November 28, 2022

Donalds Hobby

World Finance Reviews

How advisors can help clients get over childhood hang-ups about money

One advisor says some clients will hoard cash, apprehensive about possibly losing some of it through investing, and hold chequing accounts with $20,000 to $50,000 in them, not understanding that the value of their holdings drop when inflation spikes.kate_sept2004/iStockPhoto / Getty Images

Ryan Chin, an advisor with Sun Life Financial Investment Services (Canada) Inc. in Hamilton, Ont., recently sat down with one of his clients to work on her financial plan.

The client, who was in her sixties, had amassed a small fortune over the years. But the car she drove was a beater and the paint on the walls of her house was in need of an update. And although she could have easily retired two years earlier, she’d held off.

Mr. Chin wondered what was going on.

After some gentle and careful digging into her background and thought process, he discovered that she was afraid to run out of money in retirement.

The client was brought up by members of the generation who had lived through the Great Depression and internalized her parents’ worries that there would never be enough funds. The fear still affected her all these years later.

Fortunately, the financial planning process gave him a reason to show her that she would be more than fine. She could enjoy her retirement and even slap a new coat of paint on the house.

“You should have seen the difference, how she lit up at the end of the conversation,” Mr. Chin says. “As a financial planner and advisor, a huge part of what we do is listening, learning and helping to educate our clients.”

Mr. Chin’s client is hardly the only one to wrestle with long-held negative beliefs about personal finance due to money hang-ups from childhood.

More than half (55 per cent) of Canadians agree that childhood experiences about money continue to have an impact on them now, according to a recent Meridian Credit Union survey. More than two in five people (42 per cent) surveyed reported that those early experiences with money have left them feeling anxious and worried about it as adults. Another 23 per cent reported money was a source of tension and worry for their parents while they were growing up.

“So, if you think about that, if they’re worried and anxious, how is that going to present when they’re sitting in front of an advisor?” asks Dilys D’Cruz, vice president and head of wealth management at Meridian in Toronto.

How the past affects financial decisions

That all depends on the issues while growing up, Mr. Chin says. While psychology around finances often is linked to the families we grew up in, there are also outside messages from, say, the media about what wealth looks like. Our social groups have an impact as well. Even very young children can tell which of their friends’ families have wealth and which are struggling.

Mr. Chin says clients who had an early history of economic instability at home, combined with other influences, now have a scarcity mindset.

Some will hoard cash, be apprehensive about possibly losing some of it through investing, and hold chequing accounts with balances ranging from $20,000 to $50,000. (He points out that these holdings then drop in value when inflation spikes.)

In other cases, clients may swing the opposite way. Now making money of their own, they feel unshackled and spend freely – sometimes too freely – and amass enormous debt plus closets full of gadgets they’ll never use.

“That’s why having an objective third party come in is so important,” Ms. D’Cruz says. “We’ve seen this over and over again. People come in, there’s an aspect of shame – and quite often, that shame is misdirected.”

These clients are in a better situation than they think they are but they’re self-judging, she says.

So, how do you help these clients build a better relationship with money and ditch their childhood demons?

It starts with re-framing their worries, says Esanju Bonga, a financial therapist and registered psychotherapist with Progression Counselling in St. Agatha, Ont., who works with many high-net-worth people.

How to replace negative emotions about money

Ms. Bonga uses paying bills as an example. Even if there is plenty of money in the bank now, some people whose parents once struggled to pay the bills feel stressed today. She says she helps clients work through their negative thoughts and replace them with positive ones.

“Instead of thinking, ‘I’m dreading this and I’m bracing myself,’ let’s think, ‘Thankfully, I have financial security,’” she says, explaining that she would follow up that mental switch with a practical solution, such as recommending they set up automatic bill payments.

It’s also important to meet clients where they are. For Mr. Chin, that means divulging some of his own childhood experiences and money hang-ups with clients who are struggling.

He’s the first to admit he didn’t come from wealth, and he still hears his parents’ admonishments to pay every credit card bill in full each month and never write a cheque unless there’s money in the bank to cover it.

“I’m an open book,” he says, laughing and mentioning that he’d love to buy a new towel set right now, but keeps putting it off despite having a thriving practice and money in the bank.

“That’s from my past, right? I don’t want to over-indulge today and go without later.”

But for Mr. Chin, it’s all about connection and being personable. If clients can feel he is empathetic and without judgement, they’re more likely to be open with him too.

With that openness comes the ability to think clearly and build a financial plan and investment portfolio that is most appropriate.

“Here’s the thing. You can’t build trust with someone if you’re taking. You have to give,” he says. “I’m a strong believer in giving as well as receiving.”

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