Tag Archives: money management

Needed for Our Time: A New American Dream

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.

Emergency Money Talks

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A Couple’s Guide for Managing Financial Stress While Building and Strengthening Relationship Skills for Financial Success: Emergencies require exceptional skills in coping with financial and emotional conditions deemed out of individual control. Developing healthy coping skills is paramount to managing emergency conditions that could otherwise create havoc for families. 1. Organize regular “money meetings” to discuss your financial situation, issues and goals. Use this time to brainstorm creative solutions to problems and generate ideas to improve your future. 2. Time your financial discussions carefully. During the morning rush, late at night or after a bitter argument are not good times to discuss financial topics. A lazy Sunday afternoon, a quiet weekday evening, or a leisurely walk are better choices. 3. Set realistic goals for the discussion. You cannot change the past, or miraculously change the conditions that created the situation but you can change the way that you react and manage your current situation. Be clear about what you want to achieve. 4. Work with your partner’s personality, instead of against it. One of you makes financial decisions instantly, while the other one deliberates for days. One of you hates paperwork, while the other has anxiety if every blank is not filled out completely and perfectly. Focus on a positive outcome, not the method of traveling. 5. Avoid blaming your partner. Think about differences in money management as differences in perspective instead of moral failures. In most cases, the person you love is sane, reasonable, and healthy. Treat your partner with the respect deserved. 6. Cultivate a healthy respect for reason. Don’t become so emotionally attached to your position that you ignore reality. Seek the solution that best fits the situation, whether or not it fits your preconceived notion of how the problem could be solved. 7. Expand the pie. Creative solutions can ensure that both of you “win.” Instead of clinging to your position, try to find a way to satisfy your partner and yourself in how you approach your finances so that you achieve your individual and joint

Is “strategic default” for your clients? Would they walk away from their home and mortgage responsibilities?

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Moral dilemmas are not easy. They make us get in touch with what’s most important to us and how we will make choices based on our values of right and wrong.

As a psychologist specializing in money management, I have worked with children and families on this issue and have been fascinated with how people of all ages justify what they do. The psychologist that is the grandfather of psychological studies on morality and moral judgments is Kohlberg. What he learned over the years is that there are stages of moral development and critical thinking which allow people to make appropriate decisions for themselves, their needs and causes in relation to what’s good and appropriate for society at large. He learned that there were people who made decisions based on the absolute of right and wrong, but many others who used their own barometer of what was right and wrong for them. People will do what they feel they need to do and justify it according to what was most important in their individual situation, but not all. So just like so many other variables in life, we humans differ on the morality scale as well.

So for those home owners who are walking away from their financial obligations to their banks and choosing “strategic default”; i.e. not to continue to pay their mortgage payments because their home is no longer worth what it was even though they can financially afford to do so, it fits. For them, the greater good is to make the right financial decision for their needs and let the bank deal with the loss of value and principal.

Public reaction to this new herd strategy of “strategic default” has been mixed with some aghast at the moral corruptness of such an act while others are in perfect accord and can empathize with the personal situation. In fact, they would do exactly the same thing even though they admit they never thought they would until now.

So what does this new trend say about how we think about what matters most? What would your clients do and why?

Recession lessons that will last kids a lifetime

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I’m tempted to cover my baby’s ears while her father and I talk about luxuries to cut — should it be satellite TV or Internet? Cookies or ice cream?

The temptation to shield my child grows when Dan and I talk about curbing basic consumption: Is it worth it to get a broken boot heel repaired? Is rice or pasta cheaper (but which is healthier)? Can we learn how to cut each other’s hair without looking like a psychotic child attacked us with a pair of blunt scissors?

All of this mental haggling has me concerned that the financial stress Dan and I shoulder could somehow infect our child’s psyche. While my seven-month-old is too young to understand that she’s growing up during one of the worst economies in decades, Dan and I do our best to remain upbeat around our baby. For families with older kids, experts say these tough times are a good occasion to teach children about financial realities, and these are lessons that can last a lifetimeâ€¦…

Lessons to last a lifetime

Today’s kids may end up with a more realistic view of money compared with previous cohorts as long as parents reinforce important lessons, said Kathleen Gurney, a psychologist and chief executive of Financial Psychology Corp., a Sarasota, Fla., advisory firm.

“We will have a whole generation of children growing up with healthy lifestyles, attitudes and behavior with money if we all make sure that this is not just a lesson for the Great Recession, but a lesson for a lifetime,” Gurney said.

To instill lessons, parents need to regularly talk to their kids, and keep up good spending habits. “I don’t think the lessons will be maintained over time unless the family decides they want to keep these financial habits,” Gurney said. “Role modeling is very powerful.”

Parents can be honest about their own missteps to teach their children a lesson, Gurney said. “This is a great time for families to come clean and say: ‘here’s what we’ve been doing, here’s the trouble we are in now, and here’s what we have to do.'”

Kids can learn about money when parents let them contribute, Gurney said. “Feeling like we have some control over the situation is a phenomenal thing to learn when we are young.”

Kids can also learn about priorities from their allowance, especially if it’s been reduced. “Helping children understand what is most important to them is another really valuable lesson in these times,” Gurney said. “They can’t have it all, and it’s not realistic to think they can have it all.”

Personalized Service and ‘Plain Vanilla’ Products: A Winning Formula for Advisers?

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In reading an article in the Wall Street Journal, “Economic Policy ‘Nudge Gives Way to Shove” it again became apparent that economic pain is substantially more relevant on an individual basis – for individual clients and their trusted advisors.

The Obama administration naively thought that institutions would feel consumer pain and alter their policies and practices so that the individual consumer would be able to make suitable and rational financial decisions. If only consumers could benefit from what the Administration proposed to be “plain vanilla offerings” consumers would not be victims of institutional lack of transparency and self-serving products and policies. To that end, the administration thought public shame and exposure of these self-serving practices would alter the institutions’ behavior shaming them into adopting the administration’s suggestion of “plain vanilla” offerings. Ah, such naÃ¯vetÃ©.

What Obama et al have learned is that “institutional decision-making” is not driven by emotions such as shame, pain, and empathy for others. Rather it is much closer to rational economics; i.e., profit is profit and there is nothing personal or emotional about it. Shame is not part of the equation for institutions, says the Wall Street Journal.
So if this is true, it seems more relevant than ever for individual financial advisors to set themselves apart and deliver services which enable their clients to understand what’s most suitable for them and their individual situations.

In this economic climate, consumers are highly anxious and are experiencing a crisis of trust. Some feel that they are over-reacting in their distrust and falsely accusing all financial professionals; i.e. guilty by association. So, advisors who have always been empathetic and ethical are guilty by association. This is unfortunate.

More than ever, it appears that consumers need ample time for understanding what products are suitable, building confidence and trust in the advisory process. Most importantly, they need a sense that their individual situation will be understood and that products will be transparent and tailored to their needs. This isn’t news.

There are plenty of financial professionals delivering such services but unfortunately many consumers don’t trust themselves in knowing when and whom to trust. When asked how they would know that they had found such a trusted financial advisor, most agreed that they’d know because their individual situation would be understood and that this advisor could work with people like them.

This is the central theme of my work, www.financialpsychology.com.

Prudent Advice vs. Product: Your Client Mainstay

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Over the past 27 years, I’ve watched the financial industry struggle with a system and process to engage and advise consumers in their money management. My work has focused on that challenge by trying to give investors their unique voice and tools for advisers to interpret those voices – spoken or unspoken. My first institutional presentation in 1983 was to the Securities Industry Association Board with its title, “Transforming Client Relationships from Product-driven to Client-oriented”. While I received high marks for style, the subject matter was considered too ideological, irrelevant and impractical based on feedback from members afterwards.

Here we are 27 years later and the subject matter is more relevant than ever but would the audience still feel my message was impractical for an industry built on product quotas and commissions based on results of sales of their products? I totally understand the system and its short-term benefits for business and individual profits, but I don’t understand how the industry I’ve come to know over the past dozens of years could be in such denial of the long-term implications for engendering the trust and allegiance of clients and potential clients.

My spirits were elevated this morning when I tuned into NPR, my morning wake-up call. What I heard was not only an excellent summary of the crisis of trust we’re experiencing in our financial institutions, but an attempt to design mutually beneficial solutions which a key leader of the financial industry is recommending.

Headlines are constant reminders that our crisis of institutional distrust is warranted especially with the tangible evidence of bank bailouts, executive bonuses, and record profits. It’s very difficult to find a reason to trust again in such circumstances.

But it’s an argument that Stephen Green, chairman of HSBC – one of the biggest banks in the world – makes in his new book about banking: Good Value: Reflections on Money, Morality and an Uncertain World http://www.npr.org/templates/story/php?storyId=1033

Green is also an ordained priest in the Church of England. In his book, he proposes a “new capitalism” that brings good business and good ethics together. He says moral and spiritual values should take precedence over immediate profit.

Green states that the imbalance was caused by emerging markets in places like Asia that were exporting, saving too much money and spending too little domestically. Then, consuming nations like the United States and the U.K. were spending too much and saving too little. In that context, there was a pervasive atmosphere, he says, where institutions didn’t ask a lot of questions about what was the suitable, fair or right thing to do, provided that they found a legal market for the financial product they were offering.

“When you look at the compensation practices in the financial industry there were clearly distortions,” Green says. He adds that it is “entirely understandable” that there’s widespread public anger over executive pay, especially in cases of companies that collapsed.

Perhaps if the message is delivered by a colleague and leader in the financial industry, it will be considered more practical and worthy of a valuable consideration to transform the future sales process of financial products and compensation for financial professionals.

Are Emotions Managing Your Clients’ Wealth?

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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. 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 maximize your clients’ financial returns, you must first help them master their emotions.

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. But, when reality hits and the bull market turns bear, investors can be faced with challenging decisions and their gut emotions may take over.

In my 27 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 may be able to 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, frequently selling shares of perfectly good stocks–reacting with their emotional money minds rather than their rational ones.

Why is it that some investors may tend to make rational decisions, stick with their choices and strategies while others seem to act out their emotions and make investment decisions that may not lead to profit?

The field of behavioral finance has given insight into some mental miscues investors make that might 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 individuals find losing money so distasteful that they talk themselves out of investing altogether. Some investors don’t make reasonable trade-offs because the drive to avoid loss sabotages any future gains or opportunities.

Possible Solution: Determine ahead of time exactly how much 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 events that could be conceived as unpredictable or frightening events. People are traumatized by dramatic events. They can’t tolerate the anxiety that accompanies them. Investors often become blind and deaf to others’ advice in these times and tune out advice from others, including their financial professionals. 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 crashes recouped their losses.

Possible solution: Help investors base their decisions on what they can control, not on those factors they can’t control. Review the rationale for their current strategy and ask them if they feel it still makes sense based on everything you and they know at the time. If it does, review why the strategy still makes sense from time to time so you can help regulate any impulsive and emotional reactions that may bring them off course.

As you evaluate your investment strategies and investors’ individual situations, consider these points:

– Investors are more prone to make or lose money as a function of their emotions and attitudes than on the basis of their stock selection or trading system.

– The best system can be rendered a losing proposition by inappropriate implementation due to emotional and behavioral limitations.

– Appropriate or successful investor behavior can be learned to a large extent. Education is essential to helping investors stay in control and continue to grow, particularly in learning self-regulation and self-control.

Acknowledging and understanding your clients’ emotions is an important step in helping them stay on track with their long-term financial plans when challenging economies become the everyday reality. Likewise, helping them learn how to control their emotions even when the market turns upwards is equally important. Finally, encourage them to call at any time if they find themselves questioning their decisions and that you are always there to help when they have to make the tough decisions.