Financial therapy is different from financial planning. Or is it?
Many financial advisors are starting to work jointly with mental health counselors to help clients who are having difficulty making financial decisions or changing financial behavior. The reason? Bad behavior with money stems from the subconscious.
Self-sabotaging decisions, like wasting your wealth on iffy investments, sometimes are not rational. Fixing that requires special expertise. This relatively unknown field is called financial therapy.
Financial therapy addresses the unconscious and unspoken thoughts, beliefs and feelings around money.
For example, your goals are greatly influenced by your parents, even if they are not appropriate for you. Maybe your parents taught you that people with a lot of money are evil and greedy, so you don’t save enough or ask to be paid sufficiently. You may hoard cash when you should invest it for the future. You may recklessly waste money, believing that more will always turn up.
Financial advisors aren't required to have training in even basic communication skills, much less the more complex fundamentals of psychology or neuroscience. Likewise, therapists and psychologists aren't taught to deal with money, either in working with clients or in managing their own businesses. As a result, neither profession provides the tools to address clients' problematic and often self-destructive behavior around money.
It’s Not About Money
This behavior usually isn’t about the money per se. Simply giving people more information about how money, investing or financial planning works isn't enough.
Typically, financial therapy involves a client-centered financial advisor together with a therapist or psychologist. And this process can help those who are in some way financially stuck make significant progress.
The Nazrudin Project
The exploration of financial psychology or emotion and money isn’t new. Dr. Jacob Needleman and Olivia Mellan were among the mental health pioneers who raised questions around the psychological side of money in the 1990s. About the same time, two financial advisors, George Kinder and Dick Wagner, co-founded a leaderless group of advisors, coaches and therapists called the Nazrudin Project to explore the area.
The Nazrudin Project, which still meets annually, spawned scores of books, courses and organizations and raised the awareness and skill level of financial professionals and therapists. The first financial therapy workshop took place in Nashville, Tennessee in 2003. Then, Jeffrey Zaslow of the Wall Street Journal wrote that financial therapy combines experiential therapy with nuts-and-bolts financial planning. He wrote in that article that only about 50 financial advisors teamed up with therapists at that time.
Financial therapy has been around for about 20 years, but it is still relatively unknown to many and it has an organization promoting its benefits: The Financial Therapy Association.
The Financial Therapy Association
The Financial Therapy Association defines financial therapy as follows:
“Financial therapy is a process informed by both therapeutic and financial competencies that helps people think, feel, and behave differently with money to improve overall well-being through evidence-based practices and interventions.”
The FTA furthers states that:
“With this combined approach informed by both therapeutic and financial competencies, financial therapists are equipped to help people reach their financial goals by thoughtfully addressing financial challenges, while at the same time, attending to the emotional, psychological, behavioral, and relational hurdles that are intertwined.”
The FTA holds conferences that bring together academics, therapists and financial planners to try to define and further develop the concept of financial therapy. In addition, the FTA offers accreditation so that its members can become Certified Financial Therapists.
It’s worth talking to your financial advisor about financial therapy and how it might fit with your financial plan.