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The Power of Financial Psychology

Our financial psychology guides many of our decisions, but we hardly ever talk about it. Your approach to money and personal finance can lead to an early retirement, a robust emergency fund, and a budget you follow…or it can lead to living paycheck-to-paycheck, anxiety about retirement, and the inability to pay all the bills. We’re on a mission to get as many people as possible into the first category with the power of financial psychology.

Since the 1990s, our company has been helping consumers access the power of financial psychology with one tool: the Moneymax assessment. This year, we decided to supercharge our services, giving you easy access to the knowledge you need to transform your finances.

The success of Moneymax

In the 1990s, Dr. Kathleen Gurney developed the moneymax assessment. This quiz tests where someone falls on a sliding scale for 13 different financial traits. From there, they are given a personality type–and a full profile about how that type interacts with money and psychological tricks they can utilize to improve their finances. This profile is interpreted during a meeting with a financial advisor who then creates a plan around someone’s Moneymax type.

I saw the power of this tool as a financial advisor who purchased assessments from the company. This successfully uncovered my financial advising clients’ relationship with money and helped me understand how my clients thought about money for over 30 years. Based on my clients’ Moneymax types, I was able to develop effective financial plans. Based on the financial goals my clients achieved, this tool worked better than anything else on the market.

The end of an era

Yet in 2019, Financial Psychology announced they were going to sunset. Given how important this tool was to my clients, I worked with the founder to successfully transition ownership over to me. To this day, my advising firm still uses this tool with every prospective client. We also sell the tool to advisors all over the US and Australia. Thousands of financial advising practices use this tool to better understand and serve their clients.

Looking ahead

For the first time ever, we’re opening this tool up to the public. Before, only financial advisors could purchase the tool to use with their clients. While this has been a highly successful offer, we wanted Moneymax to be more accessible.

Not everyone has access to a financial advisor, yet everyone CAN find value and insight from the Moneymax quiz. To address this issue, we packaged the Moneymax quiz up into an accessible offer that people wouldn’t need their financial advisor to interpret: the Moneymax Master Method.

The New Offer

The original Moneymax quiz had to be interpreted by a financial advisor. At first, we wondered if there was a way we could give people their results without having them meet with a financial advisor…but we decided the consultation had too much added value. We asked our in-house advisors to conduct consultations with everyone who signed up and the Money Max Master Method was born.

With the addition of a consultation with the financial advisor, the Moneymax Master Method became an impactful three step process that provides clarity around how you approach your finances:

Step 1: Take the Moneymax assessment

This personality assessment is based on research by Dr. Kathleen Gurney. It gives you insight into your money personality and money management preferences. Since its conception in the 1990s, it’s been tested–and had the same accuracy–three times.

Step 2: Schedule Your Moneymax Mastermind

After you take the quiz, you’ll be matched with a financial advisor. Your advisor will set up a call to go over your results.

Step 3: Get Your Moneymax Master Method

Once you’ve had your call with a financial advisor, they’ll send over a Moneymax Master Method. This document includes insight into how you approach money based on your psychology–and customized ways you can increase your money confidence and build long-lasting wealth.

Looking to experience the magic of the Moneymax Master Method? It’s looking for you too. Purchase your package today and watch how enhanced clarity can improve your finances.

Poll: 32 million adults have started shopping for the holidays

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It’s still summer, but put a bow on 5 million ultra-early birds: They’re already done

By Sienna Kossman for Creditcards.com

If you’re perusing sale fliers and websites for winter holiday gifts while wearing T-shirts and shorts, you’re not alone. The calendar still says summer, but millions of Americans have already started — and a few have even finished — their holiday shopping.

A scientific poll of 1,004 U.S. adults commissioned by CreditCards.com found that 14 percent of consumers — about 32 million adults based on U.S. Census estimates — have begun holiday shopping. And 2 percent, or about 4.6 million, are ultra-early birds: They’re already done.

To be sure, huge swathes of the American public steadfastly refuse to let holiday shopping slip into summer, or even fall. More than half of us (55 percent of holiday shoppers) won’t finish until sometime in December. One in 5 won’t be done until Christmas Eve.

But for many, holiday shopping keeps creeping earlier into the year. When asked whether they’d be starting holiday shopping earlier or later this year, 15 percent of consumers said they’d start earlier, compared to just 4 percent saying they would start later, according to the survey (see “Survey methodology“).

Poll findings
Here’s what else the poll uncovered about early shoppers:

Online shoppers in particular have gotten a holiday head start, as 18 percent of respondents who said they mainly shop online have begun filling their digital carts, compared to 14 percent of those who prefer in-store shopping.
Grandma and Grandpa are furthest ahead of the holiday crowds, as 7 percent of consumers over the age of 65 say they have already finished holiday shopping. No other age group had more than 1 percent say they’re all done.
Nearly 1 in 4 shoppers (23 percent) say they will finish holiday shopping by the end of November.

Early birds want to save time, money
Overall, Americans are expected to spend approximately $886 billion on holiday shopping this year, according to eMarketer. For most of us, that’s still off in the future: 80 percent of consumers haven’t started holiday shopping yet. However, those already buying holiday goodies are setting themselves up for a more relaxed holiday season — and may save some time and money along the way.

HOW CONSUMERS PLAN TO SHOP
Asked to name their main method of holiday shopping this year, poll respondents said:
Percent	Method
60%	In person at retail stores
23%	Online, using a desktop or laptop computer
7%	Online, using a mobile device such as a cellphone or tablet
2%	From mail order catalogs
7%	Other, don’t know or refused
Source: CreditCards.com survey of 940 U.S. adults who said they planned to shop for the holidays. Margin of error plus or minus 3.7 percentage points. See survey methodology.

“Last-minute shoppers are not able to do the comparison shopping the early shoppers can do,” said Kathleen Gurney, CEO of Financial Psychology Corp.

Who else shops early? The CreditCards.com poll found white respondents are more likely than nonwhites to start holiday shopping early, 16 percent to 9 percent. Parents are also more proactive holiday shoppers, as 20 percent of have begun shopping, compared to only 11 percent of nonparents.

Advertising starts early, too
Retail promotions have shifted at least two weeks earlier over the past five years and holiday promotions often conclude by Thanksgiving, to a 2015 holiday retail trends study conducted by Centro Inc. found.

“What traditionally was held on Black Friday or Cyber Monday is now being held weeks, and even months, before the holidays,” said Andrew Johnson, communications manager for financial counseling organization GreenPath Debt Solutions. “It certainly could be to your advantage to start looking now.”

All those early holiday advertisements may be working, as 23 percent of consumers will finish their holiday shopping by the end of November, according to the CreditCards.com poll.

‘I don’t like to be rushed’
Early holiday shopper Pamela Toler, a writer and historian from Chicago, enjoys reducing holiday costs, but values fewer crowds and less stress even more.

“I don’t like to be rushed, and this way I can enjoy the holiday,” she said.

An excess of leisure time may help explain why those 65 and older may have more presents ready than their children.

“Older people do have the time to think more about these things,” Gurney said. “I just think they are not as overwhelmed by other aspects of life. They have less stress and more joy in doing this now than you will if you wait.”

Starting early helps cushion budgets
Tackling shopping lists well before the holidays can help lessen the financial burden. Melanie DeCarolis, a wine educator from Boston, starts her holiday shopping in early July, wrapping up before the end of August to ensure she can more easily afford presents for all her nieces, nephews and godchildren.

How to Be Emotionally Intelligent About Your Finances

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Prudent and successful investing is as much about managing attitudes and feelings about money as it is about managing the money itself. It’s all in how we use it that brings us the greatest satisfaction and success.

If we are self-aware and self-confident, we feel more of a sense of mastery. We feel we are making the best use of it because we are using it to reflect our core values and our sense of ourselves.

Daniel Goleman has written extensively about the benefits of having and using “emotional intelligence” in our life’s pursuits. In his book, “Leadership: The Power of Emotional Intelligence” he posits that the ability to identify and monitor one’s emotions is imperative to being a competent leader.

He has a short list of competencies leaders must possess including self-awareness and self-management. If you are self-aware, you have realistic self-confidence—you understand your own strengths and limitations. His point is that effective leaders understand how their personal dynamics, principally emotions, make an impact and learn to manage them so that they are used most effectively.

In my work at Financial Psychology Corp., the same principles are applied to money management. In working with the financial services industry, it became clear early on that understanding feelings and being able to manage them was a key competency in mastering wealth accumulation. Financial advisors had the greatest influence with their clients if they understood the importance of managing attitudes and feelings as well as finances—both their own and their clients.

Investing by its very nature is an emotional business and being able to understand our feelings and the impact they have on how we are using our money, enables us to make smarter choices and ultimately make the best use of our money.

I have seen too many otherwise highly intelligent investors allow their emotions to cloud their better judgment. They react impulsively and inappropriately to market swings and use their emotional money minds instead of their more rational money minds.

The skill set is the same whether you want to be a good leader or you want to be a good money manager: you have to know yourself and how to profit from reinforcing your attitudes and feelings which are assets and shoring up those that may be liabilities. We can become our greatest financial asset if we learn how to use our personality traits so that we profit from them. It all starts with knowing ourselves.

The mission of my company, Financial Psychology Corp., is to give people insight into their financial behavior so that they can make the best use of their money.

Just as leaders use their personal attributes to achieve the most powerful influence in their pursuits, investors must be able to use the same skills and competencies to have optimum influence in how their money is being managed: realistic self-awareness and self-confidence of doing the right thing.

What’s Your Comfort Level with Taking Financial Risk?

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If you’re puzzled in how to honestly respond, you’re not alone. Most people find out their true comfort with risk only after the fact—after they’ve lost money. Then, and only then, do they really know how much they can financially and emotionally afford to lose.

Your risk tolerance is your ability to make decisions, trading the known for the unknown, and to be comfortable with the decision once it is made.

Before you can begin to understand how to gauge your comfort level in taking risks with your finances and investments, think about how you feel in general about giving up something you know now without being certain of what your return will be in the future. The possibility exists that what you get will be less than your investment.

There are several reasons that risk is mystifying and elusive:

Tolerance for risk is difficult for most people to accurately gauge because it is a socially desirable trait, at least in the United States. The USA was founded by brave individuals who risked their lives and ventured into an unknown land for a greater sense of freedom and independence. Ever since, entrepreneurial behavior has been revered and rewarded. So, people like to believe that they’re higher risk takers than they truly are. They want to believe that they’d step up to the plate if they saw an opportunity for significant financial gain..

The truth is that most people would rather not gamble and take the financial risk because they would regret the potential loss in the process. They are not certain they will reap a just reward for the risk they’d take.

When you search your minds and hearts for your own sense of what risk means to you and how much risk you can comfortably tolerate, keep in mind that you, too, may be swayed by what you’d like to believe. Ask yourself how much money you can financially afford to lose. And then ask an equally important question—how much can you emotionally afford to lose? How will you weather the financial and emotional loss?

So what’s beneficial? Should you aspire to be a low, medium or high risk-taker? There’s no right answer or one-size fits all when risk-taking is involved.

Here are some guidelines that may help you in trying to gauge what’s appropriate for you in achieving your goals and objectives:

– Impulsive risk-taking usually pays off with buyers or sellers remorse.

– Calculated risk is always the preferred strategy and surest bet to make.

– Don’t risk more than you can financially or emotionally afford to lose.

– Look at what you may lose from risking as well as what you may gain.

– Experimenting with risk is more costly with age.

You can increase your comfort level with risk slowly and consistently over time—taking small but consistent steps which will eventually lead to bigger gains than a one-time gamble on the risky move paying off. Your confidence in yourself will also increase in the process if you succeed over time.

Take a look at this brief video with three financial advisers describing how they speak to their clients about risk and how to gauge what it means to them: http://www.cnbc.com/id/102397145

Stay tuned for Part 2 of “Gauging Risk” by understanding the money personality traits which play a big part in how you relate to risk.

Know What You Can Emotionally and Financially Afford to Lose

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So often, investors react impulsively to bad news and a volatile market selling shares of perfectly good stocks or changing their asset allocations in anticipation of a significant downturn in the market. Had they held on, history reinforces staying the course if the allocation makes rational and financial sense and the stocks deemed to be good stocks over the longer term.

But many investors, react with their emotional money minds rather than their rational ones.

Why is it that some investors make rational decisions, stick with their choices and strategies while others act out their emotions and make bad investment decisions?

The field of Behavioral Finance has given insight into the mental miscues investors make that sabotage and crimp their returns. One of those miscues or mental mistakes is the fear of losing money.

This is how it works: Psychologically, people give greater weight to a past loss than they do to a future gain. In fact, some investors find losing money so distasteful that they psych themselves out of investing altogether.

Investors don’t make reasonable tradeoffs. The drive to avoid loss really sabotages any future gains or opportunities. Rather, investors rationalize their feelings and walk away from being an involved and active investor in the market. Some work it out and choose a strategy of a more passive approach investing in index funds and stay the course.

From where I sit as a psychologist specializing in money management and investing, I tend to experience investors or would-be investors who are frozen by indecision and the fear of losing their money.

Solution: Determine ahead of time exactly how much you can “emotionally” afford to lose as well as “financially”. They are often very different.

If you feel that a financial loss will be a significant emotional and financial loss, then choose the more conservatively balanced approach of investing. If you feel you can handle the emotional and financial upset of a loss, estimate just how much of a loss that should be for you to continue to feel and be secure.

The point is that investing is by nature an emotional as well as financial business. Your heart and wallet go hand in hand.

With spending some time upfront reflecting and gauging your comfort level, you will be better equipped over the long-term for whatever happens in the market.

Managing Anxiety in a Nervous Market

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“I no longer watch CNBC with my coffee every morning. I find that I just don’t want to be more confused and feel more anxious. I just don’t feel as optimistic as I used to–my whole mood has changed. I guess I’m feeling a sense of heaviness, uncertainty-maybe even a bit of depression.”

“My statement has sat in my unopened emails for weeks. I don’t want to look at or know the balance. I own a lot of shares of each stock and it’s great when the market is going up because there are big gains. But when it’s going down, I have to face large losses.”

I had these conversations last week with two knowledgeable and confident investors who are generally quite comfortable with volatility. Both of their “Entrepreneur” Moneymax® Profiles suggest that they are both highly motivated by performance with tendencies to take higher but calculated risks.

Often Bull markets are like blinders. Investors begin to believe in the fantasy that their stocks will always take good care of them and never disappoint them.

Since the “Great Recession”, the market has reinforced such fantasies. It has been a bull market for the past five years with one small exception in 2011 with a 10% pull back. Recently we have had the worst three days in three years.

In my years of experience, as a psychologist specializing in the psychodynamics of money management and investing, I’ve come to realize that there are certain important relationships which we must understand before we can achieve a consistent degree of success in the world of investing and in the marketplace.

• The first and foremost of these is that the majority of losses in the marketplace result not from poor trading decisions but rather from emotional and attitudinal causes.

• Investing by its very nature is an emotional business. Few investors have the self-knowledge, emotional stamina or self-control to make rational, intelligent and profitable decisions, particularly in times of stress.

So, often investors react wildly to bad news, often selling shares of perfectly good stocks. Had they held on, they would have realized that. But they, as many investors, react with their emotional money minds rather than their rational ones. They usually are at the “effect” of their feelings and not managing them well.

Why is it that some investors make rational decisions, stick with their choices and strategies while others act out their emotions and make bad investment decisions?

The field of Behavioral Finance has given insight into the mental miscues investors make that sabotage and crimp their returns:

• Fear of losing money

Psychologically, people give greater weight to a past loss than they do to a future gain. In fact, some investors find losing money so distasteful that they psych themselves out of investing altogether.

Investors don’t make reasonable trade-offs. The drive to avoid loss really sabotages any future gains or opportunities.

Solution: Determine ahead of time exactly how much money your clients can “emotionally” afford to lose as well as “financially”. They are often very different.

• Worrying about the wrong risks

Investors are held captive by unpredictable yet frightening events. People are traumatized by dramatic events. They can’t tolerate this anxiety.

Investors become blind and deaf to others’ advice in these times and tune out that advice, including their advisors’. They exaggerate current crises. What’s worse is that they forget the wisdom of lessons from the past. They overlook the fact that people who stayed fully invested during previous volatile times recouped their losses.

Solution: Help your clients base their decisions on what they can control, not on those they can’t control. Give them the rationale for their current strategy and
reiterate why it still makes sense. Repeat it several times and intermittently so they can hear it and use it as a guideline in regulating their knee-jerk and emotional reactions.

In other words, there is a vast world of emotion under the surface structure of investing. To know and understand the motivating forces behind investing, to know and understand why one investor becomes tense about losses, why one becomes greedy about profits, and why one either overreacts or fails to react is, perhaps, more than half the investment battle won. There is a high price to pay for the kind of innocence many investors bring to their investments and the way they interact with their investment advisors. Unfortunately, in many cases, to help your clients continue to maximize their financial returns, you must first help them master their emotions.

Investors Flight from The Market May Indeed Be A Rational Defense

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Some experts are calling the recent mass exodus of small investors from the market an irrational reaction to unfound risk; others are hypothesizing that small investors need cash and their home values no longer support equity loans to survive so they are using their 401k investments to pay bills.

Personally, I feel small investors are feeling a tremendous level of anxiety and are having difficulty managing it. Their high level of anxiety and their inability to tolerate it precludes them from keeping their money in the market for the long-term and continuing to believe that they will be okay. The true definition of a suitable investment strategy is whether investors can maintain it over time – even anxious and volatile times.

Apparently, these investors are incapable of managing the stress of being in what they deem to be a risky strategy. But even sophisticated investors and professional money managers are anxious and unable to predict current and future risk in the market. So why should the small investor be any different. The difference may lie in unrealistic expectations and inappropriate risk taking that led the small investor into the market in the first place that is the real problem. If they weren’t diversified; if they didn’t understand the downside and determine whether they could withstand it, then they are feeling much greater stress and lack of tolerance in coping with their current feelings of anxiety and distrust.

There are a myriad of reasons why investors have reduced their exposure to securities and gravitated to what they perceive to be less risky investments like bonds, cash, and other fixed income vehicles. Perception is a subjective reality that is difficult to alter with objective facts. The problem is compounded by the volatility of today’s market and objectivity being illusive. You just have to listen to CNBC for a while and you’ll hear experts hypothesizing, and disagreeing whether we’re out of a recession or just heading into another. So how is the small investor to feel confidence or a sense of trust that the market will be kind to them if they stay? At least by doing something, they feel they have taken some action in their best interest rather than remaining frozen from fear.

I have empathy for these small investors who fell into the trap of feeling that they would be saved by the boom in house prices, stock market rallies and the optimistic view that kept all of us believing that the good times were here forever. For those who did not save some of the rewards from those flush exuberant times, or diversify to manage the potential downside of such a upside for the market it is a particularly stressful time. It is a time of reflection to learn valuable lessons for the future as well as a time to take an inventory of what can be done to manage personal financial insecurity and stress.

What my work has taught me is that the ability to tolerate anxiety and fear, manage stress and take small and consistent steps to control what can be controlled is often a defining difference between achieving a successful solution and optimistic financial future or sinking further into financial stress and insecurity.

Needed for Our Time: A New American Dream

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Do you find yourself thinking about your expectations for financial well-being and how they’ve changed? We hear about this subject daily and we are all left with that puzzling question of what our future will hold? Americans are known as the eternal optimists always finding hope and feeling like we can fulfill our dreams to have the “good life”. However, in talking to many of our regular community members on www.kathleengurney.com, I’m finding a very different sentiment. Instead of optimism; I hear fear, anxiety, uncertainty, and even pessimism.

How soon might we find a crystal ball? Wouldn’t that be great? We all want reassurance that we’ll be okay. Of course, as adults we know that we can always do something in our own behalf to empower ourselves, but I find that there’s a desperate desire for the road map of how to get there from here.

So, in this state of distress. we can all follow the prudent advice of the rehabilitation programs that advocate day-by-day planning and focusing on what we can control. For me, I know that I can manage my anxiety about the future by having a concrete plan for my priorities. I try to make my goals reasonable, realistic and rewarding. My clients tell me they use those three descriptions and use them to manage their financial behavior and feelings. Clients find that my advice to take small steps consistently and purposefully help them achieve big gains over time.

So, maybe our new dreams will evolve and become clearer as we all start to focus on what’s most reasonable and rewarding for each of our individual situations.

Boomers Willing to Wait to Get What They Want and Say They Need

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The quest for “the good life” continues to drive Baby Boomers to sacrifice today, so that they can enjoy the finer things tomorrow according to a MainStay Investments’ Boomer Retirement Lifestyle Study. A majority (76 percent) of Boomers surveyed say they are willing to spend less now to invest for a more comfortable lifestyle in the future.

When it comes to lifestyle, Baby Boomers are redefining what constitutes a basic need and what they consider a luxury. They have clearly expanded beyond the three traditionally thought-of necessities – clothes, food and shelter.

An interesting pattern that emerged in the research was that as Boomers age, things that were once considered luxuries are more likely to be considered basic needs–thereby reaffirming that Boomers essentially want it all.
The lesson for us, in my opinion, is to be clear about what gives us a sense of peace and safety and pleases us most. We need to understand our priorities and their price. It’s also important to clarify and understand the difference between want and need.

Money for needs can be classified as survival money and safety money while money for wants can be classified as freedom money, gift money and dream money perhaps. Our hierarchy of financial needs and wants can then be ordered so we may plan suitably for our survival and safety first. Only then should we incorporate our wants for a sense of freedom and self-actualization.

Because time can never be regained, it’s vitally important to understand the cost – financial and psychological – of putting off until tomorrow what might satisfy us today in moderation. It’s a difficult call to make whether we’ll be successful in affording our wants and wishes in the future. If we have a moderate and realistic plan understanding our needs and wants with timelines for accomplishment, we will always know where we stand. Then we can be certain that we know what we can afford and when. It’s impossible to get back precious time once it’s gone.

Money Management – What Women Want

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The Boston Consulting Group just conducted a study showing women’s discontent with their money management services. The study’s bottom line was such old news, yet there’s a renewed interest in female wealth because women are growing in numbers and wealth.

As someone who is both a client and consultant working in wealth management most of my work-life, I can say that I totally empathize with women as frustrated consumers of wealth management services. For the most part, wealth managers have not learned how to adequately customize their communication and wealth management services. Their job description is wealth management and that’s their primary responsibility. It becomes complicated when they have to match that wealth management to our complexity of personal dynamics. That’s not their primary competence. So, it takes two to make a satisfactory relationship. We have to educate ourselves as to what we need to have to feel satisfied so we can communicate our needs and expectations. We have to become more assertive wealth management clients and perhaps teach the industry the competencies they need to develop and nurture.

There are a few guidelines which I’ve learned over the years both as a client and consultant in money management communication consulting:

1. Know thyself – be clear about your individual wants, expectations and needs for financial comfort and security;
2. Don’t be judgmental of who you are and what you want – there’s no right or wrong;
3. Don’t expect your money manager to care about your money more than you do – after all, it is your money and not theirs;
4. Be clear and verbalize what it is you expect and check whether your adviser feels that this is reasonable and will deliver; and not least
5. Make sure that you really understand and feel comfortable with both the strategy you’ve chosen and what you can expect in how to keep informed about how you are doing.

In the end, what we want is to feel that we’ll be okay and this comes down to what that means to each and every one of us as individuals. Your wealth manager can only try to empathize with what that may mean second-hand. It’s up to each of us to know what that means financially and how that feels.