The Power of Financial Therapy: More Than Financial Planning, Financial Therapy Gets to the Root Cause of Negative Money Habits

Uncategorized Apr 10, 2023

Financial literacy month is a time for us to discuss all things finance. One topic that is often left out, but that's gaining traction in the world of personal finance is Financial Therapy. 

Now, I know what you're thinking. "Therapy? What does that have to do with finances?" Well, bear with me dear Financial Professional, because financial therapy is a fascinating field that can greatly benefit your clients and enhance your financial advisory practice.

First, let's get on the same page about what Financial Therapy actually is. This may be a new topic for you, but it’s not a new topic. The term Financial Therapy has been used for over 15 years now. The Financial Therapy Association was founded in 2008. And it’s even being taught in places like Kansas State University and University of Georgia. 

At its core, Financial Therapy is an interdisciplinary approach that combines financial knowledge with psychological and emotional well-being. It's about understanding that money is not just about numbers, but also about the emotions, beliefs, and behaviors that surround it. 

By addressing both the financial and emotional aspects of money, financial therapy aims to help clients develop a healthy relationship with their finances, improve their financial behaviors, and hit their financial targets, as we say here at Presidential Lifestyle.

So, what information do you, as a Financial Advisor, need to understand and convey to your clients when it comes to Financial Therapy? Here are some key points to consider:

  • Understanding the emotional side of money: Money is deeply intertwined with our emotions. According to behavior science, 85% of a client's money beliefs were set in place by age 5. For this reason, clients have emotional baggage around money that affects their financial decisions and behaviors. It’s not their fault, this baggage was passed down to them by their families, community, culture, and even society. 

It's important to recognize and address emotions such as desperation, fear, guilt, greed, shame, and anxiety just to name a few common ones. Clients may experience a range of emotions, sometimes simultaneously, in relation to money. Understanding the psychology of money and how emotions impact financial decisions is crucial to providing effective financial advice.

It’s also crucial to whether or not clients are able to follow your well crafted financial plan. And therein lies the problem that I will go deeper on in my next blog post. 

  • Exploring clients' money history and beliefs: Money beliefs are the unconscious beliefs and assumptions that clients have about money, which influence their financial behaviors. In the SelfSync Financial Therapy system we refer to money beliefs, as ones "Money Mentality." Rather than mindset, why? Because mindset is conscious brain and our beliefs and behaviors associated with those beliefs come from our subconscious brain. 

It's important to help clients identify and explore their Money Mentality, as this can impact financial decision-making. By uncovering and challenging any negative or limiting money beliefs, we can help clients develop healthier financial behaviors. 

  • Practicing active listening and empathy: Listening is underrated, but I can tell you most people don’t feel heard. So if you could just allow them to vent their money fears and frustrations, they will become loyal to you. Their accountants and attorneys aren’t answering their calls most of the time. This can feel lonely. If you do all the talking and teaching and you don’t allow them to feel heard, they will always be on the look out for another advisor that will listen. 

Financial therapy involves active listening and empathy. We need to create a safe space for clients to express their emotions and concerns about money without judgment. Being empathetic and validating their emotions can foster trust and rapport, which is essential in building a strong, trusted counsel relationship.

In my experience, many Financial Advisors play the role of the therapist even if they aren’t trained. That’s why I encourage advisors to grab the free, "Power of Financial Therapy Course" to experience Financial Therapy for themselves. Plus, you’ll then have a community of other service-based professionals overcoming some of the same challenges you are when it comes to clients resistance and commitment to the plan. 

  • Incorporating behavioral finance principles: Behavioral finance is the study of how cognitive biases and emotional factors affect financial decision-making. Most simply put, behavioral finance studies human’s behavior associated with money as a collective or group. Financial Therapy is more on an individual level. Both can give you insight into what to expect from your clients mentally and emotionally as you work with them over time. 

You need to be ready for the emotions and shifts your clients will take. Familiarizing yourself with key principles of behavioral finance, such as loss aversion, confirmation bias, and the endowment effect, can help you better understand clients' financial behaviors and provide tailored advice.

Remember, many of your clients came to you because of referrals. That means clients are watching and copying what their friends do. This behavior can sabotage your plan and when that happens, not only are they putting their money at risk. They are putting your money at risk. 

  • Collaborating with other professionals: Financial therapy often involves a collaborative approach. I can show you ways to incorporate Financial Therapy into your existing approach, but you could also partner with a Financial Therapist when clients require a deeper dive. 

This is why having some experience and training, like the free Power of Financial Therapy Course, is so important. Having some Financial Therapy knowledge can really help your clients understand how well you know them, which keeps them loyal to you and your practice. Of course, you can't every everything on your own. That's why it’s important to work in partnership with other professionals, such as psychologists, counselors, or coaches, who can provide expertise in addressing clients' mental state, emotional state, and psychological needs. Building a network of trusted professionals can enhance the effectiveness of your financial advisory practice.

Not to mention you could also gain referrals from the network of therapists in the community that aren’t Series 7 & 66 licensed. 

  • Practicing self-care: Last but certainly my favorite, if you aren’t prioritizing your own well-being, you are likely overwhelmed, stressed, and burnout as a successful Financial Advisor. Listening to clients' emotional stories about money can be emotionally taxing. And now that you know that’s part of your job, you’ll need to have tactics in place that give you the stamina to do it. I will have more details for you on how to do this, but I often share selfcare tools in the community. 

One of our code of ethics or core values in the Financial Therapy Community is to practice what you preach. Though you aren’t preaching this yet, if I train you on Financial Therapy one of the principles you’ll begin to share with your clients is to take care of yourself physically, mentally, emotionally, and even spiritually. (Especially if you are serving others.) 

Practicing self-care and seeking support when needed, such as through supervision or peer consultation, can help you maintain your own emotional well-being and provide better support to your clients. We offer tips, but this kind of support isn’t offered in the free community. You’d need to upgrade to receive supervision or consultative sessions. But you can decide on all that later. I’m making sure you have the foundation and fundamentals down first. 

So, what questions do you have for me? I hope this article has given you a glimpse into the world of Financial Therapy and why it's an important aspect to consider in our practice. By acknowledging the emotional side of money, exploring clients' Money Mentality, practicing active listening, incorporating behavioral finance principles, collaborating with other professionals, and taking care of ourselves, you can provide holistic and effective financial advice that truly meets our clients' needs. 

Let's continue this conversation all year, not just during Financial Literacy month, or like I prefer to say Financial Awareness Month. Adding Financial Therapy to your existing approach can help you to evolve your practice and help your clients achieve financial well-being in a more comprehensive way. Cheers to integrating Financial Therapy into our financial advisory practice. I’m excited to see how it takes your practice to the next level of financial success.


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