money and our associated behaviours are possibly the single biggest determinant of our financial – and mental – wellbeing.
Negative money attitudes, when combined with our tendencies to succumb to cognitive biases when decision making, can sabotage our happiness, by placing enormous obstacles in the way of us achieving our career, relationship, and lifestyle goals.
Financial advisers are ideally placed to help their clients achieve more positive relationships with money, not by helping them acquire more of it (although that is usually an outcome), but by fundamentally reshaping their money attitudes and behaviours, and giving them a framework within which they can make better financial decisions. Further emotional benefits also accrue to advice clients from the advice proves itself, which reinforces a sense of achievement and progress towards goals.
This reimagined role for advisers in coaching better money behaviours – which is already starting to play out in the market in response to consumer demand – has significant implications for adviser training and advice processes. More importantly, and more excitingly, this new perspective on how advisers create value for their clients implies:
01 A much broader target audience for the advice proposition
02 Advice relationships which start younger and last longer; and
03 Fees which are unlinked from traditional product solutions, and which are charged more confidently by advisers and paid more willingly by consumers
Money makes us anxious
The relationship between our finances and our stress levels is both intuitive and borne out across an extensive body of research.
According to one survey of Australian adults1 , around one quarter reported moderate to extremely severe depressive symptoms. And across the community, personal financial issues are the biggest driver of stress, cited by 49% of respondents.
Financial issues can kill our relationships too. According to Relationships Australia, 7 out of 10 couples report that money causes tension in their relationships, and disagreement over finances is a stronger predictor of divorce than other commonly cited causes of marital disagreements2 .
Disturbingly, these results probably still understate the extent to which are most common money emotions are negative.
When psychologist Adrian Furnham3 , studied the emotions people had associated with money over the prior 12 months, the top 4 in ranked order were Anxiety, Depression, Anger and Helplessness. Indeed, 8 of the top 10 ranked emotions were all negative, as shown in Table 1.
Table 1 Top 10 emotions associated with money
Source: Furnham3
And, as a US survey found , even amongst those who have accumulated substantial wealth, negative sentiments remain common:
Figure 1 Negative money emotions amongst high-net-worth individuals
And, as a US survey found4 , even amongst those who have accumulated substantial wealth, negative sentiments remain common:
The negatives of wealth
Source: Boston Private
Our emotional relationship with money is complex and confounding.
According to experts, our relationship with money is driven by a complex array of beliefs, attitudes, and behaviours, many of which were shaped early in our lives by the interplay between familial, ethnic, and cultural influences, and then further refined by our exposure to media messages. So powerful can these beliefs and attitudes be, they can effectively negate any financial knowledge we have acquired and contribute to us making sub-optimal financial decisions5.
Financial psychologists Bradley Klontz and Ted Klontz refer to the term “money script” to describe these core beliefs about money6 . These beliefs are typically unconscious and likely learned during childhood and adolescence, influenced by our parents’ own money attitudes and behaviours. For example, were they frugal? Were they judgemental about others based on how much money those people had?
If our parents had a healthy relationship with money, (irrespective of their wealth) and talked openly about financial matters, then our attitudes and behaviours are likely to be similar. Conversely, if money was associated with some measure of shame or trauma – money wounds as author Ken Honda7 refers to them – then we are highly likely to enter adulthood with an unhealthy relationship with money, increasing the likelihood we will make poor financial decisions.