In PSYCHOLOGY OF FINANCIAL PLANNING: The Practitioner’s Guide to Money and Behavior, distinguished authors Drs. Brad Klontz, CFP®, Charles Chaffin, and Ted Klontz deliver a comprehensive overview of the psychological factors that impact the financial planning client.
Designed for both professional and academic audiences, PSYCHOLOGY OF FINANCIAL PLANNING is written for those with 30 years in practice as well as those just beginning their journey.
With a focus on how psychology can be applied to real-world financial planning scenarios, PSYCHOLOGY OF FINANCIAL PLANNING provides a much-needed toolbox for practicing financial planners who know that understanding their client’s psychology is critical to their ability to be effective.
The PSYCHOLOGY OF FINANCIAL PLANNING is also a much-needed resource for academic institutions who now need to educate their students in the CFP Board’s newest category of learning objectives: psychology of financial planning.
Topics include: - Why we are bad with money - Client and planner attitudes, values, & biases - Financial flashpoints, money scripts, and financial behaviors - Behavioral finance - Sources of money conflict - Principles of counseling - Multicultural competence in financial planning - General principles of effective communication - Helping clients navigate crisis events - Assessment in financial planning - Ethical considerations in the psychology of financial planning - Getting clients to take action - Integrating financial psychology into the financial planning process
PSYCHOLOGY OF FINANCIAL PLANNING goes beyond just theory to show how practitioners can use psychology to better serve their clients. The accompanying workbook provides exercises, scripts, and workshop activities for firms and practitioners who are dedicated to engaging and implementing the content in meaningful ways.
Table of Contents
About the Authors xv
Introduction xix
Part I The Psychology of Money 1
Chapter 1 Financial Instincts: Why We Are Bad With Money 3
The Survival Instincts of Our Ancestors 3
Sharing Is Caring ... and Surviving? 5
The Anti- Saving Instinct 6
I Want It Now! 7
Herd Instinct 8
What’s Your Financial Comfort Zone? 9
Fear of Missing Out (FOMO) 12
Social Status and Relative Deprivation 13
Two Systems 14
Understanding Financial Instincts 15
Key Concepts 16
CFP Board Learning Objectives Covered in This Chapter 16
Chapter 2 Behavioral Finance: Understanding Cognitive Biases and Heuristics and What to Do About Them 17
What Are Cognitive Biases and Heuristics? 18
The Role of the Financial Planner 34
Eliminate the Friction 35
Techniques for Overcoming Biases 36
Key Points 37
CFP Board Learning Objectives Covered in This Chapter 37
Chapter 3 The Environment 39
Environment: Culture, Generation, Class, and Community 40
What’s Next 44
Key Concepts 44
CFP Board Learning Objectives Covered in This Chapter 44
Part II Understanding a Client’s Financial Psychology 47
Chapter 4 Financial Flashpoints: Exploring a Client’s Financial Background 49
Financial Flashpoints 51
Key Points 60
CFP Board Learning Objectives Covered in This Chapter 60
Chapter 5 Money Beliefs 61
Money Scripts 62
The Role of the Financial Planner 67
Key Points 69
CFP Board Learning Objectives Covered in This Chapter 69
Chapter 6 Financial Behaviors and Outcomes 71
Overspending and Undersaving 72
Financial Denial 72
Financial Paralysis 73
Financial Infidelity 73
Financial Enmeshment 74
Financial Enabling 74
Financial Dependence 77
Money Disorders 78
The Role of the Financial Planner 80
Key Points 81
CFP Board Learning Objectives Covered in This Chapter 81
Part III Principles of Counseling, Psychology, and Communication 83
Chapter 7 Sources of Money Conflict 85
Conflict with Oneself 86
Conflict with Spouse or Partner 88
Conflict with Family 92
Conflict with Others 95
Key Points 97
CFP Board Learning Objectives Covered in This Chapter 97
Chapter 8 The Principles of Effective Communication 99
Being Present 99
Communication Skills to Establish Rapport 100
Effective Communication Techniques in Practice 108
Key Points 112
CFP Board Learning Objectives Covered in This Chapter 112
Chapter 9 Solution-Focused Techniques in Financial Planning 113
The Client Has the Power 114
Financial Self- Efficacy 114
A Focus on Solutions, Not Problems 115
Solution-Focused Techniques for the Financial Planner 116
Lead with Curiosity 119
Key Points 120
CFP Board Learning Objectives Covered in This Chapter 120
Chapter 10 Cognitive Behavioral Approaches in Financial Planning 121
The Cognitive Model in Practice 123
Cognitive Behavioral Techniques for Financial Planners 124
Key Points 129
CFP Board Learning Objectives Covered in This Chapter 130
Chapter 11 Positive Psychology in Financial Planning 131
An Infusion of Optimism 131
The Three Levels of Positive Psychology 133
The Role of the Financial Planner 135
Key Points 137
CFP Board Learning Objectives Covered in This Chapter 137
Chapter 12 Working with Couples and Families: A Systems Perspective 139
The Self- Aware Financial Planner 139
Maintaining Neutrality 140
Transference versus Countertransference 141
Couple Conflict 142
Financial Infidelity 142
Financial Abuse 143
Strategies for Helping Couples Resolve Financial Conflicts 144
Tools for Resolving Conflict in Couples and Families 145
Separate or Combined Finances 147
Scenario Planning 148
Monitoring 148
Key Points 148
CFP Board Learning Objectives Covered in This Chapter 149
Part IV Client and Planner Attitudes, Values, and Biases 151
Chapter 13 Multicultural Competence in Financial Planning: Understanding Your Client’s Cultural Identity 153
The Multiculturally Competent Financial Planner 154
Self- Awareness Around Majority and Minority Status 155
Recognizing Majority Group Privilege and Minority Group Disadvantage 156
Cultural Humility 157
Ten Areas of Culture and Majority/Minority Status That Impact Financial Planning 158
Key Points 164
CFP Board Learning Objectives Covered in This Chapter 165
Chapter 14 Financial Risk Tolerance 167
Risk Tolerance 167
Emotions, FOMO, and Risk Tolerance 170
Development, History, and Family 171
Loss Aversion 171
Assessing a Client’s Risk Tolerance 172
Key Points 174
CFP Board Learning Objectives Covered in This Chapter 175
Chapter 15 Client-Preferred Learning Styles: Getting and Keeping Your Client’s Attention 177
What Is a Preferred Learning Style? 178
A Multifaceted Approach 182
Talk Less; Listen More 183
Key Points 183
CFP Board Learning Objectives Covered in This Chapter 183
Chapter 16 Client Values and Goals 185
Maslow’s Hierarchy of Needs 185
Three Universal Human Needs: Self-Determination Theory 186
Making Sense of Client Needs in Financial Planning 187
Human Needs and Self-Destructive Financial Behaviors 188
Responding Without Judgment 189
Does Your Client Believe That They Have the Ability to Reach Their Goals? 189
Financial Self-Efficacy 191
The Advisor and Client Financial Self-Efficacy 192
Nine Things Every Financial Planner Should Know About Goals 192
Key Points 194
CFP Board Learning Objectives Covered in This Chapter 194
Part V Integrating Financial Psychology into Financial Planning 195
Chapter 17 Getting the Client to Take Action: Motivational Interviewing in Financial Planning 197
The Change Process 198
Encountering Resistance to Change 204
Conversational Pitfalls to Avoid with Clients Who Are Not Ready to Change 205
Nine Evidence-Based Techniques for Overcoming Client Resistance to Financial Advice 207
Taking “No” for an Answer 212
Key Points 212
CFP Board Learning Objectives Covered in This Chapter 213
Chapter 18 Helping a Client in Crisis 215
Crisis Events with Severe Consequences 215
The Importance of the Client-Planner Relationship 217
The Financial Planner’s Role in Helping a Client Navigate Crisis 217
Six Steps for a Financial Planning Crisis Event 218
Before a Crisis 221
After a Crisis 222
Key Points 224
CFP Board Learning Objectives Covered in This Chapter 224
Chapter 19 Assessment in Financial Planning 225
Observations 226
Interviews 227
Key Points 230
CFP Board Learning Objectives Covered in This Chapter 230
Chapter 20 The Role of the Financial Planner: Ethical Considerations in the Psychology of Financial Planning 231
A Financial Planner Is Not a Mental Health Provider 232
Contents xiii
When and How to Refer 233
Ethical Considerations 234
The New Financial Planner 235
Key Points 237
References 239
Index 255
